RFID Strategy -- Moving Closer To Prime Time

Less expensive RFID tags are on the horizon.

Over the past two years, the RFID agenda has been driven by retail and Department of Defense (DoD) compliance mandates. Many companies established simple "slap and ship" RFID labeling operations to comply with the mandates. Cost constraints limited RFID tagging to the bare minimum necessary to achieve compliance. We all heard projections that tags would cost a nickel or less each, but the reality was that the fully loaded cost of tags exceeded 50 cents each as recently as a year ago.

The industry milestone of a 5-cent tag may soon be reached, however. TAGSYS has announced Gen 2 tags costing from 5 to 8 cents each that will be available in volume in the second half of 2006. Tags at this price point will change the way companies look at RFID on both a psychological and practical level. Psychologically, a 5-cent tag signals that the technology is ready for prime time. The practical consideration is that it may now make sense to build RFID tagging into production and distribution processes, so that every case is tagged instead of just the subset of cases headed to compliance-mandated customers.

Advantages Of Building Tagging Into Material Handling Process

In the case of a basic slap-and-ship RFID implementation, the equipment and tag costs are initially low because the volume of compliance-mandated shipments is typically a small part of total production. Companies chose slap-n-ship to quickly move a small part of their total production volume to RFID compliance. On a per-case (or "each") basis, a slap-and-ship RFID compliance program is labor intensive and provides no additional benefit to the company doing the shipping -- the advantage accrues only to the customer who created the mandate in the first place. Such an operation will always remain just a cost to operations, and this cost will rise as the volume of products affected by RFID compliance rises. At a certain point, the labor involved in sorting, printing, applying, and verifying labels by hand exceeds the cost of simply tagging every case via automatic machinery. For your operation, this per-label cost is probably close to the cost of a barcode label, but the 5-cent-a-label RFID benchmark should spur some serious thinking on this subject.

For a manufacturing operation, the obvious point to incorporate automatic RFID label application is in the case-packing operation. For a typical distribution center (DC), there are three areas that support RFID labeling: picking; packing; and shipping. One or more of these areas will make the most sense for your particular business from a labor-savings or automation standpoint. For example, in many DC's the picking process starts with the application of a license plate barcode to an empty carton. This would be a good area to apply an RFID label embedded in the carton license plate. In other DC's, the customer shipping label is applied at the packing area via semi-automated taping and labeling equipment. This is another logical area to combine an existing label with an embedded RFID label. In each area, the RFID label application would involve no additional labor over the current state (with encoding assumed to be done by the label printer).

The choice of where to automate RFID tag application does much to minimize labor cost, but it does not yet address the problem of providing a positive benefit (or even a positive return on investment) to the company doing the labeling. Here is where information systems can help. Companies that have older material handling systems frequently face real costs due to mis-sorts, delivery inaccuracies and shrinkage. If RFID tags are applied close to the beginning of the material handling process, then data collection points (RFID readers) can be strategically placed at critical points in the company's internal logistics process. The data collected from these RFID verification points can be used to identify and correct system problems and reduce the cost of mis-sorts, delivery inaccuracy and shrinkage. I have seen cases where a simple improvement to barcode accuracy has saved a retail company a million dollars a year in mis-shipped products. There is no reason why the proper use of RFID data could not do likewise! The key is to routinely apply the RFID label to a case so that all product flow can be measured within the system.

Conclusion

The evolving state of the RFID hardware industry is rapidly changing the economics of choosing one RFID compliance path over another. It is time to check old assumptions about RFID against the potential benefits of more ubiquitous tag use.

Paul Faber is a principal with Raleigh, N.C.-based Tompkins Associates, a supply-chain-solutions consulting firm. As the chief manager of RFID equipment implementation at Tompkins Emerging Technology Center, Paul possesses extensive experience in material handling solutions, systems integration, and installation. He has managed field integration and operations activities at material handling sites around the world.


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