Is There ROI in RFID?

Northeast Supply Chain Conference

OIs There ROI in RFID?

October 2006

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Page 1© 2008 Boston Strategies International, Inc.6/30/2008

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Summary

• Background on RFID• RFID in use for 65 years• Technology distinctions

M d t

• Projected improvements in ROI• ROI varies by application• ROI varies by environment

C t ill d• Mandates• Wal-Mart to date• Other RFID implications• Many application areas

• The RFID vision

• Costs will decrease• More ROIs will turn positive• Past the tipping point

• Implications for users and suppliers• Use RFID to enhance loyalty

• Changing the way we think• Case studies

• The ROI equation• Case studies• Inventory: high-value items

• Move incrementally• Scale flexibly• Resources and links

Inventory: high value items• Inventory: retail collaboration• Inventory: other applications• Transport equipment applications• Pick-to-light applications• Security applicationsSecurity applications• Process management applications• Challenges


Background on RFIDBackground on RFID


2006 Northeast Supply Chain Conference & Educational Exhibition

RFID In Use for 65 Years

• 1940s – Friend or foe• 1960s – Electronic Article Surveillance (EAS)

1970 A t t d t ll ll ti• 1970s – Automated toll collection• 1980s – Automatic Equipment Identification• 1990s – Keyless entry, 1990s – Speedpass™• 2000s – EPC Smart cards and more• 2000s – EPC, Smart cards, and more



Technology – Distinctions

• Active vs. passive• Sensors: Temperature, Light, Humidity, Pressure, Vibration, Sound,

Acceleration, Existence, Draw, Motion, Air Exchange, Explosives, Location, Radioactivity (1)

• Read vs. read-write• Finite vs. rechargeable battery• Continuous vs. intermittent transmission

Credit for this list to Adam Schlesinger MIT



Credit for this list to Adam Schlesinger, MIT

Mandates

• 1981: Military (LOGMARS barcode standard)• 2003: Consumer Goods (EPC standard)2003: Consumer Goods (EPC standard)

• Albertson’s• Best Buy• Coca-Cola• Department of Defense• Gillette• Target• Wal-Mart



Wal-Mart to Date

• Top 300 suppliers 600

• Some top Wal-Mart suppliers600

• 23,753+ tagged pallets• 663 912+ tagged cases

suppliers• P&G / Gillette• HP663,912+ tagged cases

• 5 million+ tag reads• > 90% cases on carts

• Johnson & Johnson• Kimberly-Clark• Kraft Foods

• 95% conveyors in DCs• 66% cases in pallets

• Kraft Foods• Nestle• Purina

• RFID data available to suppliers in 30 minutes

• Unilever



Other RFID Implementations

• Tesco• Marks & Spencer

• Shanghai Masters Cup• Marks & Spencer

• TNT Logistics• Port of Long Beach

Cup• UPS• Passports• Port of Long Beach

• Las Vegas airport• Hong Kong airport

Passports• Drivers licenses• HospitalsHong Kong airport

• San Francisco airport

osp ta s• Danish bus terminal• Automobilesp

• Purdue Pharma.• MasterCard

• Cellphones



Many Application Areas

Application Benefit Financial Metric

RFID Applications and Benefits

ppTrack Equipment Utilization ↑ ROA ↑Track Inventory Turns ↑ Working Capital ↑Deploy Labor Productivity ↑ Profits ↑Track Production Cycle time ↓ Revenues ↑Track Devices Availability ↑ Performance ↑Monitor Access Violations ↓ Claims/damages ↓Speed X-Actions Throughput ↑ Revenues ↑Inter-Operate Applications ↑ Revenues ↑



The RFID VisionThe RFID Vision



Changing the Way We Think

• Innovation from outside• Collaborative sellingCollaborative selling• Supply networks• Standardized subassemblies

“We’re moving towards a world where operations are network-centric. There used to be vertical silos, [but in the future we’ll]

have horizontal businesses that can integrate with each other.”have horizontal businesses that can integrate with each other.- Stephen Miles, MIT



Case StudiesCase Studies



The ROI Equation

• Fewer out-of-stocks • TagsPotential Benefits Potential Costs

• Labor savings• Less equipment

• Readers• Systems integration

• Inventory reduction• Increased revenues

• Power systems• Installation

What’s • Greater customer loyalty• Fewer claims and damages

Your Problem?Fewer claims and damages

• Synergies (pooled inventory, reduced congestion, etc.)



reduced congestion, etc.)

