Why Companies Need RFID. Professor Sanjay Sarma Auto-ID Labs at MIT

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2 Why Companies Need RFID Professor Sanjay Sarma Auto-ID Labs at MIT

3 REASON #1: YOU DON T KNOW YOUR INVENTORY IS DeHoratius and Raman ("Inventory Record Inaccuracy: An Empirical Analysis", with Ananth Raman. (2008) Management Science, v. 54, n. 4, p ): Traditional inventory models, with a few exceptions, do not account for the existence of IRI and those that do treat record inaccuracy as random. Examining nearly 370,000 inventory records from 37 stores of one retailer, we found 65% to be inaccurate.

4 REASON #2: THE IMPLICATIONS ARE HUGE Shipment/Receipt Errors 1-3% error rate on shipments to store % of vendor shipments are disputed 2 70% of vendor fraud can be eliminated by tracking items from DC to point of receipt 3 Inaccurate Inventory Increased safety stock 55% of OOS take >24hrs to remediate 4 Poor customer service Save the Sale Mfg DC Back room Sales Floor Secure Supply Chain Shrinkage: >50% from employee and vendor fraud 5 Counterfeit Consumer safety Damage to supplier, customer relationships Out-of-stocks 4 8.3% global average 4% lost sales to retailer 72% due to store execution replenishment, ordering, forecasting Damages customer loyalty

5 References 1 University of St Gallen (2004) 2 Credit Research Foundation (2003) 3 National Retail Security Survey (2003) (University of Florida; Centre for Studies in Criminology and Law) 4 Gruen, Corsten, Bharadwaj (2002) Retail Out-of- Stocks 5 National Retail Security Survey (2002)

6 REASON #3: YOU CAN T ELIMINATE THE PROBLEMS EASILY Manufacturing plant Manufacturer s DC Retailer s DC Retailer Back Front STAGING BASKET AGGREGATION TRANSFER SORTING TRANSFER SORTING TRANSFER TRANSFER CONTAINER PALLET CASE SLEEVE SINGLES Themes: timely transfer error-proof operations minimize shrinkage

7 The road to chaos is lined with good(s) intentions Manufacturing plant Manufacturer s DC Retailer s DC Retailer Front Back SORTING TRANSFER AGGREGATION TRANSFER SORTING TRANSFER STAGING BASKET TRANSFER CONTAINER PALLET CASE SLEEVE SINGLES Too much inventory Errors Shrinkage Wasted effort Mis-shipments Shrinkage Errors Mis Inefficiencies -shipments Shrinkage Don t ask Holes Extras

8 FALSE STARTS

9 The EPC: An history 1950: Concept invented 1998: Tags cost more than $2.00 High-margin, low-volume business 1999: Auto-ID Center at MIT (Sarma) Goal: ubiquitous low-cost RFID Sponsored by Gillette, P&G, UCC 2000: Technical breakthroughs Low-cost protocols, chips, tags, readers New class of software: Savant (with OAT) New network (ONS with OAT) Wal-Mart, Target join Center 2001: Auto-ID Field trial launched 40 companies, lead by Wal-Mart Software and services by OAT 2002: Gillette orders 500 million tags RFID goes mainstream Auto-ID Center membership : EPCglobal created Auto-ID Center dissolves into labs Wal-Mart announces mandate 2004: The year of the trial Wal-Mart 8 Target, Tesco, Metro, DoD 2005: The year of the ROI DID NOT HAPPEN QUITE SO SMOOTHELY. WHY? 2006+: Roll-outs

10 REASON #1: TECHNOLOGY ISSUES 1. Tags were relatively expensive 30 cents applied See later slides on business process 2. Readers were relatively expensive $2000 Reader-installation costs were ridiculous 3. Handheld readers were not ready 4. Software was expensive See later slides on business process 5. False positives, false negatives

11 REASON #2: BUSINESS STRATEGY WAS POOR 1. DEATH BY INCREMENTALISM Some products in some department of retail store Solution: GO BIG!!!! 2. REFUSAL TO CHANGE BUSINESS PROCESS Slap and ship also lead to increased tag costs Solution: CHANGE BUSINESS PROCESSES 3. INSTEAD, COMPANIES TRIED TO BEND RFID TO EXISTING PROCESSES Custom programming, high software costs

12 REASON #3: THE LARGER RETAIL WAR 1. Retailers were in a tough battle Retailers were in a right race, every advantage important Then Wal-Mart started winning And the others were busy dying So the losers lost interest, and the winners lost interest 2. Retailers and Suppliers were in a war Store-brands threatened suppliers Suppliers applied tags, retailers reaped benefits 3. Then the world ended with the crash

13 WHAT IS THE IMPACT OF THE CRASH?

14 WORKING CAPITAL Where to squeeze it from According to Delloitte, 80% say supply chain ( Breathing Room, Deloitte and Touche.)

15 Minimize Cash to Cash Cycle From Supply Chain Priority: Find ways to minimize C2C Reduce Inventory Speed up manufacturing, transportation time Extend Payment Time

16 Minimize Inventory Lower safety stock Pull systems Just in Time Better visibility required. Opportunity for RFID.

17 Procurement Will Become MORE Adversarial Payments will be delayed Shipments will be contended Arrival times will be contended Claims management. Opportunity for RFID.

