RFID Case Study - Grade: A PDF

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Case study on the uses, purposes, and benefits of RFID systems....

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Running head: RFID CASE STUDY

Bracket International – The RFID Decision Case Study Student Name Davenport University November 22, 2020

RFID CASE STUDY

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The current bar-coding system at Bracket International (BI) is slowly becoming an outdated practice of inventory management. Bar-coding takes longer to scan, has more errors involved, has a higher chance for the barcode to be damaged, and makes inventory management take more time to complete. Switching to a radio-frequency identification device (RFID) system could speed up the process in all departments and produce less errors. Barcode systems have their problems. According to the case, barcodes misread an “average of 2 percent over the year of total reads” [ CITATION Dav17 \l 1033 ]. These misreads are reportedly costing the company an average of $4 per misread [ CITATION Dav17 \l 1033 ]. This is due to the time it costs employees to rescan or fix the issue, or the item being missed entirely in BI’s computer system. Barcode systems produce more errors and defects, while an RFID system could cut the number of errors down significantly. To stay competitive and save money in the long term, BI should make the switch to the RFID system. While it will be expensive to initially upgrade to, it will quickly pay itself off with the amount of time and money it will save the company. The RFID system is significantly better, faster, and more efficient than BI’s current barcode system. How Does RFID Compare to Bar Coding? RFID systems are much more accurate than bar coding systems. RFID systems produce fewer errors, significantly cut scan time, and have the potential to have better inventory management. The barcode system has the advantage of already being implemented, however, the cost savings of implementing the RFID system will pay for itself very quickly as the number of misreads will go down significantly.

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RFID systems are much faster than barcode systems. There was a test done to see how fast pen-and-paper, barcode scanning, and RFID scanning could be done to take inventory of 12 pill bottles. “What took a human 2 minutes and 16 seconds only took 37.9 seconds using barcodes. However, an RFID scanner read all 12 tags accurately in just over one second” (“RFID vs. Barcode,” 2017). RFID systems are extremely quick and can cut labor times significantly, saving time and money. Barcodes have more frequent misreads than RFID systems. RFID systems are more accurate because they are harder to damage and do not require line-of-sight to be scanned. Barcodes can be damaged during processing, and thus will no longer scan properly requiring employees to print a replacement. Barcodes need to be scanned one-by-one, which means that the employee needs to find the barcode on the package and manually scan it. An RFID system can scan a whole pallet without needing to unpack it (“RFID vs. Barcode,” 2017). This is an advantage because it will be significantly harder to miss a package on a pallet. Finally, RFID systems can make inventory management more efficient. RFID systems can locate inventory quicker, require fewer inventory audits, and reduce theft and misplacement [ CITATION Dav17 \l 1033 ]. Speeding up this process saves time and money as well. This also reduces the number of products that are misplaced, making it easier to locate a product when it is needed. What is the Economic Payback in Years for this Possible RFID Adoption? On average, Bracket International scans about 9,850 items per day [ CITATION Dav17 \l 1033 ]. Each factory year for BI consists of 260 days, so with this in mind we can estimate that BI is scanning about 2,561,000 items each factory year. The barcode is misread an average of 2 percent of all items scanned over the course of a factory year [ CITATION Dav17 \l 1033 ]. If the

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barcode is misread 2 percent of the time on 2,561,000 items, this means that 51,220 items are misread per year. It is estimated that each misread costs the company an average of $4 [ CITATION Dav17 \l 1033 ]. If 51,220 items are misread each year at $4 apiece, this would mean the company loses about $204,880 each year on average due to misreads. This is a lot of loss each year that is very preventable with an RFID system. Doing the same calculations based on the rate of error for the RFID system, that number will be much lower. On average, the RFID system misreads about 0.2 percent of all items each factory year [ CITATION Dav17 \l 1033 ]. This means that a mere 5,122 items are misread per year on an RFID system. This would cost the company about $20,488 in misreads as opposed to $204,880 each year. This gives us a cost savings of $184,392 per year from misreads. Next the labor cost will be calculated. Each year, 25,610,000 seconds are dedicated to barcode scanning if the average time it takes to scan a barcode is 10 seconds [ CITATION Dav17 \l 1033 ]. Each year, employees work 2,000 hours [ CITATION Dav17 \l 1033 ]. Converted to seconds this is 7,200,000 seconds each year for labor. If we divide 25,610,000 by 7,200,000, we get 3.56 people. This number allows us to calculate the total labor cost which is 3.56 times the yearly wage of $69,000. This gives us a yearly labor cost of $245,640 for scanning items. Adding the labor cost and the cost savings from misreads together, we get $430,032. It costs $620,000 to implement the new tags and hardware for the RFID system and an additional $480,000 for the software, training, and debugging giving us a total of $1,100,000 to fully implement the RFID system. If implementing the RFID system saves an average of $430,032 per year, then the RFID system will pay itself off in about 2.56 years which is the economic payback of the system.

