))) Reaching Down The Supply Chain

RFID isn't just for billion-dollar companies; smaller businesses are trying to gain competitive advantages with technology deployments

Laurie Sullivan
March 22, 2004

Beaver Street Fisheries CIO Howard Stockdale made a decision earlier this year to use radio-frequency identification technology to track cases and pallets of fish and more exotic fare — including alligator and turtle meat — at the company's seafood-processing and -packing plant. He bought into RFID to lower costs and improve internal operations but also hoped he'd convince Wal-Mart Stores Inc. to add the $500 million frozen-fish importer to the list of companies required to meet the retailer's January 2005 RFID-compliance mandate for its top-100 suppliers.

Last month, he got his wish. Most other suppliers not on Wal-Mart's top-100 list have until January 2006 to comply, but Stockdale is eager to get a jump on building the technology into Beaver Street's systems and business processes to take advantage of its efficiencies. Already Beaver Street has plans to plunk down $50,000 to $75,000 to build an RFID-simulation lab that duplicates its processing-plant and inventory-control system to ensure that it meets Wal-Mart's 100% tag-read-rate demands for cases moving down conveyer belts at 600 feet per minute. Beaver Street's lab also includes a 10-foot powered conveyor system with speed control.

While billion-dollar businesses make up the majority of companies with RFID implementations under way, many smaller companies are starting to jump in, realizing that mandates from Albertsons, the Department of Defense, Target, and Wal-Mart will affect them sooner or later. Others simply want greater efficiencies in data collection to improve in-house business processes and warehouse operations. All the activity is driving the growth of global RFID sales related to software, tags, and readers to an expected $2.1 billion in 2005, up from $1.1 billion in 2003, according to Venture Development. The research firm recently revised forecasts upward; earlier estimates put the 2005 global numbers at $1.6 billion.

Investments in RFID technology can range from $100,000 to $1 million or higher--a big bite, especially out of smaller businesses' IT budgets. "Small to midsize beta tests with cases, pallets, and readers in controlled environments will run between $100,000 and $250,000," says Gene Alvarez, VP of technology research services at Meta Group. "Move the small to midsize project into a distribution center and that number jumps to between $500,000 and $1 million. Large-scale projects can run up to $5 million."

But small and midsize businesses such as Beaver Street are determined to make RFID work. The fish importer begins RFID testing next month and expects the pilot to help it identify any potential roadblocks that may occur from its inventory being packed in ice. Liquids absorb radio-frequency energy, so RFID tags must be affixed to just the right spot on the case or pallet for readability. "I'm scheduled to go to Wal-Mart's corporate office, along with their top 100 suppliers, on April 7, to provide an update on our project," Stockdale says.

Zebra Technologies Corp., which makes RFID-compatible printers and encoders, will assist Beaver Street in making the transition from using bar-code technology to smart-RFID labels that conform to the Electronic Product Code, which assigns numbers to identify a manufacturer, product, and serial number.

For lab testing, Beaver Street has installed stationary RFID readers and plans to include handheld RFID readers. The stationary readers positioned in front of all 15 receiving- and shipping-dock entrances will transmit data to Beaver Street's enterprise-resource-planning system as pallets are loaded or unloaded from trucks. Entrances to freezers and refrigerators also may get similar readers.

Beaver Street's IT department is feverishly rewriting its internally designed and managed ERP system to accommodate the flood of data that results from using RFID technology. The system was written in Microsoft's Visual Basic and Acucorp Inc.'s Acucobol. But "getting the system up and running isn't as challenging as trying to understand the technology to pull together a return-on-investment strategy," Stockdale says. "If you fully integrate RFID with your ERP system to leverage the data, redesigning business processes gives you even more benefits than those gained from [using] EDI."

Mid-American Growers Inc., which counts Wal-Mart as its biggest customer but also serves Home Depot, Kmart, and Sam's Club, would agree. The company, which ships directly to stores rather than their distribution centers, isn't on the same January 2005 deadline that Beaver Street is. But it began planning its internal RFID deployment about three years ago to track the 30-by-40-inch, 7-foot, $450 metal shipping carts filled with begonias and violets from its warehouse to customer locations that use the same RFID system. The project goes live next month.

RFID tags are mounted to the bottom shelf on each cart, and readers are placed at all 12 shipping-dock doors to read the transmitted data, enabling Mid-American Growers to track the carts. Information from the readers is fed to six Compaq laptop computers. The $75,000 spent to get the system up and running is well worth the investment, says Lenny Vanwingerden, purchasing manager at the $30 million-a-year greenhouse. Before the implementation, "we didn't use bar-code readers; nothing was done efficiently," he says. "This is our first major step into technology."

