The ROI for Automatic Container Tracking Using RFID. A Case Study Analysis based on Re-usable Intermediate Bulk Containers

Transcription

1 The ROI for Automatic Container Tracking Using RFID A Case Study Analysis based on Re-usable Intermediate Bulk Containers

2 Executive Summary An RFID system was implemented in 2005 at a chemical facility to track the entry/exit of reusable containers, also known as Intermediate Bulk Containers (IBC), shipped on trucks and rail cars. The system was implemented to automatically account for the pool of containers, a portion which were regularly missing, being returned late, or damaged by customers. A secondary consideration was the reduction of the total pool of assets as a result of the new visibility, and a reduction in labor associated with the automated management of the pool. The return on investment (ROI) analysis here was developed to assess the fi nancial and strategic impact of implementing RFID. The semi-active, Active TagTM RFID system from AXCESS International was selected because the tags could be automatically activated at the entry/exit points, and therefore required no human intervention as with passive or semi-passive systems. The battery-powered semi-active tags provided highly reliable tag reads off the metal IBC container surface. And, the network- based reader infrastructure that was implemented was low cost, low maintenance, architecturally unobtrusive and aesthetically pleasing. Axcess enterprise application tracking software (On- line SupervisorTM) enabled the end user to integrate the data seamlessly with their inventory accounting system. This software solution was designed to manage multiple container locations, enabling access from multiple sites. The case includes 3500 IBCs in a facility with 4 entry/exit points. The average container (replacement) cost is $2,500 each. The system design includes four RFID palm-sized network connected receivers and four on-demand tag activation equipment installations at entry/exit points for trucks and rail. The On-line SupervisorTM software package automatically logs all the containers coming and going and delivers the data to the existing enterprise application. As a standalone, it provides time (or dwell) measurements, map-based location illustrations, alerting, and customer designed reports as needed. The pricing of the system includes a total infrastructure cost of $101,000. Individual metal mountcapable RFID asset tags are priced at $24 each. The amortized average cost per asset per month for RFID tagging came out to be $.80 per month per asset over an assumed 36 months. The total capital cost of the entire system including installation and software on a per tag basis came to $29 each. This overall measure pinpoints the total cost of ownership and was useful in normalizing competing architectures to the average total cost per tag including all aspects of the system. The highly conservative base case analysis showed a positive fi nancial return (or ROI) for the capital purchase of a system capable of delivering (dynamically) an automatic asset inventory, facility location determination, and full asset management. The only savings assumption made in the base case was in the reduction of lost or missing containers by 1% (or 35) in total per year. These containers are typically lost through leakage to other companies, sub-pooled out and not retrievable. Often times they remain at a customer location for an extended period. Typically, industry statistics for asset shrinkage are 2% of the total base per year. Improvements in visibility have shown improvements as high as 44% (or a 44% reduction in needed assets.) They may be missing or unknowingly being used by a customer. While the system can also automatically track-back damaged containers to the customer, no dollar recovery was assumed in the analysis. Also, although the system now automatically calculates the time the customer has possession of the container (dwell), no late fees or monthly rental was included in the analysis. No labor savings were included in the base case. No assumptions were made for accurately tracking containers for mandated inspections. Finally, no assumption was made for reducing the total asset pool based upon the new asset visibility. Prior to the RFID implementation, no visibility existed. 1

3 The analysis returned a dramatic 652% internal rate of return (IRR) for the savings, a 14 month payback for the system, and over $176,000 in net present value savings (assuming a 12% discount rate or cost of capital). If lease fi nancing was chosen, the payback period dropped to less than six months. Therefore, for a closed loop re-usable container management solution, a semi-active RFID system for automatically inventorying, locating, and managing containers proved to be fi nancially viable. Further sensitivity analysis included reductions in lost assets of 5% and 10%. The payback periods drop to less than 3 months and 2 months respectively. Their detailed results are included in the table below. Measure/Savings 1 Percent 5 Percent 10 Percent Payback (months) NVP (@12%) $176k $1,239k $2,567k The conclusion was there is an immediate ROI and solid business case for using semi-active RFID for automatically counting, locating, and managing a pool of container assets. The new found visibility also opened up the opportunity to recover monies for damaged containers. The other new opportunity provided by RFID was the potential to charge customers late fees for overdue containers and even charge rent for containers in use. Background The chemical facility analyzed here is in the business of delivering raw chemicals in bulk containers nationwide in the US. Containers travel to the customer s location and sit until emptied and then until picked up when the next order arrives. Without automated tracking, no visibility into the container pool existed. Frequently, containers would be returned late or not at all. And, damaged containers could not be traced to a customer. No easy way existed to identify containers needing periodic inspection to satisfy regulations. The multi-ton metal fl ow bin containers cost an average of $2,500 each and with a pool of 3500, the business issue warranted fi nding a solution for tracking and tracing. The concept was to tag the containers and automatically identify them as they left and entered the facility. The basic expectation was to reduce the overall pool of containers as with the dynamic location visibility and dwell calculations available from the software, late or missing containers could be addressed and the overall pool reduced. The portfolio of published cases to date were RFID solutions delivered savings for a stock of assets shows a range of from 2% to 44%. The savings in the cases consistently considered the elimination of shrinkage and the reduction in the pool of assets based on improved visibility and effi ciency. System Considerations The size, content, working environment and logistics of the containers demanded batterypowered RFID tags. Passive tags placed on metal containers are unreliable, their transmit range too short (only a few feet at best), and the typical passive portal reader infrastructure required at vehicle gates are obtrusive and prone to frequent damage. Active-only tags which transmit on a beacon or regular basis are unacceptable for gate control, and waste their signal and therefore battery life while constantly transmitting. A semi-active operation was chosen because tags could be awakened only upon exit and entry using activator electronics. The semi-active tags were affi xed to the metal containers and operated successfully. And, the rugged semi-active tags were found durable enough to withstand heavy heat and chemical cleaning for regular re-use. 2

