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How to Calculate RFID's Real ROlPresented by:
Toby Rush, PresidentToby Rush, PresidentRush Tracking Systems
Agenda
Today’s Objectives
g
Key Insights and Value Indicators
Real World Case StudiesReal-World Case Studies
Value Calculator Example
Today’s Objectives
• Discuss value indicators and buckets• Provide examples of business caseProvide examples of business case
results• Work through RFID Value Indicator• Work through RFID Value Indicator
spreadsheet calculator
Rush Tracking Valueg
• Trusted RFID Advisors
RFID Solutions, Enabling Visibility, Delivering Value
• Trusted RFID Advisors• Strategic planning and
business case development• RFID business process
re-engineering• World-class systems
integration• Unparalleled technical depthUnparalleled technical depth• Deployment experience
Markets Served
• Industrial Manufacturing • Automotive• Aerospace• CPG • Medical• Pharmaceutical• Petrochemical• Retail
Core DNA for RFID Success• Process
– Business process management, lean,Six Sigma, Kanban, user interfaces,change management
• Financial – Business Case– Business performance & ROI analysis,
value creation, capture and articulation
S ft• Software– RFID middleware, architecture expertise,
application creation and integration, workflows, custom programming, handhelds mobilityhandhelds, mobility
• Hardware– Requirements, solution design, installation,
readers, printers, applicators, tags
• RF Physics– Frequency, sensitivity, propagation,
interference, amplification, interoperability
Agenda
Today’s Objectives
g
Key Insights and Value Indicators
Real World Case StudiesReal-World Case Studies
Value Calculator Example
Key Insights
• Losing track of inventory bigger issue than “losing” inventory
• Critical operations often run on sparse data• Exception handling labor savings
dwarfs savings from removal of labor to gcollect scan
• Broken Systems Coping Mechanisms Institutional Wisdom Tribal KnowledgeInstitutional Wisdom Tribal Knowledge
• Strong ROI requires breadth and depth of use cases
Key Value Indicators
• Complex supply chains with significant material movement and human involvement
• Vertically integrated (with reverse logistics)• Larger & geographically dispersed• Highly regulated• Highly regulated• Utilizes returnable containers• Dynamic, capacity strained organizationsy p y g
Enterprise RFID ROI Assessment Methodology
Preliminary Analysis
FinancialTechnicalProcess
Review Data
Review Processes
Review CAD
Review RF Constraints
Review Performanc
e Stats
Review Cost
Driversy e Stats Drivers
Whiteboard overview
Envision“to be”Options
Use CaseOverview
ReviewRough Design
Pain & Anecdotal
Network Values
Strategic
Enterprise Values
SummarizeFuture State
Summarize“to be”
Finalize Use Cases
SummarizeTest Cases
Summarize Value
Propositions
FinalReport
FacilityDepartment
Process Overview
Confirm Use Case Constraints
ConfirmDesign
Collect Exception
Data
Sum
Operator
Process DILO
Collection
Test as Required
SolutionDesign
Validate Value
ProcessPerformanc
eSummarize
CostSum ROI
Agenda
Today’s Objectives
g
Key Insights and Value Indicators
Real World Case StudiesReal-World Case Studies
Value Calculator Example
G l
Case Study Kanban Replenishment
• Goals:– Improve Kanban accuracy– Reduce hot calls, rework
ff– Improve replenishment efficiency and accuracy • Scope: 3 facilities (mfg, 3PL, 3rd party paint facility)• Solution:
– Tag Kanban returnable containers– Setup portals & forklifts to automate scan points (20,000 scans a
week)– Integrated into SAP
•Results:– During pilot, reduced hot calls from 52 per month to 0– Pilot started with 2 dept. and 350 containers; now at 10 dept and
6,500– > 28% ROI predominantly from labor savings
Example: Closed Loop ContainerExample: Closed Loop Container
RFID Portal at 3PL
Tunnel to Paint Supplier
VisiblEdge Enabled Forklift
SAP Kanban Board
Case Study: Large Industrial Mfg• Goals:
– Reduce labor costs & cycle time, improve transaction and inventory accuracy, increase capacity
– Quantify network effect of RFID – Develop detailed roadmap – Identify common use cases and scalable solutions across sites
S• Scope: 7 internal facilities, 5 third-party facilities
• Findings: – 8 Core use cases identified, significant in searching & expediting g g p g– SAP configured to avoid costly labor, but are cause for inaccuracy– “System accuracy” confidence is low, many “coping mechanisms” exist
• Value from RFID:– Significant labor reduction, increase transaction and inventory accuracy– Network effect dramatic for some sites