A slew of RFID consultants and labs have sprung up to help businesses, regardless of their size, handle RFID implementations (see "Ready For RFID?" Jan. 5, 2004). But some smaller companies might welcome financial help in achieving RFID deployments. Microsoft, which is trying to raise its profile as a supplier of enterprise applications to small and midsize businesses, has been known to underwrite the costs of implementation to test supply-chain efficiencies if a proposed project is significantly different from past projects. "We would consider assisting a company if [it] presented us with a plan to test functions in a drastically different part of the supply chain than we had done in the past, so we can learn from it," says Bjarne Schøn, director of supply-chain strategy at Microsoft in Copenhagen, Denmark. In January, Microsoft integrated RFID tracking technology into its Axapta warehouse-management software as part of a pilot program with Danish snack manufacturer KiMs to track pallets of its products.

After growing tired of seeing its profits disappear, Colorpoint LLC got its start using RFID with help from Automatic Identification Systems Inc., a software and systems integrator, and RFID chipmaker Texas Instruments Inc. For years, the $7 million-a-year greenhouse company spent $3,000 annually to replace 100 lost 8-foot shelved metal shipping racks used to deliver purple petunias, yellow pansies, white chrysanthemums, and other bedding plants to Home Depot, Lowe's, Rural King, and Sam's Club. But in 2002, that changed.

To track and trace its 2,200-carts, Colorpoint made a move from UPC bar codes to RFID technology. After two years of trial and error, the process now provides 100% accurate tracking. And Colorpoint's RFID strategy is taking off.

RFID tags from Texas Instruments are embedded in plastic sleeves and affixed to each cart's bottom shelf. Built into the floor at each of Colorpoint's loading docks are custom fiberglass antennas networked to readers and workstations nearby. As the carts roll over the antennas and into 53-foot trailers bound for retailers, their identification numbers are read. The data about the products on each cart is transmitted to a computer and into the KartKeeper application developed by Automatic Identification Systems. The software provides a layout of the truck and color-codes each order in a series of grids, giving warehouse personnel visual insight into customer orders.

Colorpoint's first cart-tracking system, which went live in 1993, used bar-code scanning. It cost $60,000 to implement and $3,000 annually to maintain. But the entire logistics and inventory process wasn't as automated as it is now, using RFID chips and the AIS software; humans still had to enter a lot of data, which often led to errors that raised labor costs. Colorpoint had to close up shop three times annually to check inventory.

"We soon will have access to reports listing the customer stores to help us keep track of inventory and identify those that have carts for either seven, 30, or 90 days," says Leon Ingerson, Colorpoint's shipping and fulfillment manager. "Having the data to identify the quantity and frequency of carts used per store will give us the financial breakdown for cost per customer for each sale." Ingerson's vision is ultimately to have RFID readers at customer locations, which can deliver more up-to-date cart location information, but that will take time. Colorpoint first must gain buy-in from its larger customers.

It will likely take one to three years before companies such as Beaver Street Fisheries, Mid-American Growers, and Colorpoint, no less than their larger-scale competitors, see returns on their RFID investments. But when they do, "the productivity and accuracy gains from using the technology will offset the investment and someone sitting at a desk trying to figure out what to do with the data," says Mike Meranda, VP of strategic planning and development at EPC Global U.S., the organization in charge of setting EPC standards.

As use increases and prices fall, many small and midsize businesses based in the United States will take their RFID projects global. For instance, at Beaver Street, Stockdale is looking into deploying ZebraNet, a networked utilities and control system from Zebra Technologies. It will let Beaver Street put RFID printers at packing plants in China, Thailand, Vietnam, and other locations worldwide, so that overseas personnel can place the tags on products at the point of origin while product status is monitored from the main plant in the United States. It's imperative for large and small companies that have manufacturing or packaging plants across the globe to coordinate on identical business processes and apps to make their operations successful.

China will likely become a major force in the future of RFID deployments, since so much manufacturing is done there. Analysts estimate that 70% of Wal-Mart's shipments originate from China and surrounding Asian countries.

For now, the goal is to get RFID projects on the right track here at home. "It's important to build new business processes that connect your operation globally," Stockdale says. But "first we have to design and build them here in Jacksonville. Then we can get our global partners and suppliers involved."

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