It could have saved thousands of dollars by taking the "slap on RFID and ship" route, but vitamin-maker Schiff thinks its full-blown RFID project will have a bigger payoff in the end.
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
If Rod Farrimond ever tires of his career in information technology, he should have no problem landing a job in sales—not after the coup he pulled off last spring. Farrimond works for Salt Lake City-based Schiff Nutrition International, a maker of vitamins and nutritional supplements, but his sales feat had nothing to do with multi-year contracts for Tiger's Milk bars or Glucosamine Gelcaps. What Farrimond pulled off was a feat of a whole other order of magnitude: He convinced management to sink nearly half a million dollars into a project that offered virtually no prospect of a conventional ROI.
The story began with a mandate from Wal-Mart. In March 2006, Schiff got word that if it wanted to continue doing business with the mega-retailer, it had until January 2007 to start putting RFID tags on the cases and pallets it ships to Wal-Mart's DCs. That created a dilemma for Schiff, which had yet to get started with RFID. It wasn't a question of whether or not to comply with the mandate (it would). It was a question of how deeply to get involved with RFID to accommodate a single customer whose business represented less than 1 percent of the company's total volume.
For many suppliers in Schiff 's position, the answer would have been obvious: slap and ship. They'd buy some tags, slap them on the shipments that required them, and hope for the best. But Farrimond, who is the company's manager of business analysis, rejected that idea from the start. Though slap and ship might be cheaper in the short term, he felt Schiff would be better off finding a scaleable solution that would allow it to meet similar requests from other customers down the road. (At press time, Schiff had been asked to start shipping RFID-tagged product to a Sam's Club DC in Desoto, Texas.)
As reasonable as that argument might sound, it would still be tough to sell to management. That main hurdle? Return on investment (ROI). Farrimond's back-of-an envelope calculations showed that only 180 of the 25,000 cases the company ships each week would require tags, which meant Schiff wouldn't see any operational savings right away. He'd have to persuade management that the payback would come elsewhere in the supply chain. As Farrimond puts it, "We're not going to see it come back in any hard form of ROI, but we believe it'll be there. RFID is a supply chain initiative, and ROI studies usually have a hard time dealing with the fact that the ROI may not come within your own four walls."
In meeting after meeting, Farrimond laid out his case. Schiff might not see savings in its operating costs for a while, but it would almost certainly see sales growth through a reduction in out-of-stocks and increased inventory turns at Wal-Mart. "When that occurs,"he notes,"then our top-line growth accelerates. It'll probably never be attributed directly to RFID, but it's good for the company. We had to talk long and hard to our executive team about why that's important."
The right stuff
In the end, Farrimond's arguments carried the day. Management gave the project the green light and approved a budget of $465,000 for the RFID initiative. But as the project got under way, Farrimond began to wonder whether pitching RFID to management might not have been the easy part. In a matter of months, he and his team would have to design a system from the ground up, choosing the tags, readers, and middleware that best met their requirements. There was the added pressure to get it right the first time because Schiff, a mid-sized company (it recorded $178 million in sales in 2006), didn't have the luxury of limitless funds.
Rather than try to design the system on his own, Farrimond decided to consult with the experts. Over the next few months, he made several trips to IBM's RFID testing lab in Raleigh, N.C., to get recommendations from the center's specialists and test different types of equipment. He wanted to find a solution that would work for both cases and pallets, including mixed pallets, and that wouldn't require wholesale changes to the DC's operations. For example, the system had to allow DC workers to stack cases on pallets the usual way without worrying about the orientation of the tags.
On top of that, the solution had to be fully scaleable. "Schiff wanted a solution that not only offered enhanced productivity, but was also interoperable with other supply chain partners, highly scaleable, and replicable for future customers and their unique specifications," says Scott Burroughs, middleware software solutions executive for IBM Software Group.
In just 12 weeks, specialists from IBM and systems integrator OATSystems helped Farrimond come up with a system that's able to read tags on mixed pallets containing over 100 cases with 100 percent accuracy. "We know that all the cases on that pallet actually belong there, and we are able to associate a certain pallet with a particular sales order, and we know everything about the sales order and all the EPC numbers that went with the sales order," says Farrimond. Eventually, Schiff will be able to use the data collected to create an electronic "pedigree" that can be used to document the products' movement throughout the supply chain, verifying their authenticity and deterring counterfeiters.
