Launching an RFID Pilot that Flies

Amid all the controversy surrounding RFID technology and its deployment, a significant number of businesses remain determined to move forward, often in the face of limited data and documented financial results. An equal or greater number are still not sure enough of the possible results and continue to wait for further developments. Still others remain opposed to adopting the technology.

To validate the potential advantages of an RFID deployment, a number of pilot projects are underway in a variety of industries.

From tests by automotive firms and brewers to consumer products, health care, logistics providers, manufacturers, and retailers, companies are attempting to come to grips with RFID’s promises and problems, and to integrate RFID into a comprehensive supply chain strategy and business plan.

What these pilot efforts prove is that using radio waves to track products and provide visibility and real-time access to status and location presents another means to make supply chains more effective.

So, how can a firm decide on its course of action? The only way to verify what can or cannot happen with RFID is accomplished through a carefully designed and controlled experiment that identifies actual operating conditions and documents RFID’s costs and benefits.

Asset management pilots are one type of exercise used to determine what can be accomplished with RFID. One pilot tracked heavy rolls of paper that can lose their bar-code information when stored under humid conditions. Another covered heating, ventilating, and air-conditioning dampers that are installed with bar codes facing a concrete structure, rendering them unreadable or unreachable for maintenance tracking.

Pilots are also underway to determine the value in tracking livestock; contents of a ship’s cargo, railroad box cars, and ore cars; and products moving in and delivered by trucks.

Still other tests are determining RFID’s viability to assist with airline baggage handling, to prevent automobile theft, to deal with illegal entries into a country or manufacturing site, and to improve maintenance of important operating equipment.

FedEx is testing RFID wristbands, for example, that can be used instead of keys to unlock doors on delivery trucks. FedEx estimates the loss of keys by drivers costs an average of $200 or more per incident.

Pilot Essentials

Three types of pilots are used to validate the implementation of RFID technology. Regardless of which pilot approach you choose, however, several fundamental themes flow throughout all successful experiments. Ensuring that these themes, or objectives, are being addressed and managed as part of a firm’s pilot work will help to achieve a successful pilot.

Be sure to:

Choose a strong project manager. Put someone in charge with good project management skills, training in RFID technology, and at a senior enough level in the organization to marshal necessary resources and support.

Enlist cross-functional support. It is critical to have the involvement and support of a well-staffed cross-functional project team. Team member representation should be from IT, supply chain, operations, manufacturing, marketing, packaging, finance, loss prevention, and distribution. Team members should expect to spend from 25 to 50 percent of their time during the course of the project.

Aim for short timeline duration. RFID pilots should be broken up into milestones that take no longer than three months to complete. This requirement is necessary in order to quickly assess progress, adjust the overall strategy, and test new or alternative scenarios. This will take a fair amount of planning and coordination on the part of the project manager.

Gain senior-level executive support. Align with an executive sponsor with strong organizational influence to help the project team negotiate various organizational challenges that will be faced. This sponsor must be able to see and communicate strategic issues that the company will be addressing through the use of RFID.

Set clear project goals and communication. The team must provide updates on objectives, milestones, next steps, and lessons learned throughout the duration of the project. These updates can be sent via e-mail, posted on the company’s intranet, or given during scheduled staff meetings.

Three Levels of Pilots

Three levels of pilot tests are recommended by Computer Sciences Corporation, a leading developer of pilot options to assist companies in understanding the advantages, disadvantages, problems, and pitfalls with RFID applications: compliance only, compliance with internal benefits, and joint venture pilots.

Here’s a closer look at each pilot:

1. Compliance only. These pilots tag at shipping (also known as “slap and ship”) and provide data in the defined Electronic Product Code (EPC) form.

A compliance-only pilot is an exception-based process: tagging only those goods shipped to specific customers based on RFID mandates. Although this type of implementation returns no financial benefit to the company, it does limit financial and technology risk, as well as serve to demonstrate the firm’s ability, or lack thereof, to comply with a critically important customer.

It also provides the foundation for future use and application of RFID technology under conditions that will benefit the company. Implementation can be relatively simple and low-cost—less than $150,000—and accomplished quickly when working with one vendor.

