According the US Department of Labor, compensation costs in the US increased 2.2% in 2016. Did this reduce your corporate profits? A typical manufacturer that we work with is spending about six minutes per transaction recording production using pen and paper. Often, we find their production workforce allocating 10% of their time to data collection.
By switching to RFID, manufacturers experience several immediate benefits. Profitability increases because production output goes up when employees aren’t burdened by data collection, and instead focus on the jobs they were hired for. Imagine every production worker in your plant working 11% longer and not having to pay them a penny more. Profitability also increases because managers make better decisions using real time data. There is less waste and production bottlenecks are resolved more quickly when managers immediately spot changes in output and address them. The data set improves with machine captured data versus the chronic errors that result from transposed numbers, illegible handwriting, and missing slips of paper that are common in pen and paper tracking.
The best applications for RFID are automated tracking of trays, bins, totes, and other containers that are used over and over. The RFID data capture devices are mounted in key areas or on production equipment and provide fully automated, hands-free scanning of these containers. This can update a products location, update its stage in the production process, issue raw materials to a work order, or production track newly produced WIP or finished goods. Linking these records produces real time traceability records.
Think of it like the toll roads.
Remember when you had to stop and get the ticket to get on and then stop again to pay on the way off? That is like pen and paper data collection. RFID is like the express lane where you never even need to slow down. By the way, those toll tags are actually a more expensive form of the RFID we deploy in manufacturing. It means higher profits for your company and it can help you offset rising compensation costs.
Is 2017 the year you will implement the project to increase your profits?
Create the opportunity to pay your employees more without hurting the bottom line?
Let’s take a step back from RFID and pay homage to that which came before – the barcode! Barcodes gained in popularity over 40 years ago and have been the workhorse for product identification ever since. Part of the problem with RFID expectations and adoption rate started with the technology being marketed as a replacement to barcodes rather than a supplement. Couple that with RFID taking shape in its own silo outside of the traditional automated data collection (ADC) market and it is no surprise that we ended up with RFID vs barcode like Ali vs Fraser or Yankees vs Red Sox instead of thinking about barcode and RFID as two stars on the same team.
Barcodes are proven technology. There is a great ecosystem in place to support the deployment of both the labels and the infrastructure. A typical manufacturer or warehouse has plenty of choices and there are lots of good integrators that can successfully complete a project. And let’s not forget that deploying barcodes generates a high return on investment because the technology is relatively inexpensive, but packs a lot of punch in its ability to improve inventory management and traceabililty.
Our philosophy is that every facility would benefit from a combination of barcode and RFID. Most integrators sell either a screwdriver or a hammer. As you would expect, they see every project as screws or nails. To the customer, however, there are just business problems. “We need data on this process” or “we need to find things faster in the warehouse”. The best way to help the customer is to evaluate each problem on its own and determine the best tool for that job. The best tool for “picking” is probably different than the best tool at the dock door. Issuing raw materials to a work order likely needs a different solution than creating finished case records.
The barcode isn’t going away anytime soon and RFID is never going to completely replace it, in our view. To us, barcode and RFID are different tools in the tool box that can make a business run better when applied effectively. We need more integrators that can apply either technology or perhaps more integrators to partner and work together so that the best technology is selected for each individual manufacturer’s challenge.
End customers need to be sure their integrator partner has evaluated both barcode and RFID for suitability and made the best choice for each aspect of the business based on value to the customer – not just because “I sell barcode” or “I sell RFID”. It would be rare for an optimized data collection system to be 100% barcode or 100% RFID.
So let’s toast to the barcode and apply it wisely. Cheers!
Debunking the myth that RFID tags always cost more than barcodes:
When comparing the consumable costs of an RFID solution relative to a barcode solution, it is very important to differentiate between “open” and “closed” loop applications. A closed loop application occurs when a tag is affixed to an asset or product carrier and used over and over again in the system. Many manufacturing companies use some type of product carrier like totes, trays, and bins.
These customers print a new identifying barcode each time the carrier is reused. This results in a lot of barcode printing. While each individual barcode may be cheaper than a corresponding RFID tag, the total cost must be evaluated.
Total barcode cost = (cost of individual barcode) * (number of carriers in the system during the time period) * (number of cycles for each carrier in that time period)
The advantage of RFID tags is that they can be permanently affixed to these carriers. Special coatings and fasten- ers can be used to make sure they stay on. They don’t smudge, tear, or fade. They can withstand temperature extremes and still work when covered with grease and grime. Selecting the right RFID tag can mean a tag is affixed only once and reused over and over for five or even ten years.
Total RFID cost = (cost of RFID tag) * (number of carriers)
A customer with 5000 totes used twice a day with $0.04 barcodes would pay ($0.04) * (5000) * (2) = $400/day or $100K over a 250 day work year or $500K over 5 years. Using a permanent RFID tag with polypropylene coating and aggressive adhesive would reduce the total cost to ($0.30) * (5000) = $1500 over the same five year period – a savings in excess of $499K!
Looked at another way, the $1500 in RFID tag costs would have a payback period of just over two days for this customer. A modest RFID deployment (tags + infrastructure) at this manufacturer would be paid for in less than 6 months by label savings alone without any other benefit from using the RFID data. Once other benefits are considered, this customer would reach breakeven in less than 3 months by switching to RFID and experience significant savings year after year.
