RADIO FREQUENCY IDENTIFICATION (RFID) AND PRODUCTIVITY IMPROVEMENTS IN MILITARY LOGISTICS

1. RADIO FREQUENCY IDENTIFICATION (RFID) AND PRODUCTIVITY IMPROVEMENTS IN MILITARY LOGISTICS • Principal Investigator: Manuel D. Rossetti, Ph.D., P.E. • Research Assistant: Srinivasan Parthasarathy, B.Tech.

2. OBJECTIVES OF THE CELDI-DLA RESEARCH PROJECT 2004-05 • To provide an analysis of RFID re-engineering opportunities in terms of productivity and benchmarking • Examine how organizations make decisions regarding the implementation of RFID • Develop multi-attribute techniques for evaluating RFID implementations • Test techniques in DDC warehousing situations An RFID tag attached to the back of a box behind the traditional barcode

3. RFID IN SUPPLY CHAINS-1 • Radio Frequency Identification devices (RFID) use a tiny computer chip with an antenna to transmit information to a reader • In the retail context an RFID tag stores information about a product in the form of a uniquely numbered code, an Electronic Product Code (EPC) that is read by an RFID reader, i.e., acts like a “wireless bar codes” • Because costs are high, current applications focus on pallet tracking • If RFID tags were widely deployed, retailers could reduce standing inventories by 5%, warehouse labor by 7.5%, and product losses by 1% of sales. RFID readers placed at the inward and outward gates of a simple warehouse. Thisset-up is integrated with the warehouse automation system controlled at the backoffice

4. RFID IN SUPPLY CHAINS-2: PROS & CONS • Reduced inventory and shrinkage • Benefit from a reduction in store and warehouse labor expenses • A reduction in out-of-stock items • Sample questions to mull over… • What drives SC managers to go for investments and re-engineering? • How do they convince themselves and management that the investment is going to pay-off handsomely; short-term and/or in the long-run? • What performance metrics do they look for when deciding? • What type of analysis do they carry out to measure worthiness of investments? • What steps do they take to achieve their expectations? Do they really bother to? • Tag prices and efficiencies • Harmonization of RFID standards • Interoperability throughout the supply chain • IT infrastructure to handle large volumes of data • Change of work and labor practices • Shared cost of deployment • Privacy issues

5. MOTIVATION AND BACKGROUND • The Department of Defense (DoD) seeks to integrate automatic identification technology (AIT) into logistics business processes to facilitate the collection of initial source data, reduce processing times, improve accuracy, and enhance asset visibility [DoD-AIT Implementation, March 2000] • Over the past year, the retail industry has witnessed an increasing interest in the use of Radio Frequency Identification (RFID) as a serious contender to replace bar coding in the supply chain. Previously, the technology has been widely used by the military and the transportation industry for tracking supplies and material, vehicles, railcars, buses, and ocean containers • Based on the extensive literature review, no streamlined schema has been found for justifying and implementing RFID technology in logistics, addressing the key questions, • Is investment on RFID technology going to make a substantial worthwhile improvement to the SC? • How to quantify the benefits of implementing RFID in the supply chains through an accepted and standardized methodology? • How to improve the information flow and tracking processes using RFID? • How to best exploit the benefits of RFID technology in the SC and the possible re-engineering involved?

6. BENCHMARKING AND RE-ENGINEERING The purpose of the CELDi Research Project is to provide an analysis of Radio Frequency Identification (RFID) implementation in defense distribution and logistics, and its effect on productivity. • Series of Mini-Interviews with companies that are already in the implementation stages of RFID in their logistics to aid our methodology • Survey of Industry best practices which will serve as a benchmarking procedure for collection of recent industry data applicable to DDC • Observations at the DDC warehouse and data collection to facilitate the generation of the process model; this will include time studies, flow documentation and elicitation of data through historical records, experienced personnel etc. • Observations, testing of methodology, process modeling thro flow-chart diagrams and simulation software tools at DDCs. • Through the application of the simulation and cost models, we will analyze and document the behavior of the modeled RFID system and the justification of DDC re-engineering and RFID implementation.

7. DECISION PROBLEM The model section presents the research in the form of Analytic Hierarchy Process (AHP) and Return on Investment Analysis (ROI), and then offers suggestions of how to implement RFID in military logistics based on the outcome of these procedures. ROI of RFID in supply chain: General Outlook • Suppliers less sure of benefits than they were in the beginning • Many suppliers say a real return on investment is currently years away • Ninety percent of the firms involved with RFID say that "a timely and substantial ROI" is a prerequisite for launching any major RFID initiative in their organizations. • A large portion of RFID investment is expected to occur during 2005. • A little over half of suppliers believe that RFID system deployment will reduce labor costs and boost process efficiencies in their firms ROI and Cost concern ROI: An investment is deemed worthy by a company if it can generate a return greater than the company’s Minimum Attractive Rate of Return (MARR), which is fixed. Current cost estimate ranges from $75K to “Hundreds of Millions.” Most of the respondents in RFID surveys have little idea what the final costs will be. Cost uncertainty is a concern

8. MULTI ATTRIBUTE ANALYSIS USING ANALYTICAL HIERARCHY PROCESS (AHP) • Objective process toward assigning value and weights to multiple decision • Uses pair-wise comparison between performance metrics and alternatives to determine the desirability of each option with respect to the ultimate goal • Develops a prioritization of options thro a scoring and weighting system • Unlike other multi-attribute technique, AHP is easily understood by the decision maker and analyzer. Sensitivity analysis can be performed to check overall robustness of priority rating • Consistency measures eliminate un-reliable information/decision • Based solely on opinion, no tangible information is used

9. PROJECT TIMELINE