Saturday, March 29, 2008

Keeping Track Of Inventory Can Be A Nightmare! Think Again.

I came across an article recently which highlighted a problem which most companies face, but are reluctant to address it until it balloons out of proportion. Its “Keeping Track of Inventory”.

Most of the companies in the cut throat environment spend all their energies into building their products, marketing them; and as the company starts growing in size literally, everyone is happy. As the company grows, it starts to buy equipment, expand, occupy more floor space, moving the old but still usable items into storage. Sometimes the company plans for the future expansions, and buys the necessary equipment in advance and stores them.

When the economy favors, the most of the companies go into overdrive and hire people in big numbers. Accordingly the company has to invest in the equipment these people would be using. Alternatively such companies upgrade their equipments and unlike small startups which sells/exchanges the old equipments; the big companies store them as a backup for emergencies.

When a company has no idea how much is lying unused in its storage facilities, especially IT companies, it’s a nightmare waiting to happen. Some companies have no idea how much equipment is on its office premises.

There is a popular story doing the rounds in the IT circle highlighting the inventory management woes. CFO & CIO of a major company were inspecting their warehouse. One of them pointed to a dusty old box and asked the other about its contents. They found a $2 million server that had been gathering dust for over a year.

Imagine the last time someone in your office borrowed something from you – a report, a file, even a ruler. Did you get it back in a timely manner? If the item was inconsequential, you probably weren’t too concerned. But if the item was vital to your work, you felt differently. Now, imagine you rely on a piece of shared equipment to do your work, and people are constantly using it and forgetting to return it.

If old equipments are given away or otherwise disposed, but not taken off the books, companies must continue to pay property taxes on them to the government. A case in point is that of a company in U.S. that paid millions of dollars in taxes on 20,000 computers it no longer possessed.

I have just one simple answer to this solution - RFID. Radio-frequency identification (RFID) is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders.

A typical RFID system has three components, tags, reader and RF unit. The RF reader sends out RF waves that are received by the RF tag within the reader's range. The tag in turn, sends information back to the reader, also in the form of RF waves. Then the RF reader transfers this information to RF unit.

Imagine, one wants to keep track of all the office equipment. All one has to do is place RFID Tags on these equipment and optimizing the tag placement for accurate reads. When an inventory check has to be done all one has to do is to walk around the office with a RFID Reader (PDT) in hand. The tags receive incoming radio frequency signals emitted by a portable data terminal (PDT) with RFID tag reader. The incoming radio signals energize the tag, causing the tag to transmit its identification data back to the PDT.

All RFID tags within range respond when interrogated by the reader, no matter where they are located. The assets in each room are recorded by location using a supported PDT. Asset status is recorded as missing, invalid, or valid so you know what is missing, misplaced, and present.

The benefits of RFID go beyond tracking capabilities. RFID tags provide more sophisticated data protection, where data stored on barcodes provide no protection from being copied. RFID tags provide greater accuracy in sustaining data. The tags store information in a long-lasting microchip, instead of barcode labels which may deteriorate over time and sometimes must be reapplied. RFID tags provide better data security because RFID tags cannot be cloned as easily as barcode labels.

RFID reduce the time you spend taking physical inventory by up to 75%. Efficiently locate and identify assets in an entire room because line-of-sight scanning is not required. You'll eliminate sore knees and backs from bending and searching.

With the complete details of the assets in hand a company will be able to quickly attend to the requests raised. Resources management comes with inventory tracking functionality.

Other Applications Of RFID:

Inventory Monitoring And Asset Visibility – Smart Shelves:

In a replenishment-based system, whenever the total inventory at a warehouse or distribution center drops below a certain level, the RFID enabled system could place an automatic order. RFID-tagged products will allow stores to track the location and count of inventories in real time. This will better monitor demand for certain products and place orders to prevent an out-of-stock situation. The high levels of inventory monitoring obtained using RFID can particularly benefit FMCG industries.

On the retailing side, RFID technology at the point-of-sale (PoS) can be used to monitor demand trends or to build a probabilistic pattern of demand. This application could be useful for apparel industry or products exhibiting high levels of dynamism in trends.

Reduced Bullwhip Effect:

Exaggeration of demand in upward direction in a supply chain network is termed as Bullwhip effect. Due to tracking limitations of conventional systems it may not be possible to get accurate information on actual sales of items; that will amplify the magnitude of the bullwhip effect. If RFID systems are used for information collection, accurate and real time information on product sale can be captured and used for decision making. This will definitely help to reduce overall bullwhip effect. Reducing bullwhip effect would benefit industries where instances of supply-demand imbalances have high costs attached to it.

Lead-Time Reduction:

Conventional systems limit tracking of items while being transported. RFID Systems gives a total visibility of product movement in the supply chain. This may help to make early decisions about inventory control in case there is any interruption in the supply. It partially or completely eliminates time and effort required for counting while loading/unloading the items. This results into reduction of total lead-time for arrival of an order. Pharmaceutical industry, perishable product industry could use RFID systems for reducing lead-times that will help to increase total useful shelf life of items.

RFID For Inventory Control Improves Sort/Pick Rate:

In a warehouse, sorting/picking activity is more time consuming and subjected to errors. For example, for issuing of items from a store, a person has to find out whether the item is available in store or not by physically moving to the location. Items issued should be kept in a particular position (bar-code upward) in a pallet for scanning/billing purposes. RFID systems ease the sorting and picking operations, as it captures real-time, accurate information about product availability in host computer database without physical movement. RFID tags are read via radio frequencies therefore it is not mandatory to place the items in a particular position to read it. This could be helpful for effective warehouse management.

Reduced Inventory Shrinkage:

As items are continuously monitored, Inventory shrinkages including thefts, misplacement of items can be avoided using RFID technology.

Perishable Inventory Control:

A perishable product has limited useful life and if it is not handled properly while transporting, it may get spoiled and its useful life reduces. If this reduced life information of items is not updated, then it may be possible that an outdated item gets delivered to a customer. In such a case, there may be an additional cost of replacement of item and also loss of goodwill of customer. Such spoilage could be reduced simultaneously with automating inventory management, by using RFID technology for product identification, while it moves through the supply chain. RFID system can track the items in real time without product movement, scanning or human involvement. Using active RFID tags it can be possible to update information on it dynamically.

Issuing Policies

RFID systems give exact count and location of items. This will help to follow a certain issuing policies for items as per the requirements. E.g.: First-in-first-out (FIFO) policy for items such as, vegetables, bread; or last-in-first-out (LIFO) for blood banks.

Thus, we see the advantages in employing RFID for effective Inventory Management.

Source: IntelliTrack, DecisionCraft

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