2. Compliance with internal benefit. This approach involves a broader examination of all supply chain operations and performance to seek out any and all areas for RFID-enabled improvements.

This approach aims to tag earlier within internal operations to provide benefit from improved product information, provided by raw material and finished goods visibility. Compliance is the launching point, and this option provides the ability to demonstrate how a company can leverage the technology to achieve internal benefits as well as critical compliance.

A detailed RFID blueprint and strategy must be developed to outline how the phases of RFID deployment should occur. Coordination between anticipated customer mandates, generation of internal benefits, and projection of external developments—such as tag cost projections—must be developed and used as base assumptions when developing the RFID strategy.

The pilot will require complex systems modifications and working out the necessary interfaces. Depending on the degree of needed integration, RFID middleware may be used as a separate system or existing systems may have a bolt-on RFID application to manage the data generated by RFID. The pilot will also show the required changes to existing internal processes to reap the greatest improvement from any serious effort.

Typically, this approach requires an initial “proof-of-concept” to test the hypothesis in a limited scope to manage risk. Lessons learned from the proof-of-concept are then incorporated into a revised pilot plan that may encompass several phased pilots.

Due to the extensive nature of implementation and integration with this approach—in terms of quantity of product tagged, reader infrastructure, systems integration, etc.—these pilots require longer planning and design phases.

3. Joint venture. These pilots tag at a supplier and track product from suppliers through manufacturing process to customer delivery.

This is the most complex but often most fruitful pilot. It will illustrate more of the issues surrounding development of RFID technology. A joint venture effort demands application of mutual resources and assets, and generally leads to the development of larger business benefits.

By its nature, multiple parties must commit resources to the effort and share in the risks and costs. Although these types of pilots are rare at this point, more companies will undertake this approach to share benefits, risks, and information in a collaborative fashion. This type of pilot has been used in large multi-divisional corporations, many of which are global defense suppliers.

In these situations, companies are aware that solutions, vendor relations, and strategies are developed independently, without coordination across business units, posing a greater risk and higher expense. A coordinated, corporate-led RFID project team composed of members from various business units can leverage knowledge, experience, and expenses across the business during these pilots.

Constructing the Pilot

The first step in creating any pilot is to have a reason, one that is explained in clear business-based language. At the very least, companies should have an RFID-related revenue opportunity, either through sustaining existing business or generating new sales.

An RFID implementation can run from $300,000 to several million dollars, depending on the size and existing technical infrastructure of the companies involved in the project.

Beginning with the compliance-only pilot, the firm selects products or categories of products that are RFID-mandated by a large customer. If constructed correctly to minimize cost and risk, these pilots generally focus on low-volume, high-priced items with in-transit visibility benefits.

Selecting environmental and product characteristics that perform best with current off-the-shelf RFID technology is also advisable. Pilots conducted during the past several years have shown that no one tag performs best across all types of product packaging, and that certain manufacturers are developing niche expertise with particular tags for use on different materials.

Tags and Tag Placement Options

Companies should select several vendors’ tags to evaluate. This can be performed either internally or by contracting with any of the RFID testing labs that are beginning to appear. Read performance tests will support the appropriate selection of tags, as well as determine the optimum placement of the tag on the case and pallet configuration.

This information is then used to begin the construction of appropriate read point portals. These portals can be placed at the dock door, packing lines, and palletizing areas. Portals consist of a reader and at least one antenna oriented to capture the highest number of reads.

Physical, on-site testing is required to determine the optimal location and configuration of the portal. The selection of the tag normally will drive which RFID label printer to purchase to support this limited installation. Software to assign the EPC and number and capture, and associate the information with current product files must also be purchased, installed, and integrated, based on project requirements.

As this approach is an exception-based process, the procedure typically begins by taking products in the designated categories out of the normal pack-and-ship processing. Depending on the current manufacturing and distribution processes, this may involve a degree of repacking in order to tag each case and then apply a new pallet tag and label.

Tag reads will have to be performed at the case and pallet level to ensure that the product shipped meets customer requirements. This step also provides a degree of quality assurance in the event the customer notices a decrease in reads upon receipt. The supplier will have documentation that good reads were received when shipped.

