Build your own ROI model

"Some level manufacturers are going to have to implement RFID because they'll be required to do so by customer mandates. But instead of thinking of that as a cost, think about what the technology could do for your company. RFID will save you a lot of money." So says Salil Pradhan, chief technologist for RFID at Hewlett Packard's Labs. "The best advice is get started, do some 'what ifs' and experiment with your own company and build your own ROI [return on investment] model." He speaks with considerable knowledge. Over the last year, HP has been running tests and full-scale RFID pilots at around 30 of its manufacturing and distribution sites world-wide. In the US, for example, it's implemented RFID on four plants at two sites, Chester, Virginia and Memphis, Tennessee. The Chester site makes HP's inkjet printer cartridges, applying tags at the carton level, while Memphis makes its PhotoSmart printers and the Scanjet scanners, tagging right on the item packaging as well as the pallet. Looking at the cost/benefit experiences, there are many, but two key observations. Pradhan: "Our big benefits have come as a result of improving our processes, enabled by RFID – that's what's increasing velocity through our massive end-to-end supply chain." And, "You can do 'slap and stick' – applying RFID tags in outbound logistics – and that's the quickest way to compliance, but you won't get the data or the benefits." How does RFID help? "Look at your existing systems," advises Pradhan. "There will already be some tracking using barcodes at the inbound logistics and in distribution. But there are two main limitations. One is at the aggregate level, where you barcode scan the pallet but there's no way of knowing or checking its inventory of goods. With RFID, everything is serialised and identified at the unit level, so you get accurate data. "The second is that getting benefit is not just about identifying materials, but doing something with the data. Barcoding to the unit level is very labour- and time-intensive so you don't do it, but with RFID it's automatic. That's how you start increasing velocity through the supply chain." Looking at production, Pradhan speaks of quality improvements because of faster, more accurate feedback mechanisms. "You've likely already got some serialisation, but that information won't be managed end-to-end because it's too labour-intensive. So identity is eventually lost. But with RFID, it's maintained so you can get data on failures and returns down to which machine, which shift and so on." And there's more: "Information becomes available throughout the organisation," he says. It can be driven back into engineering design for product improvement and maintenance management, providing unique build data. HP's experience is one of RFID streamlining the business in a way that just wasn't feasible. Pradhan also alludes to the potential for improvements in end-to-end cycle times of production for customer demand, as reliable information-sharing enables better forecasting and materials and resource requisition. It's a virtuous circle, enabling agile JIT (just in time). "In the end, RFID results in an entire infrastructure that's aware of its own physical environment," he observes. He gives an example of building pallets of cases of goods and creating a corresponding database. "In one pilot, we got that down from 90 seconds to just 11… Longer term, there will be other benefits, like reduced shrinkage." How do you get started? Pradhan suggests looking through your organisation to identify the potential for improvements, efficiencies and cost reductions. He mentions other benefits seen by HP, like faster and more accurate put-aways and goods receiving processes, and improvements in warranty validation and quality management. "What you should do depends on what you see. Part of what HP offers is an RFID discovery service based on our own experience." As for caveats, he warns: "Don't assume you can just plug RFID into your warehouse and it works. You need to work with several vendors and remember that all environments are different – which is another reason to start trials quickly. "You also need to worry about the IT architecture: avoid building silos of information – your RFID initiative should be integrated. Ultimately, to get the benefits you need to be able to use the information right through your production and supply chain. For example, if QA detects a problem, you need to be able to back flush immediately and have a PLC take action and direct machine analysis."