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Anatomy of an RFID Pilot

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Wal-Mart's CIO Talks With Business Week on RFID

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Wal-Mart's CIO Linda Dillman did a brief Q&A with Business Week magazine on - of course - RFID.

No new revelations, but some points worth highlighting:

	For Wal-Mart, it's not so much about cost reduction as it is increasing top line through fewer stock outs at store shelf: "Costs savings isn't the primary benefit for us of RFID, keeping goods in stock is. We'll see better tracking and moving of inventory, faster receiving and shipping, improved quality inspection, fewer out-of-stock items resulting in improved shopper satisfaction, greater predictability in product demand, and better value for the shopper as efficiencies occur," says Dillman.
	Dillman downplays the amount of investment that will be required of both Wal-Mart and its suppliers for hardware and software enhancements. "The amount of money suppliers will need to spend on RFID technology isn't as big as some people fear. In our stores, we essentially put in a black box that sits at the top of our legacy IT systems and sends us information from the tags. For suppliers, the setup will be similar. RFID also won't lead to a significant change in the amount of data we'll have to deal with -- so it won't, in most cases, require extra spending on basic software and hardware."
	RFID technology is evolving rapidly to deal with previously existing challenges. "Only in the past 60 days, researchers have figured out how to tag cases containing liquids. We expect that, by 2006, most of these issues will be past us, and that prices [for RFID] will fall substantially - leading to an explosion in the technology's adoption."

The Key Take-Away: Taking all this at its face, it says Wal-Mart will go "slow but steady" in its RFID roll-out. They "hope" to be live with the top 129 suppliers in one market - Dallas - by January 2005. While suppliers need to begin preparing, I think it's good news that this will roll-out in a more measured way, recognizing the need for continued technology advances, and that you have to walk before you can run.

Do you think Wal-Mart's RFID roll-out will go fast or slow? Did anything in CIO Dillman's comments surprise you? Let us know your thoughts.

Do You Know Where Your Supplier's Lead Time Data is Coming From?
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Interesting article in last month's APICS magazine. Based on years of experience by the author, it suggests that far too often, supplier lead times factored into complex MRP or supply chain planning applications, come from the supplier's sales rep, and may not be accurate.

As author Randall Schaefer notes: " We had been working toward Just-in-Time (JIT) manufacturing so our internal lead times were under control. But a handful of purchased components prevented us from meeting our lean targets. We had reacted to these lead times by trying the usual techniques: large safety stocks, vendor stocking programs, consignment inventory, etc. All of them worked well if judged on the criteria of not running out of parts. But none of these techniques were acceptable if compliance to JIT standards was the criteria."

Digging into this issue, he found the lead time data in their systems came from the parts buyer, who in turn got it from the vendor's sales rep. So, he "asked the purchasing manager to personally talk to a high-level operations person, at each supplier, and explain our problem with the lead times for these parts. I also asked the purchasing manager to then provide the suppliers with our maximum acceptable lead time, for a target, and to ask the suppliers what they could do. I was surprised when the purchasing manager succeeded in bringing all but four of the parts within the maximum acceptable parameter."

Finally, "Purchasing must make acceptance of the maximum allowable lead time a condition for accepting quotes. Period. Don't tolerate whining that this policy restricts purchasing's authority or complaining that low cost suppliers are eliminated. Purchasing's goal should not be to use the low-cost supplier but to use the low-cost supplier that can perform to quality, delivery, price, and lead time standards. Old, favored suppliers whose quotes are no longer accepted will quickly figure out how to synchronize their delivery lead times with your allowable lead times."

Key Takeaway: Don't assume your supplier lead times are fixed based on what is "in the system." Having operations work directly with its counterparts at the supplier can often reveal insight or opportunities for both parties.

Do companies too often just accept the sales reps' version of lead times? Is this information often dated, or not the true state of affairs? Do you have examples of stories similar to the one above? Let us know your thoughts.

PRTM Has Good Advice for Improving Order Management for Complex Products
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Ran across an interesting piece from consultants PRTM on the need for companies manufacturing complex-engineered or configured-to-order products to dramatically improve order management processes.

The report cites one company that processes 1000 total orders per year, but 200,000 changes to those orders, as during the long lead times suppliers change parts, customers make changes, the design is altered, etc.

These changes are costly - first, the internal overhead to manage the multitude of changes, and the drain on engineering resources. While some think these "change orders" actually increase profits, PRTM suggests they actually drain profit margins. The key is improvement in the entire order management process, which can significantly reduce cycle times and the total cost of managing an order through its lifecycle.

	Order management process: Detailed look at current process steps and opportunities to take out time and cost.
	Customer order teams: Cross functional teams jointly manage individual customer orders.
	Order management governance and measurement: Development and detailed reporting on key order management process metrics, with executive oversight.
	Business rules: More rigorous definition of policies regarding pricing, options, configuration, material/component suppliers, etc. to provide a decision framework and internal discipline.
	Improve technology: But there are no magic bullets for this problem from existing solutions. Key is avoiding a morass of time and cost when selecting and implementing order management systems in this environment.

Key Takeaway: While most complex, engineered products companies would probably agree on the problem, this tends to fall into the "important but not urgent" categories, and never really gets addressed. But there are lots of dollars on the table in terms of both cost reduction and increase market share, for companies that substantially improve order management processes.

Does the order management process need to be fixed in most complex, engineered-to-order manufacturers? What are the key barriers to making these improvements? Is lack of the right OMS systems for this market an issue? Let us know your thoughts.