The standard transaction data should be sent to the appropriate parties and the information kept available for customer maintenance and forms to be determined during the pilot. An estimated budget should be prepared and compared with actual costs after the pilot is completed. Costs should be estimated on a per-shipment-point basis, with an approximation of the one-time cost for the initial solution.

Labor will depend on local rates, but should be calculated for about 30 seconds per box. The tag cost will depend on actual purchase agreements, but will vary from about 21 cents to 45 cents per RFID label based on type and volume.

The scenario changes slightly for a pilot involving compliance with internal benefit. This type of pilot usually begins with an assessment of current supply chain operations and an understanding of performance metrics.

Next is an explanation of the vision of new or revised processes enabled through RFID. This step provides a gap analysis and begins the roadmap for RFID piloting, deployment, and business case development.

The first point of application is dependent on identifying the business value, that is, determining what the company is trying to fix or improve. Product selection criteria in this type of pilot focuses on items with high operational costs as a result of stock rotation issues, problems with shrink or theft, critical shortages in supply at the point of need, or lack of visibility in the current supply chain process.

Items that potentially cross multiple company divisions or business units, or items that are sent out for subassembly, repackaging, or sterilization become candidates.

The process involves tagging products within the company’s normal procedures. The idea is to leverage RFID and its improved visibility to create benefits to current operations. Solutions should also have a direct bearing on meeting key customer compliance requirements.

In fact, many of the first tag selection and portal construction activities are identical to the compliance-only approach. The pilot should demonstrate both the RFID technology issues as well as the ability to establish internal benefits from improved visibility.

Costs for the budget are estimated on a single product per solution basis, with an approximation of the one-time cost for the initial solution. Labor is again estimated based on local conditions, but should be expected to turn into a net savings. Tag cost will again vary between 21 cents and 45 cents.

In a joint venture pilot for a hypothetical supplier to the U.S. Department of Defense (DoD), the first point of application is dependent on identifying business values across a supply chain network.

Here, product selection criteria should be a collaborative effort and cover items that require significant operational effort based on current lack of exchanged data. Critical components for military compliance, for example, should be part of the discussion, so questions around lifecycles, software upgrades, expiration dates, and short supply are answered.

This discussion should also include how to accomplish the exchange of unique identification (UID) data, and what benefits will accrue from sharing this information on a real-time basis. Also, the scope of the solution should be broadened to allow for active RFID technology that can be applied on reusable plastic containers that might move in a closed loop between supplier and customer.

The process starts with tags applied at the supplier level that will benefit supplier and buyer, with improved visibility of raw materials as well as receipt operations. Throughout this test, efforts should be made to determine how to use RFID for internal improvement opportunities for both parties.

In the military example, providing compliance to DoD can be combined with eliciting some form of lifecycle management test to demonstrate improved real-time visibility to asset deployment versus having extra safety stocks.

Due to the typically high value of certain military assets, there is a significant opportunity to use remote sensor-based networks that would not only monitor inventory levels but also monitor environmental and security conditions. Costs for the budget are estimated on a single product and solution basis and the approximate one-time cost for the initial solution.

Here the cost is dependent on the extent of the supply chain being tracked, and the number of reader location requirements. For companies that are complying with the DoD’s UID/RFID mandate, accurately capturing expenses involved in compliance is critical, as there is the opportunity to include these costs as part of the normal administrative overhead calculation allowed as part of government contracts.

Keys to Deploying RFID Successfully

There are a number of important factors in conducting a successful RFID pilot.

First, the participants should find a source for practical and impartial advice on auto-ID, automatic identification technology (AIT), and RFID technology. With this help, the appropriate people in the pilot should be educated and aligned around a mutual understanding of RFID technology and how it can be used to develop and leverage network communications within the firm’s unique supply chain environment.

The hardware to be used, the supporting software, and the potential suppliers of the components should be discussed and evaluated and facts sorted from fiction, so careful selections are made. The pilot will prove or disprove the validity of the effort, but poor up-front selection can kill a well-intentioned test.

The parties involved in the pilot should establish a business process, complete with process map, describing what is targeted for improvement, so a focused strategy can be evolved after the pilot.

Of critical importance is the need to develop a return-on-investment analysis to support whatever business plan is created.

