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  1. 1. RFID’s Reality – Finding The Payoff In Technology Industry Week Webcast December 13, 2006
  2. 2. <ul><li>RFID Technology And Compliance Overview </li></ul><ul><li>Supporting Data From Benchmarking And Best Practices Consortium </li></ul>Presentation Outline
  3. 3. “ RFID technology allows people to design business processes that make the best use of timely and actionable data.” Retail: What do I have in stock and how quickly do I need to re-order? Supply-Chain: Where are my orders and when will they arrive? Pharmaceutical: Is the chain of custody secure? The Most Important Thing To Know About RFID
  4. 4. Radio Frequency Identification (RFID) An automatic identification technology that relies on radio waves to encode and decode information on a microchip or other storage device. RFID allows computer systems to capture data stored on a special tag without direct contact or line of sight acquisition A Basic Definition
  5. 5. <ul><li>Established technology used for access/security control, toll collection, asset tracking, and manufacturing control </li></ul><ul><li>Has been niche play in supply chain world due to costs, performance and lack of standards </li></ul><ul><li>Auto-ID center founded in 1999 to develop standards and promote technology development. Partnership of academia, retailers, consumer product firms, and hardware/software vendors. Efforts transitioned to EPCglobal in 2003 </li></ul><ul><li>Supply chain interest explodes with launch of Wal-Mart, DoD, and others compliance initiatives </li></ul><ul><li>The key to low-cost tags is to limit the amount of data on the tag, thus pushing the processing burden onto back-end IT systems </li></ul>Background
  6. 6. <ul><li>Power Source – Active (battery), Passive (powered by reader), semi-passive (signal boosted by battery) </li></ul><ul><li>Frequency – Passive Tags: Low (LF) – 125KHz, High (HF) – 13.56MHz, Ultra-High (UHF) 868-915 MHz, Microwave 2.45 or 5.8 GHz </li></ul><ul><li>Storage Method – Read Only, Read/Write, Write Once/Read Many (Worm) </li></ul><ul><li>Auxiliary Capabilities – microprocessors and sensors for temperature monitoring, condition monitoring… </li></ul>Tags
  7. 7. Graphics Source: Baudin & Rao RFID creates a data avalanche. This requires a significant upgrade of IT assets to process and share this information. RFID Software
  8. 8. <ul><li>Retail </li></ul><ul><ul><li>The big push for RFID is lead by Wal-Mart. Wal-Mart’s objective is to reduce out-of-stocks (and thus reduce lost sales) by better control of back-room and point-of-sale inventory. </li></ul></ul><ul><ul><li>“ The last information-mile of the supply chain.” Companies have excellent control of inventory in their warehouses, and most have excellent control of major-route shipping / transit information. Information visibility and accuracy degrades sharply at the local store and local delivery level. RFID technology is meant to improve this visibility and control. </li></ul></ul><ul><ul><li>Current standard is EPC Global Gen 2 Class 1 for UHF tags </li></ul></ul>Applications By Industry
  9. 9. <ul><li>DOD </li></ul><ul><ul><li>DoD’s objectives are similar to Wal-Mart’s. They want positive control of inventory and shipments to both the depot and the theater. </li></ul></ul><ul><li>Supply-Chain </li></ul><ul><ul><li>Companies already use barcodes and ASNs to pass information up and down the supply chain. </li></ul></ul><ul><ul><li>RFID offers much greater data density and product granularity (down to the serial number if necessary) to help tie together manufacturers, distributors, and retailers. </li></ul></ul><ul><ul><li>Immediacy of point-of-sale data can be tied to demand planning to allow better adjustment of supply and demand </li></ul></ul>Applications By Industry (Continued)
  10. 10. <ul><li>Pharmaceutical </li></ul><ul><ul><li>E-pedigree (secure chain-of-custody information for drugs) established by FDA Prescription Drug Marketing Act (PDMA) of 1987 and explained / expanded in February, 2004 FDA publication </li></ul></ul><ul><ul><li>Initiatives to date have tried to build on retail RFID efforts, particularly EPC standards. </li></ul></ul><ul><ul><li>Technology issues are still not settled. EPC Gen 2 Class 1 UHF tags have performed poorly with some pharmaceutical pilot programs, opening the door to new pilot programs using proprietary HF tags. </li></ul></ul><ul><ul><li>The pharmaceutical companies are not even at the “VHS versus Betamax” stage yet </li></ul></ul><ul><ul><li>FDA compliance target of 2007 is in jeopardy </li></ul></ul>Applications By Industry (Continued)
