Responding to Wal-Mart's RFID Mandate - ARC Advisory Group

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ARC Strategies • December 2003 • Instead of outfitting every dock door with readers, a single gateway with readers can be constructed. Pallets are driven through the gateway before they’re taken to their designated door. Fewer readers are required with this configuration. • Costs depend on whether it is an older WMS, legacy solution, or a modern WMS. Modern WMS solutions support the work flows described above. • Older WMS and legacy solutions do not support the workflows described above and thus may require customization (est. $50,000). • WMS solutions often use RF devices. Older RF systems that operate in the 900 Mhz range may need to be replaced because they will cause reader interference. • The key drawback of doing this in the DC is wasted labor. Cases are palletized at the factory, then depalletized at the DC to enable tagging, then repalletized. • The key benefit is that warehouse personnel are use to Value Added Service processes, factory personnel are not. Considerations and Strategies for the Factory Pilot • Case tags are applied at high speed, in line, on a factory production line conveyor. The barcode/encoder must be told which items require which tags (bar code, barcode + RFID, or more expensive bar code RFID tags with larger antennas). • The tag/bar code applicator should be able to apply tags to different size and shaped packages and apply the tag on a specific location on the case/carton to insure that it can be read reliably. • When tags are applied at the DC, the actual ship to locations are known. Because of manufacturing lead times, tags may have to be applied in the factory before it is known exactly how many of a certain SKU will need RFID tags. Err on the high side! Apply more tags than are needed, perhaps 10 to 20 percent more than are forecast. • Many of Wal-Mart’s top suppliers participate in Collaborative Planning Forecasting and Replenishment (CPFR) or VMI programs. These processes, in conjunction with the Sales and Operations Planning (S&OP) 10 • Copyright © ARC Advisory Group • ARCweb.com
ARC Strategies • December 2003 process, will supply the replenishment data used to drive the allocation process. These processes may need to be adjusted. Replenishment order data will now need to be fed to the factory’s Production Management system. • A key drawback to doing this in the factory is that the RFID tagged cases will need to be segregated and handled differently from the other cases. This is a fundamentally different process in many factories. • A key benefit, if tags are applied at the factory, receiving and shipping processes can be automated in the DCs. Developing a Budget for RFID Pilots Conducting RFID pilots requires an investment in people, hardware, software, and consulting services. This section provides some “rules of thumb” for costing these factors. A basic pilot test at a distribution center (one facility, one gateway with three readers, and several thousand tags) will likely cost in the neighborhood of $500,000 (not including internal employee costs devoted to this project). A pilot test at a factory can be twice as expensive, considering the high cost of sortation systems. 100% 80% 60% 40% 20% 0% 5% 70% 15% 10% Training Consulting Software Hardware Avg. Pilot Costs $500K for DC Pilot $1M for Factory Pilot Consulting Services Is Biggest Contributor to Cost Copyright © ARC Advisory Group • ARCweb.com • 11
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Responding to Wal-Mart's RFID Mandate - ARC Advisory Group

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