- How much did I waste on extra physical inventory counts last year? Probably enough to buy another forklift or two or upgrade the dock doors or pay out a holiday bonus.
- How many transactions do I process? 1000 a day? That’s about $50K a year to collect data. How much more product could you make and sell if you put that $50K back into operations?
- How many workers have been diverted from production to “searching” for materials or finished goods that are lost and need to ship? Probably one or two. How much double ordering or spoilage do you deal with? Warehouse efficiency can probably increase profitability by over $100K.
- What is the cost of bad or missing data? You paid six figures for your ERP system. How are you generating an ROI if you are not feeding it data? Were you promised 2-3 points of improved profit margin? That’s about $500K/yr for a typical manufacturer using ERP in the US and you are probably missing out on most of it because you have missing or bad data.
Together, that’s probably over $500K/year in additional profit for a typical manufacturer.
The necessity of a direct line-of-sight between the scanner and tag in barcode systems can often lead to frustration. Think about that can of soup at the supermarket checkout that the cashier waves over and over and you’ll better understand how your warehouse or production line workers feel searching for the barcode on a pallet or trying to get it to read through the shrink wrap once they’ve found it.
While that wasted time may see miniscule compared to total time of production and distribution, most managers can agree that when added up, those seconds could lead to a major time inefficiency. At 30-45 seconds per transaction, you are probably spending a lot of money to read barcodes each quarter. An even bigger risk is that the frustration may build to the point where workers just stop scanning and your six figure ERP system has no data going into it!
RFID eliminates the line-of-sight requirement and makes taking inventory seamless and hassle-free. RFID can also read multiple tags at a time whereas barcode scanners can only read a single tag at a time. This allows you to read tagged “each’s” inside a case without unpacking it. Or read a pallet without getting off the forklift. You can cycle count an area without pulling out all the pallets. And don’t forget the times the barcode is unreadable because it gets ripped, smudged, or fell off. RFID tag durability and the ability to reuse RFID tags make it more reliable option for the manufacturing and warehouse environment.
So now, with RFID, transaction time becomes 10-15 seconds instead of 30-45. Employees are more likely to scan consistently. Better yet, moving from a hand scanner to an automated RFID read station or portal allows for the scanning to occur with no human intervention. That means you are eliminating the human element in your data and you are freeing up worker time to produce instead of capture data.
Addressing our profitability points:
- Using RFID will make it quicker and easier to scan items in the warehouse. This means employees are more likely to scan so you have more complete and better data. Adding an automated RFID portal allows you to audit the “put-aways” and provides the means to enforce scanning and correct errors as they happen. RFID therefore reduces the number of physical counts required and reduces the time required to complete them since line of sight is no longer required and not every item needs to be pulled from the racks during the count.
- Eliminating line of sight requirements by using RFID speeds scanning time from 30-45 to 10-15 seconds per transaction. Easier scanning increases the likelihood that every item will be scanned. Transactions cost less and employees are freed up to produce more.
- As in #1, better scanning and the ability to monitor and enforce it using automated RFID portals means your inventory data will be correct and you will know what you have and where it is. No more “searchers” and no more double ordering or spoilage because you can’t find it.
- RFID clearly helps in the warehouse as we’ve described above. But those same benefits apply in production by using RFID portals and RFID read stations to automatically issue materials and production track with no human intervention. For ERP systems to deliver on their promises, they need accurate data fed to them and automated RFID scanning allows this to occur. Not only do you unlock the benefits of your ERP system, your ongoing cost of data capture in production becomes nearly zero since the scanning is automatic. In addition to the profitability boost, you are also improving your traceability and bringing down cost of compliance!
In the past, upfront investment cost has been a deterrent to RFID adoption. But now, with the benefits of RFID data collection more visible and better understood, the upfront cost has become less of a restraint and more of a trusted investment in the company’s future.
Inaccurate or late deliveries and the costs that accompany those mistakes leave your company at a disadvantage. The fees incurred as a result of late deliveries quickly add up and could be the factor that is holding back your company from reaching its highest potential.
There are many ways in which RFID data collection can save your company money, time and labor. Tagged items provide electronic proof of delivery and decrease the time required for inspection. A more automatic and streamlined inspection and inventory process means that all the raw materials delivered to your facility are immediately processed and accounted for.
Another way is by shipping merchandise less often. With RFID data collection, packing and shipping processes become more accurate and reliable. This means that with a more integrated and streamlined supply chain process, you can have a higher level of trust that your product is getting to where it needs to go; resulting is a decreased volume of returns and more satisfied customers. RFID capabilities are helping companies gain visibility into their supply chains, ship less often, and ship more accurately. Automating the RFID data collection with fixed readers eliminates the human element of scanning the wrong thing or, more commonly, forgetting to scan at all.
Both RFID infrastructure and tag technology have advanced significantly in the past decade. There are a wide array of proven implementations and that increased volume has translated to much lower cost of deployment. With lower costs to implement and proven results, RFID should be considered and evaluated by all warehouses and manufacturers.