The company rolled out the RFID system in late October at its DC in Salt Lake City. After a two-week trial period, it shipped its first RFIDtagged pallet to Wal-Mart in mid-November. In January, it began shipping tagged cases (corrugated cases of plastic bottles containing tablets and capsules) to three RFID-enabled Wal-Mart DCs. Farrimond reports that Wal- Mart achieves read rates of about 96 percent at its DC, which is slightly better than the average read rates recorded by the retailer. Schiff currently tags six stock-keeping units (SKUs), but Farrimond expects to increase the number to 15 shortly.
As for the cost, the project came in 30 percent under budget. The company had allocated $465,000 for the RFID initiative; Farrimond and his team spent only $323,000.
The next act
Right now, Schiff is using its RFID system purely for compliance with Wal-Mart's mandate. But it soon will begin taking advantage of the technology in other ways. For example, the company plans to start attaching RFID tags to promotional displays bound for the sales floor at Sam's Club stores sometime this month. "We're talking about putting a 20-cent tag on a $1,000 display of products," says Farrimond, "and being able to make sure that pallet is out on the floor when it should be. That type of thing has an immediate payback."
In the meantime, Farrimond has begun to identify possible ways to integrate the technology into the company's internal operations as tag use becomes more widespread. For example, he foresees a day when Schiff will be able to use automatic RFID reads, rather than laborintensive bar-code scans, to collect data for advance ship notices (ASNs).
Eventually, Schiff will be able to use the data gleaned from RFID reads to trace inventory down to the store level. "That's where the real gold is, and we're helping them to mine that gold by capturing the data and analyzing it downstream," says Paul Cataldo, vice president of marketing at middleware provider OATSystems.
That tracing capability will enable Schiff to confirm that its deliveries have been received at customers' DCs, which will help resolve disputes in cases where, say, a retailer claims to have received only 58 of the 60 cases it ordered. "We can look at our information pOréal and start to look for those case reads if there is a discrepancy," says Farrimond."If we see all 60 case reads, we can tell them that either their hand count was wrong or something else happened. We'll have the ability to tell them what distribution center received them and which store they were shipped to."
An equal opportunity technology
Though small and mid-sized companies often assume that RFID is out of their reach, Schiff 's experience shows that it's not just for the giants, says Farrimond. "One reason we wanted to share this story," he says, "is to point out that if you are smart and do it well and get a good partner to implement with, then even small and medium-sized businesses can do this without damaging your profitability."
What they need to understand, he adds, is that the ROI is unlikely to come from the traditional sources (like operational savings) but rather, from increased revenues elsewhere in the supply chain. "You have to recognize that it's the supply chain that becomes more successful, and not necessarily [operations within] your four walls. The ROI will come when the supply chain is more efficient and you can sell more things or sell them faster. If people realize that this little company can do it for 1 percent of [its] volume, then maybe others will realize they can figure out how to do it as well."
"we've got it on tape"
Not so long ago, a company that took the RFID plunge— investing in the technology in hopes of streamlining its logistics operations—could expect to wait three to five years for a payback. But that's starting to change. Someday soon, the average payback period for RFID projects could drop into the range normally associated with warehouse management systems and other software.
In fact, reports are beginning to trickle in about companies whose innovative applications are paying for themselves in 12 months or less. Take electronics giant Sony, which has combined item-level RFID tagging and digital video at its distribution center in the Netherlands. Sony expects to see a return on its RFID investment in under a year, due to the products' high value (the facility handles digital cameras and camcorders) and the volume of orders shipped from the site. (Currently, the electronics giant is moving 60 pallets of item-level tagged goods through the DC every hour, with plans to increase the volume.) The payoff, it says, will come in the form of increased shipping efficiency, reduced shrinkage, and a streamlined claims process.
For the project, which went live at its primary European DC in Tilburg earlier this year, Sony is using RFID tags from UPM Raflatac and Reva Systems' Tag Acquisition Processor (TAP) system, which filters RFID data from networked RFID readers, manages those readers, and sends the data to back-end systems.
Sony tags products to be shipped with RFID labels and then records the items' IDs at each stage of the fulfillment process, as they are picked, stacked, and shrink-wrapped on pallets. An automated video system records the process, burns RFID data onto the video image, and indexes the MPEG4 video stream according to the RFID information. The system also logs pallet movement through dock doors and onto trailers, combining video and RFID to provide visual and electronic proof of delivery.
Among other benefits, the new system is expected to help Sony resolve difficulties confirming deliveries to major retailers during peak shipping periods. In the event of a dispute, Sony will be able to provide not just electronic shipment confirmation, but also video proof that the items have been loaded onto trucks and shipped.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."