  11. 11. Industry’s Outlook on RFID
  12. 12. RFID In Supply Chain
  13. 13. <ul><li>Post-pick processing (Slap and Ship) – naked tag or shipping label w/ embedded tag applied and encoded on dock or at pack station </li></ul><ul><ul><li>Specialty solution providers </li></ul></ul><ul><ul><li>RFID middleware providers </li></ul></ul><ul><ul><li>SCE vendors </li></ul></ul><ul><li>WMS-Enabled – shipping label with embedded tag printed/encoded at wave, pick or pack </li></ul><ul><ul><li>SCE vendors utilizing own middleware </li></ul></ul><ul><ul><li>WMS vendors utilizing 3 rd party middleware </li></ul></ul><ul><li>Custom in-line application (highly automated) </li></ul>Compliance Solution Approaches
  14. 14. <ul><li>Sweet spot is high-value, serialized or regulated/lot controlled items </li></ul><ul><li>Ability to serialize objects and passively capture reads distinguishes RFID over linear barcodes </li></ul><ul><li>Compliance initiatives are looking beyond DC cases/pallets </li></ul><ul><li>Any gains realized through RFID will probably require significant changes in operational flow and execution software </li></ul><ul><li>Efficiency gains must account for exception processing </li></ul><ul><li>Expectations must be managed </li></ul><ul><li>Technology will improve over time </li></ul><ul><li>Compliance will be the near-term focus </li></ul><ul><li>Technology will never be able to guarantee 100% reliability – business processes must account for exceptions </li></ul>RFID in DC Considerations
  15. 15. <ul><li>Improved Efficiency </li></ul><ul><ul><li>Scan-free reduces labor costs and improves throughput </li></ul></ul><ul><li>Increased Accuracy </li></ul><ul><ul><li>Product tracking not dependent on human initiation </li></ul></ul><ul><li>Reduced Inventory </li></ul><ul><ul><li>Increased accuracy and information timeliness supports leaner </li></ul></ul><ul><ul><li>operations </li></ul></ul><ul><li>Improved Visibility </li></ul><ul><ul><li>Ability to track and report serialized entity movement throughout </li></ul></ul><ul><ul><li>Supply Chain </li></ul></ul><ul><li>Enhanced Security </li></ul><ul><ul><li>Improved theft control and product authentication </li></ul></ul>RFID Benefits
  16. 16. <ul><li>Performance – Impact of material, packaging & interference </li></ul><ul><li>Cost – Tags, hardware, software and integration </li></ul><ul><li>Evolutionary Pace – Emerging standards & technology changes </li></ul><ul><li>Redesigning Processes – Full benefits won’t come w/o business changes </li></ul><ul><li>Integration – Not a ‘plug-and-play’ proposition </li></ul>Challenges
  17. 17. <ul><li>Let IT lead the project </li></ul><ul><ul><li>RFID is about team-based business processes </li></ul></ul><ul><li>Assume small or non-existent ROI is covered by existing mandate costs </li></ul><ul><ul><li>ROI for RFID can be elusive. Let the process improvement drive the justification for RFID (or not) </li></ul></ul><ul><li>Build “Islands of Automation” </li></ul><ul><ul><li>Design ways to exploit the data throughout your manufacturing and supply system </li></ul></ul>RFID Project Implementation Mistakes
  18. 18. Retail: End-users such as Wal-Mart are projecting a 10% - 30% reduction in out-of-stocks due to implementing RFID technology. Positive ROI! Supply Chain: EPC Global Gen 2 tags cost 11 – 27 cents each depending upon volume. This cost, plus the considerable cost of information systems and hardware, is not passed to Wal-Mart or others --- it is a pure compliance cost of a mandate. ROI is typically not possible. Exception: for a company with poor existing supply-chain control, the requirement to implement RFID may create positive ROI by implementing improvements that the company should have already performed using barcodes. RFID Economics
