RFID without the hype: Best practices and lessons learned

1. RFID without the hype: Best practices and lessons learned LGO Alumni Webinar Ronak Shah May 20, 2005

2. Agenda • Background • What is RFID? • RFID capabilities • Industry adoption • RFID and enabling operational efficiency • Developing a business case • Performance and reliability • The Raytheon Integrated Air Defense Center • Conclusion • Key takeaways • Other resources

3. RFID Technology – How it works Network Middleware / ERP Interrogators RFID Tag • An interrogator emits RF waves, which are picked up by tags nearby • A tags modulates the signal and responds with its unique identifier • The interrogator filters the responses to identify events like tag arrivals and departures • These events are communicated to enterprise middleware software which understands the business process impact of this activity.

4. RFID History 2004 Raytheon kickoff 1970s Livestock 1999 Auto-ID Center 80s-90s Retail theft Fastlane 2003 RFID mandates published 1940s IFF Accelerating pace of development

5. What does it look like? 4 inches 8 inches x 12 inches

6. What does it cost? • Software costs are highly variable • Licenses for middleware solutions $18K – six figures • Implementation costs high because it still has emerging technology problems • Change management costs can be substantial • Training, installation, re-engineering processes

7. Existing technologies standard barcode 2D barcode Old-fashioned way! Mobile tracking systems

8. The promise of RFID • RFID’s three key advantages over traditional barcode… • Field-based: does not require line of sight or manual scans • High throughput: 10s – 100s of scans / second • Storage capacity: allows product serialization and more • Working under the constraints of: • Cost: currently $.10 - $.25 per tag • Performance: what if the tag is cannot be read? • Ubiquity: information is more valuable when it is shared • Interoperability: still difficult to integrate with enterprise systems RFID enables more efficient supply chains

9. Drivers of adoption • EPCGlobal™ • Industry consortium with a goal of reducing barriers to adoption for RFID • Set standards for tags, readers, middleware • Forum for discussing intellectual property issues • Knowledge-sharing • Allocation of global identifiers • Members include Wal*Mart & DoD, their suppliers, RFID component providers, and system integrators • Mandates • First Wal*Mart and DoD, now many others • Requires suppliers to tag shipments and transmit the information in advance of the arrival.

10. Developing a business case • RFID teams creating business cases have the same questions: • What “future state” can we achieve using RFID? • What data do I need to be looking for? • What usage scenarios should I implement and what should I tag? • These are often difficult to answer • Root cause is two key complexities with RFID: • Separating what RFID can offer from what can be achieved using other process improvement efforts • Systems interactions drive both costs and benefits • Large upfront cost associated with hardware, training, installation • Gets easier to add elements to an RFID system

11. Excel™ RFID Calculator • Four stage process for evaluating RFID • Inputs: an understanding of RFID and process mapping abilities • Outputs • Decisions on what you should implement and what to tag • NPV / ROI / Payback you’ll achieve • Ability to gauge sensitivity to various scenarios Process mapping System-wide Parameters wizard Usage scenario detail ROI / Payback optimization • Current & future state • Does not use Value stream mapping! • Usage scenarios • Materiel types • Reader sets • IT Modules • Replace barcodes w/ RFID scans • Asset visibility • Cycle counting • Others…. • Manual or automatic optimization • Allows sensitivity analysis • Financial results in standard FCF terms

12. Stage 1: Mapping w/ RFID swim lanes

13. Stage 2: System setup

14. Stage 3: Usage scenarios

15. Stage 4: Financial results & sensitivity

16. RFID tag performance • The ability for a non-battery tag to communicate with a reader can be negatively affected by a number of factors • Fishbone diagram follows • This is a big problem for some manufacturers! • Performance is getting better, but will it approach some asymptote below expectations?

17. Fishbone diagram: Tag read reliability

18. Raytheon’s experience & my internship • First Andover internship outside of Operations / Engineering • Company has a large compliance project underway and a site in Texas had just begun a pilot project for cycle counting • Wanted to evaluate RFID for supply chain efficiencies in Andover, Massachusetts • Lots of support for the internship • Andover, MA plant = Integrated Air Defense Center (IADC) • 1.2M sq. ft. facility with 3,000 employees • Very few will have seen the IADC on tour, so…

19. Overhead view

20. Incoming conveyer (not used)

21. Barcoding process Vendor, UPS, and Raytheon Receiving labels

22. Penco bulk storage

23. Main stores carousel 27 carousels total

24. Results of the internship • Evaluated materials distribution process to the manufacturing floor only • Much harder to get data for manufacturing lines, and far less discipline in handling once you get downstream • Volumes become very small • 13 usage scenarios, 6 material types, 219 solutions • RFID is not appropriate for the IADC at this time • A few solutions were 5-year NPV positive, but • Only when evaluated as a risk-free project • Ignoring costs for change management • High expectations of RFID tag performance • Sensitivity analysis • 4X reduction in HW and tag costs helps, but • Only when it’s easier to integrate will RFID make sense for internal use

25. Key takeaways • Key differentiators between defense and commercial: • Short distribution chain precludes popular usage scenarios • Years before we can expect material tagged by our vendors • Cost-plus contracts result in different accounting methods for inventory carrying cost • Two methods for approaching RFID • “Paving the cow-paths” (Prof. Jonathan Byrd) • New, future-state processes enabled by technology adoption • Separating usage scenarios in which RFID is an enabler from those in which RFID is a distraction • RFID can work very well in unique tracking scenarios! • FastLane, Cow leather (!!!)

26. Other resources • Shameless plug: My thesis! • www.autoidlabs.org • www.epcglobalinc.com • www.rfidjournal.com