4 The System Design The system design included four palm sized receivers placed at the four truck and rail entry/exit points. Tag activators with road loop antennas were placed at the entry/exit points to awaken the tags as they approach the gate. Each tag is enrolled in the system and its ID linked in the database to each unique container. Each tag activates and transmits its unique ID to the receiver. Tag data is sent over the corporate TCP/IP network and collected in the OnlineSupervisorTM software database. Software OnlineSupervisor is a browser-based, enterprise software application which uses a powerful middleware engine to process the tag reads based on pre-defi ned user rules. Tags are enrolled in the software which can include unique historical data and schedules for inspections. Tag data is collected and presented as read on a screen when logged. The software was easily interfaced to direct tag reads to the enterprise inventory system at the database level, thereby improving the utility of the existing enterprise system. The software is also available to users at multiple sites and able to track containers at multiple sites. Tag reads are also fi ltered against the pre-defi ned rule base for alarming. Alarms or exception reporting can include s or wireless messages to address a particular condition such as a scheduled inspection, a late arrival, or a damaged container. Queries are supported by location and by tag ID. Dwell times are available by tag ID. Automatic and dynamic inventory counts are managed and optionally available for display on the user confi gurable browser dashboard. Any given tag ID can be drilled down on for data on the container, its location, and its history. Aggregate reports are available on-demand for containers (by type) and locations. Location queries include a desktop visual map identifi cation with optional tracing of previous locations for tagged containers. Also available in the system is an integrated digital video storage capability automatically linked to each tag read. By clicking the tag transaction, stored digital video of the tag event such as the container s entry or exit is displayed. This is particularly useful for recording evidence of damaged containers. Financial Analysis The ROI model here used the most common methods of fi nancial analysis for an IT project including the IRR (internal rate of return), NPV (net present value of the savings over time), and the payback period (or breakeven point). The key intangible and variable savings item for the model was the reduction of the number of containers based the addition of visibility and management of the pool of containers. The assumption includes protection from loss of containers. It refl ects a simple reduction in the overall pool based on improved visibility (such as the effi ciency of containers being returned on time). As shown in the following spreadsheet, the analysis covers four years of operations, corresponding to the average expected fi eld battery life of an active tag. 3

5 4

6 The analysis returned a dramatic 652% internal rate of return (IRR) for the savings, a 14 month payback for the system, and over $175,000 in net present value savings (assuming a 12% discount rate or cost of capital). If lease fi nancing was chosen, the payback period dropped to less than six months. Therefore, for a closed loop re-usable container management solution, a semi-active RFID system for automatically inventorying, locating, and managing containers proved to be fi nancially viable. Further sensitivity analysis included reductions in lost assets of 5% and 10%. The payback periods drop to less than 3 months and 2 months respectively. Their detailed results are included in the table below. Measure/Savings 1 Percent 5 Percent 10 Percent Payback (months) NVP (@12%) $176k $1,239k $2,567k Another sensitivity was run on reducing labor associated with the container activities. The sensitivity showed little benefi t in reducing the labor compared with the dramatic effect of finding even one lost container. No calculations were made for improving the compliance for the required container inspections. No calculations were included for the recovery of funds for containers damaged by customers. No consideration was given for the potential of charging customers for any excess time the containers were used. Considering these elements would make the business case even better. The conclusion was there is an immediate ROI and solid business case for using semi-active RFID for automatically counting, locating, and managing a pool of container assets. The RFID system installed offered the opportunity to grow in terms of the number of units, sites, and capabilities such as in the generation of new revenue sources. About the author: Allan Griebenow is President and CEO of AXCESS International Inc. AXCESS International Inc. (OTCBB:AXSI), headquartered in greater Dallas, TX, provides Semi-Active and Active RFID (radio frequency identifi cation) system for enterprise business process improvement.. The battery-powered (active) RFID tags locate, identify, track, monitor, count, and protect people, assets, inventory, and vehicles. AXCESS patented RFID technologies enable applications including: automatic hands-free personnel access control, automatic vehicle access control, automatic electronic asset management, and sensor management. AXCESS is a partner company of Amphion Innovations PLC.. Allan can be reached at or at agriebenow@axcessinc.com. The company s web site is AXCESS International Corporate Headquarters 3208 Commander Drive Carrollton, Texas tel: fax: Internet marketing@axcessinc.com Sales (toll free in N.A.) fax: Service and Support (toll free in N.A.) fax: Contact Ben Donohue, VP Business Development 5