Inventory: Solid ROI for $ Items

• Orthopedic implants• Problem: Pipeline stock of high-value itemsp g• Solution and Cost: $260,000

• 250,000 items tagged @ 50 cents/tag• 7 tunnel readers @ $15,000• $60K software

B fi $2 0 000• Benefit: $250,000• 5% savings on $50M inventory @ 10%

20% less overtime counting returned items• 20% less overtime counting returned items• ROI: 101%



Inventory: Solid ROI for $ Items

• Hospital• Problem: Misplaced medical equipment inflates rentalProblem: Misplaced medical equipment inflates rental

costs.• Solution and Cost: $560,000

B fit $1 2 illi• Benefit: $1.2 million• 5% reduction in 5,400 30-day leases @ $4,500 each

• ROI: 107%



Inventory: Retail Collaboration

• Problem: Compliance • Problem: Out-of-Large CPG Company Large Retailer

Problem: Compliance• Solution Cost: 1.0x• Benefit: 0.08x

Problem: Out ofstocks

• Solution and Cost: • 10-20% labor savings at

DCsD d ti ?

8.2x• Benefit: 3.4x

• Deductions?• More promo sales due to

fewer out-of-stocks?

• 10-20% fewer out-of-stocks (stock-outs = 3-8% of sales)

• ROI: -7% to -5% beforedeductions, promos.

3 8% of sales)• ROI: 15% - 170%



Inventory: Other Applications• Document management

• Problem: Lost documents / no audit trail • Solution: Dual mode RFID chip long battery• Solution: Dual-mode RFID chip, long battery.

• Perishable logistics• Problem: Substandard product rejected• Solution: RFID bins to monitor task times• Solution: RFID bins to monitor task times

• Promotion management• Problem: Time sensitivity leads to stock-outs

S l ti E t t i RFID• Solution: Event management using RFID



Transport Equipment Applications

• Success in closed loops• Car dealerships• Bus terminals

• Challenges in ocean shipping• Slow rotation of ocean containers limits asset reduction• Shipper unwilling to pay for carrier efficiencies• Tracking trail lost outside of port• Limited battery life



Pick-to-Light Applications• Distribution center operations• Problem: Looking for more efficiency

$• Solution and Cost: $15K• 700 SKUs/Bins @ $20/tag• 1 reader @ $1,400

• Benefit: • 0.1 FTE savings @ $30,000• Reduced picking errors

• ROI: driven by cost of picking errors



Security Applications

• Problem: Liability of stolen laptops and data• Solution and Cost: $11KSolution and Cost: $11K

• 10 tags @ $32 + 2 readers @ $800

• Benefit:• Reduction in risk of lossReduction in risk of loss

• ROI: driven by loss costs



Process Management Applications

• Caterpillar• Reduction in rework and assembly errorsy

• Harley-Davidson• RFID process control on transmission, engine, and final assembly lines

• VolkswagenVolkswagen• RFID tag on assembly line identifies bottlenecks

• Implants for research and control



Challenges

• Competition with barcodes• Unequal distribution of benefitsUnequal distribution of benefits• Imperfect read rates• Privacy concerns• Systems integration cost• Concerns over sharing data• Difficulty of quantifying “soft” benefitsDifficulty of quantifying soft benefits• Interference



Projected Improvements in ROIProjected Improvements in ROI



ROI Varies by Application25%+

20%

10%

5%

0%

-5%5%

-10%

-20%

-25%+-25%+

20082010

LEGEND

2006



Convenience Equipment Inventory Labor Emergency

ROI Varies by Environment

• Low-value vs. high-value product• Open vs. closed loop systemOpen vs. closed loop system• Legacy systems vs. ERP• Many vs. few gates



Costs Will Decrease

• Tag costs decreasing• Scale economies from worldwide standard• Fewer variations (Gen2)

• Reader costs decreasing• New suppliers, capacity• Learning curve

• Software costs decreasing• More suppliers, competitionpp , p• Modularity, interoperability



More ROIs Will Turn Positive

-10% -5% 0% 5% 10%

ROI

$0.00

$0.05

$0

$1,000

$0.10

$

$/Tag (Passive)

$2,000

$3,000 $/Reader$0.15

$0.20

$4,000

$5,000

$0.25 $6,000

Tags Readers



Past the Tipping Point

• New mandaters, compliance assumed• New opportunities driven by lower costsNew opportunities driven by lower costs

6RFID Market Size

4

5

Billi fConsumer convenience

2

3Billions of

Dollars of Sales

Track emergency resourcesTrack inventoryTrack equipment

0

1

2006 2007 2008 2009 2010



2006 2007 2008 2009 2010Source: Boston Logistics Group, Inc.

Implications for Users and SuppliersImplications for Users and Suppliers



Use RFID to Enhance Loyalty

• Target specific benefits• Establish specific improvement objectivesEstablish specific improvement objectives• Look for RFID to drive top-line benefit



Move Incrementally

• Start small to establish accurate cost and ROI bases• Invest in educationInvest in education• Anticipate evolution of standards



Scale Flexibly

• Integrate with ERP• Expect changes in the technologyExpect changes in the technology• Align security and privacy policies



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Is There ROI in RFID?