• ROI: 59% Payback: 2.8 years NPV: 2.7M% y y
ROI Assessment Results
Transaction effect1XYL
Kanban
KMTR P t
NBHB – Consumes Parts
ZCVB7- Goods issue
MNJ2 – Production Report
Average Cost / Benefit / ROI over 6 years after investment yearNetwork ROI measures Low Cost High Costs
C t f it l 12% 12%Foundry
Suppliers
Transaction effect KMTR-Putaway
MZ4B-Inventory Move
MTGF Goods Receipt
PBYRC- Kanban advance
VLKMN- Pick product for ship
VBVCN Ship transaction
MNJ2 Production Report
ZNJK- Allows Payment
KLRSC– Goods Receipt
ZLJK7/LM67/98– Putaway
ZJK_BOL– BOL
JK_TO_KY- Prints TOs
133%
28%14%
92%
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
Bene
fits
50%
100%
150%
rcen
tage
Cost of capital 12% 12%Costs over 7 years (before discount) $18,013,096 $20,510,667Benefits over 7 years (before discount) $43,583,026 $43,583,026N t C h Fl 7 (di t d h) $12 115 422 $9 674 941
Chip &Grind
Paint 3PL
3PL
VBVCN Ship transactionKLTruck_BOL – Gen BOL
HYTruck_YI – Load truck
ABC_RCPT - Receipt
BHYE5 Goods Receipt
One-Sided Transaction
Ship & Receipt
8%
-61%$0
$500,000
$1,000,000
$1,500,000
$2,000,000
Cost
s/
-100%
-50%
0%
ROI p
erNet Cash Flow over 7 years (discounted cash) $12,115,422 $9,674,941Return on investment (discounted average) 71% 50%Payback in Year after investment year 2.87 3.56R i t t R t 12% 12%
WHSE
MFG4
Ship & Receipt
MFG3 Averages Foundry Chip/Grind Paint 3PL WHSE 3PLAvg-Costs $384,740 $376,569 $589,197 $781,426 $1,251,900
Avg-Savings $1,015,705 $589,013 $1,036,807 $413,710 $4,010,867
Avg ROI 92% 14% 28% -61% 133%
AvgPayback (yr) 2.40 5.01 4.20 6.00 1.84
$ $ $ $ $
Reinvestment Rate 12% 12%Net Present Value (cost savings) $3,637,805 $1,488,875Internal Rate of Return (IRR) 22% 16%Modified Internal Rate of Return (MIRR) 15 84% 13 46%
MFG2
NPV $129,219 -$52,894 -$31,087 -$460,518 $740,944Modified Internal Rate of Return (MIRR) 15.84% 13.46%
MFG1
Suppliers
1Only transactions that are used for material movement are outlined
Real World ExampleReal World Example• Consumer Packaged Goods Manufacturerg• 3 facilities in scope• Finished Goods Warehouse• Finished Goods Warehouse• Average 14 fork trucks per facility• 3 shift 5 day a week operations• RFID tagging at pallet levelgg g• Forklifts throughout warehouse
Production to Warehouse
ManufacturePackage
Putaway Storage
Kraft
Combo
Action: RFID lift truck auto ID’s pallet Benefit: eliminate errors, scans & automate SAP t ti f t
2Action: RFID lift truck auto ID destination location Benefit: eliminate put errors, scans &
t t SAP fi
3Action: cases are palletized & automatically RFID taggedBenefit: eliminate data ID, scans data entry & manual
1
transaction for putaway automate SAP confirm transaction
scans, data entry & manual labeling
Picking to Loading
LoadStorage
StageWrap/Aggregation
Action: mixed cases are aggregated to pallets and 3Action: RFID lifts
read pallets picked1 Action: confirm full or partial picks & deliver to
2 4Action: RFID lift truck reads, validates load, aggregated to pallets and
moved to stagingBenefit: auto ID, eliminate pick errors, scans & automate SAP transaction based on moves
read pallets pickedBenefit: auto ID, eliminate pick errors, scans & automate SAP pick transaction
partial picks, & deliver to wrapping or stage Benefit:, auto ID, avoid scans, pick errors, auto-SAP pick confirm aggregation
4 reads, validates load, location, & order Benefit: auto ID, eliminate loading errors, scans & automate creation of BOL, ASN’s & SAP transaction
Value Calculator Example
Real World Results
• Conducted ROI Assessment across 3 facilities
• Worked with enterprise, plant, operators to build business caseto build business case
• Confirmed findings with corporate
Value by FacilityValue by Facility
Plant operating cost and facility layout directly affect the benefit returned
600%$16,000,000
No Growth: Value at Manufacturing Cost/Benefit Analysis
f
457%
553%
400%
500%
$12,000,000
$14,000,000
s
Benefits Costs ROI
IRR
223%
300%
$6,000,000
$8,000,000
$10,000,000
Cash Flows
115%148%
41%
100%
200%
$2,000,000
$4,000,000
41%
0%$‐
Facility 1 Facility 2 Facility 3Benefits: 10 years 12,700,056$ 14,248,150$ 6,787,334$ Costs: 10 years 2,292,228$ 2,191,024$ 2,113,264$ ROI 457% 553% 223%IRR 115% 148% 41%Net Cash: 10 years $3,153,193 $3,712,529 $1,289,762Payback in Year 1.79 1.64 3.01NPV $2,741,907 $3,228,286 $1,121,532
SummarySummary
• Start with the business users/problems• Start with the business users/problems• Must look at breadth and depth of use
cases• Exception handling value can be large • The more detailed and ROI
assessment, the more likely a rollout, y
