09-07-2007, 10:49 AM
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Save Money and Avoid RFID “Over Sale”
Issue #114 | Sept. 7, 2007 | by Byron "Woody" Blackburn
Here is the scenario: There is a large manufacturing-based logistics company with fifty dock doors spread around their main building. The core business of this facility is the distribution of repaired, replacement and maintenance parts. This is a production environment. Things move fast. Product is shipped in returnable 2’ x 4’ x 3’ open top metal shipping totes, millions annually.
They ship direct to customer or to satellite warehouses. The receiving location holds empty totes in trailers, to be returned, with about 150,000 totes in circulation at any time. The loss or damage to totes is estimated at 25% per year. With new totes costing $125, repair and replacement runs in excess of $3 million per year. Missed shipments and charges due to shortages add another million.
This company needed to get these huge losses under control. They had to track which customers or warehouses were not returning totes.
The over-buying trap
One obvious solution was to find the lost totes! Alternatively, charging those companies who were not returning the conveyances could recoup the replacement costs. With four million dollars in annual losses, the conditions were perfect to be over sold.
I am going to show you how my team was able to save more than $2.6 million by showing the client other options even after they spoke with three vendors. Being around the RFID and supply chain industry for 25+ years, you get a sense of what the right solution is – and isn’t.
I am sure some experts at the tag vendors that quoted this had deep experience as well. The problem is these vendors were companies that sold their own proprietary systems. This does not make them bad people; nor do I insinuate they presented anything other than sincere advice. But there was a major drawback – all of them had only one technology suite to sell. Any solution they might possibly recommend would, by definition, be based upon that technology.
VARs to the rescue
Buyers owe it to themselves to speak to at least one solution provider who is a VAR (Value Added Reseller), IT consultant or system integrator. These providers should have no vested interest in one technology or product line. You also want an outfit that offers both passive and active RFID. It wouldn’t hurt if they had familiarity with IR, Ultrasound and other Auto-ID variations. You might even look for a credentialed consultant who is not selling anything to guide your purchase.
Just because a solution provider offers multiple technologies does not mean they will save you money. Beware especially those with high-cost human infrastructure of their own, typical of large government contractors and corporate consultancies who also advise on accounting, federal compliance and other non-operational issues. Shopping for RFID is like shopping for anything else you are not already expert in – nobody said it was going to be easy.
Challenges to overcome
Fifty dock doors with portals had to be covered for totes leaving or returning. Shipping to third party and customer owned warehouse operations, there was no real ability to install infrastructure at receiving locations. A local system had to provide definable data for customers and others with no direct tie-in to the host system.
Shipping partners identified out of compliance needed to be asked to return totes or charged back for loss or damage. With $4 million a year up for grabs, the data had to be beyond reproach.
Proposals from RFID product manufacturers
The vendors submitted proposals mostly using active RFID technology. The leading contender employed passive, battery assisted RFID tags.
The proposed solution was to compare tote reads to dock door and load times to find out the totes’ destinations. They would then scan returning totes to verify return by customer and balance their outstanding tote count.
| Item/Task | Number Required | Cost | | Readers, antennas @ $7500/portal | x 50 docks | $375,000 | | Semi-active tags @ $20 | x 150,000 totes | 3,000,000 | | Infrastructure of network and power at dock doors; software integration |
| 150,000 | | Software |
| 25,000 |
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| | Grand Total |
| $3,375,175 |
Peeling back the layers and finding the over sale
On the surface these plans look sound. With losses estimated at $4 million a year, a quote under $3.4 million shows payback in less than one year. Even if the company has overestimated losses by 15%, they get total ROI in 18 months. Medium to long range savings looks even better. These RFID tags have a minimum life span of three years and the readers last far longer.
Okay, so we have good ROI, and mid- and long-range savings; so how does this proposal border on the extreme side of over sale?
Our team calls it the "big picture view," making sure the process, requirements, tools, and solutions fit together seamlessly by taking the simplest approach. Once we understand the fine points of the total system and pinpoint key components, rather than first looking for what can be replaced, we look for what can be kept.
Next week I will break down the details of how, by keeping in place an existing barcode system and adding passive RFID, we brought implementation costs to under $800,000.
Byron W. Blackburn is the principal at Blackburn Global and specializes in vendor relationship management. www.BlackburnGlobal.com
Speak out in the RFID Switchboard Forum
Are VARs a better source than buying RFID solutions direct from manufacturers?
Last edited by AndreaC : 09-07-2007 at 12:03 PM.
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