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What are the Risks of Adopting New Technology Too Early? Too Late? Adopting new technology can be a risk for any company. If the technology is too new, then the price will be high and there will be a higher risk of defects [ CITATION Joe13 \l 1033 ]. When a new technology is released, generally the cost is much higher than it will be the following year. The upfront cost of implementing a new RFID system could be high this year, but might be lower next year, so the company risks paying more money for the same product the next year. A new technology will have bugs and defects initially [ CITATION Joe13 \l 1033 ]. It will not be until larger companies purchase the product and iron out all the bugs that it will be safer for smaller companies to invest in [ CITATION Joe13 \l 1033 ]. If a small company is constantly dealing with software or hardware bugs, this costs them time, money, and makes everyone frustrated with the new system. If they get frustrated with the new system too frequently, they will want to go back to the old system and they will not give the new technology the chance it deserves. “Many companies do not really understand how to implement technology effectively. This risk of a technology adoption failure is high” [ CITATION Dav17 \l 1033 ]. Implementing new technology can often be an expensive failure, so BI runs the risk of this happening if they implement the technology too early. However, included in the $480,000 purchase is proper training, implementation, and debugging consulting services, so this can eliminate some of that risk for BI [ CITATION Dav17 \l 1033 ]. If the company adopts a new technology too late, however, they will start losing business as their competitors adopt to the technology changes. We can already start to see this from BI losing the business of Wolf Furniture because their old system could not react quick enough to

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Wolf Furnitures demands. This lost the company about $2 million in sales per year. BI’s biggest customer, Home Depot, needs more flexibility, and the old system does not offer that. If BI does not make the switch soon, they could be too late, and Home Depot will take its business elsewhere. RFID technology has been around since 1983, when it was invented by Charles Walton (“History,” 2020). The technology is nearly 40 years old and has been adopted by more companies each year. Most of the bugs with RFID technology have been ironed out, so it is safe for BI to purchase the upgrade and move to the new technology. Recommendation to Mr. Bracket in the Short Term and Long Term In the short term, I would recommend making the initial hardware purchase for the RFID technology for $620,000. This will allow Bracket International to slowly migrate their system over to the new RFID system without disrupting their current business practices extensively. With this upgrade, they will not have to change their computer systems drastically, and they will not have to completely get rid of the old barcode system. In the long term, however, BI will need to purchase the $480,000 package that includes the software, training, and debugging. This will be worth it for the company as they will finally be able to fully integrate the new system. In the long term, BI needs to fully integrate to the RFID system to stay competitive and gain new business from customers with higher demands. If BI made the purchase of both the hardware and software packages all at once, however, this would be the best-case scenario. It will cost $1,100,000 upfront, but they will be fully integrated as quick as possible so they can continue to gain new customers and maintain their old ones. The system will pay itself off in about 2 and a half years, so for a short-term move, this one could be huge for the company.

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Conclusion This case study has taught me quite a bit about operational management. I learned that operational management handles many fields of business, including risk management and accounting. Accounting is necessary as the operations manager needs to calculate if implementing a new technology will be worth it or not. From this case, we found out that the new technology will pay itself off relatively quickly due to the cost savings involved. At first, $1,100,000 million seems like it would be a steep price to pay for a small company like Bracket International, but due to the misreads and labor costs involved, it will pay itself off in less than 3 years due to the cost savings. Operations managers must handle some risk management factors as well. They need to evaluate whether an investment will be worth it in the long run or not. In this case, it will be as it will save time, money, and keep the company competitive. When it comes to new technology, quickly adopting it can be risky, so in this case, the operations manager needs to determine the value of it. This case gave me a better understanding of the role of an operations manager. It allowed me to see just how much the role encompasses within a company. The operations manager must handle input from every department of the company so that they can accurately perform the duties of their job. This case study was valuable in showing how several departments need to provide information to the operations manager to ensure that a proper decision can be made.

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References Collier, D. A., & Evans, J. R. (2017). OM. Boston: Cengage Learning. Lee, J. (2013, October 18). 5 Reasons Why Being An Early Adopter Is A Bad Idea. Retrieved from Make Use Of: https://www.makeuseof.com/tag/5-reasons-why-being-an-earlyadopter-is-a-bad-idea/ RFID vs. Barcode – What’s the Difference? (2017, December 4). Retrieved from GopherWerx: http://gopherwerx.com/rfid-vs-barcode-difference/ The History of Radio Frequency Identification Technology. (2020). Retrieved from Paragon ID: https://www.paragon-id.com/en/inspiration/history-radio-frequency-identificationtechnology...