  19. 19. DoD: Most RFID applications use active tags attached to shipping containers. The DoD calculates success in terms of mission readiness, not ROI. The DoD’s use of RFID for container tracking is so successful that they recently issued a $75M contract to Savi for active tags, prompting Lockheed Martin to purchase Savi in July 2006. Pharmaceutical: RFID costs track similarly to Supply-Chain costs. ROI is currently negative; however, the possibility of reducing eliminating pirated / counterfeit product promises significant ROI in the near future. RFID Economics (Continued)
  20. 20. <ul><li>Build an RFID knowledge base </li></ul><ul><li>Maintain a strategic outlook </li></ul><ul><li>Understand that RFID is not another form of bar coding </li></ul><ul><li>Recognize that bar codes and RFID will coexist </li></ul><ul><li>Make the proper investment in the design process </li></ul><ul><li>Have realistic expectations </li></ul><ul><li>Look toward tomorrow </li></ul><ul><li>Be prepared for the data deluge </li></ul>Moving Ahead
  21. 21. Supporting Data <ul><li>How are we doing in comparison to our peers – below average, average, above average, exceptional? </li></ul><ul><li>Are our costs reasonable and in line with other operations like ours? </li></ul><ul><li>Are there any major gaps in our strategy that will leave us at a competitive disadvantage? </li></ul><ul><li>Are we missing breakthrough opportunities? </li></ul><ul><li>How can we demonstrate that we are doing a good job in many areas? </li></ul><ul><li>How can we build consensus around initiatives that we feel certain are correct? </li></ul>The benchmarking and best practices process is designed to answer questions like …
  22. 22. Advisory Boards <ul><li>Guidance in selecting and prioritizing the subjects to be covered in the review </li></ul><ul><li>Guidance in developing question content </li></ul><ul><li>Assistance in expanding the number of consortium members </li></ul>The process is lead by two Advisory Boards, one for retail and one for consumer products. They provide:
  23. 23. The Supply Chain Best Practices Review includes data from over 100 companies with over $1 trillion in revenue. Supply Chain Best Practices Consortium
  24. 24. Supply Chain Technology and RFID <ul><li>Do you have the technology infrastructure in place to efficiently manage your supply chain? </li></ul><ul><li>Are you fully utilizing the technology you have now? Largest gap? </li></ul><ul><li>What do you see as your top technology priority? </li></ul>Foundation questions for the supply chain technology discussion …
  25. 25. Enterprise Level Systems Usage Use of Supply Chain Applications RFID Information Systems Fall Into All Categories Except Transportation Mgmt. Biggest Category is WMS.
  26. 26. RFID Usage Data Justification for RF ID Tags
  27. 27. RFID – Where will tags be read?
  28. 28. Technology Investment Priorities
  29. 29. Technology Investment Criteria Return on investment does not lead the list for evaluating technology investments.
  30. 30. Technology Investment Returns While financial returns are not the most important investment criteria, what returns are being estimated or achieved?
  31. 31. RFID Technology Adoption Percentage <ul><li>Respondents Using RFID Technology (Any Type) : 22% </li></ul><ul><li>Respondents With RFID-Enabled WMS: 14% (With 1 in 3 Actually Using The Feature) </li></ul>
  32. 32. RFID Technology ROI Findings <ul><li>Positive or Negative ROI? </li></ul><ul><li>Average Rollout Costs (Anecdotal – Not B&BP) Of Equipment And Software </li></ul>
  33. 33. Supply Chain RFID Technology – Findings <ul><li>Adoption of RFID technology is still driven primarily by compliance mandates. </li></ul><ul><li>ROI is elusive. Where positive ROI is found, the root cause of the positive ROI is an improved business process. RFID was the motivation behind the project, but not the key enabling technology – the improved process would have shown as much or more ROI if barcodes had been used. </li></ul><ul><li>Integration is often an issue -- between applications and between supply chain segments (e.g. international supply chain and distribution centers to stores). Adoption of RFID-enabled WMS is still slow. </li></ul><ul><li>RFID “feels” like the right thing to do, but most implementations are still in the future. Bar coding is the entrenched solution. </li></ul>
  34. 34. Questions?