The ROI of RF Technology
October 2, 2007 Alex Woodie
When it comes to running warehouses, it seems as if newer technologies like radio frequency identification (RFID) get all the good press. But the fact remains that the bulk of automation, and therefore the bulk of the return on investment (ROI) of technology purchases, lies among older technologies such as RF barcoding, and even integrated voice response (IVR). VAI manufacturing segment manager, Pete Zimmerman, who will speak at APICS (the Association for Operations Management) later this month, recently gave IT Jungle an overview of the state of the art in warehousing technologies.
Alex Woodie: So I hear that you’re going to speak at the APICS conference later this month. That sounds pretty exciting. Have you ever spoken at APICS before?
Pete Zimmerman: No, this will be my first time. I’m really looking forward to it.
AW: What do you plan to talk about at APICS?
PZ: We’re titling it “Using Technology to Encourage Profits in Your Warehouse.” I’m going to be discussing the use of RF technology to accomplish goals in the warehouse, things like improving turns, better inventory accuracy, specificly as it relates to how VAI has been able to do that with the RF technology plus the applications that we develop.
AW: What exactly is VAI doing with RF tech?
PZ: We’ve created an application that we call WMS, which, of course, is an acronym for warehouse management system. Our WMS really touches on what I’ll call all aspects of a warehouse and the management thereof, things like receiving, put-aways, picking, packing, returns, production tracking, warehouse transfers, cycle counting, and physical inventory.
Effectively what RF does is replace human keystrokes. In using purchase order receiving as an example, instead of having to go to a device to key in the order, the RF technology allows you to actually scan a barcode label that is then going to validate that it’s a proper PO, that the item in the box is what’s expected on that purchase order, and then receive it into the system.
AW: That is the hope with RFID, too. Do you see any RFID out there?
PZ: It’s generally RF. We do have customers using RFID technology. From my perspective, I will tell you that it’s still definitely something that’s a bit of an emerging technology, in part because the RFID tags themselves are still fairly expensive.
AW: How many customers do you have using WMS and RF?
PZ: We probably have 50 or so clients using the WMS. The first release was probably five years ago. We’re constantly enhancing it adding new features and function. Today, it’s being used throughout the warehouse.
If you think about the life of a product, it handles everything from receiving it in, to putting away, to moving it, to picking an item, to packing it on the distribution side. For a component part being used in manufacturing, it’s the receiving of that product; it’s issuing it to a manufacturing order; it’s consuming it against a manufacturing order; it’s putting the finished good away as inventory; and it’s shipping that finished good. It’s pervasive throughout, not to mention the physical inventory and cycle counting.
AW: What kind of benefits do you tell customers they’ll get by implementing RF barcode scanning?
PZ: I don’t tell a customer what to expect. I refer them to what our other customers have experienced. We have customers who will articulate their benefits from using the WMS–that their returns were running about $40,000 per month and after the implementing of our system, the returns were down to about $1,000 per month.
They got to that point by using RF technology. For example, when somebody goes to pick a product, it could be that there are two products that are very similar. Their product numbers may be off by one digit. So in a manual environment, where somebody is writing down on a pick ticket an item number, maybe they transpose a number or they write down what they thought they took, but they took the wrong number, they took the wrong product. In an RF environment, they’re scanning in a number. If you get an item that’s not on the order, the system says, you can’t ship that item, it’s not on the order. So what the system is really allowing them to do is validate items that they’re shipping out.
That’s one example. For another customer, it took five people seven days to do their physical inventory, when they were doing it manually. Using our WMS, they got down to three people accomplishing that same function in a day and a half.
The benefits vary so much by customer. We’ve heard customers articulate that they’ve been able to reduce inventory by 10 to 40 percent. Other customers talk about doubling and tripling their inventory turns in a year by using our application.
AW: Are there any hiccups that customers might get, any little gotchas? I know interference can be a problem in a warehouse environment.
PZ: That’s something we take great care in trying to analyze up front. It’s certainly possible based on some customers’ geographies that they won’t be able to use RF. Maybe there’s too much steel in a building. Or in some cases if they’re too close to an airport, the signal can’t get through. VAI is a big proponent of providing site surveys. We go out ahead of time to validate that RF tech can be used.
AW: What goes into setting up RF and integrating it with existing systems? Is that a long expensive process?
PZ: Setting up the application is not difficult. Typically the more time consuming process is making sure that the locations in the warehouse are barcoded, that all the items have a barcode label on them. Those types of things are typically more time consuming than the integration of the product, and/or just setting it up.
AW: Isn’t everybody in manufacturing or distribution using RF barcode scanning at this point?
PZ: If you think about the state of business these days, a lot of product is manufactured in China. So as product is received from China, it sometimes has barcodes, but sometimes it does not. It really varies by industry. Some of our customers have vendors that are very pro-barcoding, and some do not.
We have customers who are wholesale florists. It’s tough to barcode a tulip. There are technology challenges in things like that. We have customers in the steel and metal business, so attaching an adhesive label to a piece of metal sometimes doesn’t work very well, sometimes it doesn’t stay on.
AW: How much potential growth is left in RF barcoding?
PZ: There is enormous growth in that area. In our customer base, that’s probably the application area that most are focused on. We have some customers that are more modest size, and it’s really a technology that pretty much everybody is adopting now.
It also relates to ROI. When you talk about more accurate picking, fewer returns, better cycle count, things of those nature, customer are going to see a clear ROI, and will want to invest in the technology.
AW: Tell me about IVR technology. How does that work in the warehouse?
PZ: We’re seeing customers embrace the voice technology for picking–where they’re given a verbal instruction on where to go, quantity to pick, and they, in turn, are validating the quantity picked. We imagine it will spread to other areas over time, but that’s where we’re seeing it.
AW: What are the benefits of using IVR? Is it that you have your hands free to move stuff around?
PZ: Exactly. Also, I understand that one of the other benefits, with warehouse personnel who don’t necessarily speak English, these commands can be dictated to them in their native language.