The focus should be on the fundamental impacts from EPC and RFID, established through a careful evaluation of the issues, problems, and opportunities to be dealt with by integrating AIT and RFID data into existing enterprise resource planning systems. Identifying where to start should not be a trivial matter, but rather the subject of serious discussion.

A checklist is also beneficial and should include these action items:

• Create a sound tactical plan, which can be modified as the test evolves.
• Understand the physics of the planned system and the appropriate use of the technology.
• Have enough knowledge of the physics and technology to easily sort through the myth and hype circling around RFID.
• Have an appreciation of how RFID complements other auto-ID technologies as well as what new technologies are on the horizon.
• Have a business purpose for the pilot with baseline conditions and revenue, cost, and benefit impacts. Be prepared and able to articulate this purpose in terms of strategic direction and tactical issues.
• Select the most appropriate products and categories for the initial test, so results have pertinence across the organization.
• Identify those within the firm most capable of participating in a complex and possibly extended evaluation process.
• Prepare a preliminary budget to cover expected costs and carefully document each step in the pilot.
• Evaluate the firm’s infrastructure to determine where new responsibilities must be created and where shifts in responsibilities might occur.
• Evaluate the firm’s system architecture. Determine if it is capable of handling the large data loads that RFID creates.
• Evaluate whether the firm’s current suppliers of auto-ID technology can support RFID initiatives.
• Establish a plan for accepting or rejecting the technology based on the results of the pilot tests.
• Compare results against the growing number of pilots being conducted by competitors and those in other industries.
• Prepare the organization for further tests and initial implementations.
• Be prepared to answer the CEO’s question: “How will RFID improve shareholder value?”

Other Issues to Consider

Entering the RFID world can be accompanied by much apprehension, as there are still many unanswered questions and concerns. For those willing to go forward, the best advice is to approach the first test or pilot as an effort to accept a new and innovative technology.

Consider the effort as something that is not about the details of the emerging technology, but about accepting a vision or a projection of what can be an improved future state of processing. Through the experimenting and testing that will occur during the pilot, participants will gain the knowledge needed to exploit this exciting new innovation.

Understand further that RFID technology is an enabler and the foundation for gaining visibility and information about what is occurring across an end-to-end supply chain in real time.

Approach the pilot as a means of finding out where there are major gaps in supply chain processing and weaknesses such as shrinkage and excess inventory. The technology then becomes the means to reduce or eliminate those gaps and bring remedies to the weaknesses.

As the pilot evolves, be certain to identify all the opportunities that can be affected by RFID. Take time to answer the following questions:

• What are the business objectives we are trying to accomplish?
• What further information and knowledge will better enable us to reach these objectives?
• What are the risks associated with our effort?
• Which processes can be enhanced and by how much?
• Which supply chain partners are critical to a successful effort?
• How do we gain their collaboration?
• What final values do we want to see from a successful pilot?

Added to these questions should be a list of deliverables for the pilot, accomplishments that will make the effort a success in the eyes of the most critical cynics. Serving customers faster, reducing shrinkage, increasing security, reducing out-of-stocks, stimulating new product introductions, capturing new business, assisting manufacturing efficiencies, better organizing inventory, and making better deliveries should be on the list.

In addition, pay attention to developing differentiating factors for the supply chain network, which will distinguish it in the eyes of the most coveted customers.

Finally, we advise following the lessons learned from previous tests and pilots. Begin and end the pilot with a determination to settle the values that can be gained from introducing RFID technology to your supply chain.

Put the early emphasis on process improvement and information transfer rather than the technology. Challenge existing assumptions, beliefs, and culture, as they invariably stand in the way of progress. Make the people observing the test think in terms of what is possible as well as evaluating the impediments.

This is often an organic process. Many of the best uses of RFID came from small, unrelated pilots after others in the organization understood the capability of RFID. Partner carefully with the suppliers of the elements of the infrastructure to make certain the system selected meets the needs of the intended applications.

Above all, the pilot should help put to bed any RFID controversy existing across your organization.

Reprinted with permission from RFID: Strategic Implementation and ROI: A Roadmap to Success by Charles Poirier and Duncan McCollum. More information on the book is available at www.jrosspub.com