18 INCREASE SALES Address on-shelf availability With minimum manual effort

19 THE NEXT WAVE

20 WHY IS WAL-MART DOING IT? The battle is done! Bury the opponents Clothing retail is very inefficient Opportunity for Wal-Mart to claim market share Reduce Expenses Less effort for same amount of inventory management Wal-Mart is honest with itself, and sees an opportunity

21 WHAT IS THE NEW STRATEGY? 1. PICK A GOOD VERTICAL Clothing 2. TAG INTERNALLY Avoid corporate fight Go straight to benefit 3. USE HANDHELDS Technology is ready No wiring costs!!! 4. MODIFY BUSINESS PROCESSES Truly avoid RFID in replenishment 5. GO BIG!! All clothing all stores

22 WHAT IS THE FUTURE OF TRACKING?

23 Different use cases might require different technologies Use Case(s) Technology Cost & Range Comments Zonal Tracking of Structured Assets Eg: Roll cages, Totes, lab equipment Passive UHF Technology Cost: 0.5 USD 2 USD Range: 6 ft 12 ft Accuracy: Zone level accuracy Simultaneously track multiple assets through portal Appropriate tag packaging and tuning required for metallic assets Zonal Tracking of Unstructured Assets Eq: Rental equipment tracking Semi-Passive or Active UHF tags and Zigbee (915 MHz, 433 MHz) Cost: 7 USD 50 USD Range: 60 ft 300 ft Accuracy: Zone level accuracy Simultaneously track multiple assets through portal Work well on metallic assets Global Tracking of Assets Eg: Trailer tracking GPS Cost: 200 USD for GPS receiver, monthly or per-use network fee Range: Non-enclosed areas Accuracy: ft GPS does not work in enclosed areas Depending on the GPS receiver the accuracy and response varies Need data network to send the coordinate to track in real-time High Granularity RTLS Eq: Track the movement of personnel in & out of secure/ hazardous areas, movement of forklifts, yard management Ultra Wide Band Cost: 20 USD - 50 USD Range: 100 ft 300 ft Accuracy: 1 inch 2 ft To get high accuracy need time synchronization cables between receivers Approved in US Questions around using in out door operations Low Granularity RTLS (Indoors) Eg: Equipment tracking in hospitals Wi-Fi with RSSI location algorithm Cost: 40 USD 60 USD Range: 60ft 100 ft Accuracy: 10ft Leverages the existing Wi-Fi network for reader infrastructure Low Granularity RTLS (Outdoors) Eg: Yard management Wi-Fi with TDOA location algorithm Cost: 40 USD 60 USD Range: 60 ft 100 ft Accuracy: 10ft Need separate infrastructure and time synchronization cables between receivers

24 The key lies in semantics Action Inspection Analysis Conformance Association Location Business-time intelligence Utilization Business process Schedules Constraints and alerts Why? Who? Where? What? When? In-which? Sensing Cost Courtesy OATSystems

25 Where are my containers getting lost? What is the avg. dwell time? Where do the greatest temperature excursions Did I unload occur? the right container as per plan? Did the shipment arrive on time or do I What re-ship? is in that tote? Did What an item temperature just leave did the the secure tote area? experience? What is the status of an asset? Why Where is this asset is my trailer? moving When through/ did it this zone? get there? What assets do I have at this location? Thinking RFIT Analysis Conformance Association Location Cost Business-time intelligence Utilization Business process Schedules Constraints and alerts Why? Who? Where? What? When? Make the optimal choice In-which? Sensing Rules & regulations Cold chain and telemetry Real-time plan compliance and Check-in, check-out alerts Shipping and receiving Vehicles Maintenance and rental equipment operator records Totes, WIP cages tracking and pallets Facility equipment: Labs, hospitals & plants Equipment combinations Tracking and history for regulatory compliance Analysis for root cause identification and continuous improvement Security KPI s, of financial tapes, computers, metrics and asset personnel utilization and equipment Courtesy OATSystems

26 THE JOB OF THE IT PROFESSIONAL IS CHANGING From installing Windows and Anti-Virus Software (untoldentertainment.com) To the dashing hero who does inventory tracking (scienceblogs.com)

27 RFID Hunter (Courtesy HP) Issue Statement: Quality alert for specific product Shipment hold required at end of H1 07 Warehouse mgmt system does not allow traceability by SN Objective: Speed up screening and avoid move/check of 290 pallets Release Shipment hold before Half ends Solution: RFID prototype to hunt specific RFID tags Results: 290 pallets screened using RFID Hunter (No Touch) Screening time: 2h35 22 pallets identified and reworked At least 70% faster than manual process Higher screening reliability Courtesy Reinaldo Villar, HP

28 EXAMPLE: ERROR-PROOF OPERATIONS

29 Example 2: Shipping SendingCompleted ASN to Store(s) ASN sent to Store 0563 ASN send to Store 0477 DISTRIBUTION CENTRE Sending ASN to Store(s)

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31 STORE 0234 BACKROOM SHOPFLOOR

32 Conclusion: WELCOME TO SUPERLOGISTICS

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