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December 2018

REDEFINING RADIO FREQUENCY IDENTIFICATION IN THE AGE OF E-COMMERCE

1©2018 Armstrong & Associates

Redefining RADIO FREQUENCY IDENTIFICATION

IN THE AGE OF E-COMMERCE

The continued growth of e-commerce is one of the key trends driving an increase in the cost of logistics. Armstrong & Associates estimates e-commerce logistics costs of $141.6 billion in 2018 will increase to nearly $200 billion in the next two years, an astounding 17.7% compound annual growth rate. As customer delivery expectations continue to climb, the need for better tracking, inventory accuracy, and visibility has become paramount. Meanwhile, the bar for responsiveness and speed of execution is raised each year.

The future of retail isn’t just e-commerce, though—it’s also about improvements to omnichannel fulfillment. That might mean inventory is shipped to a store, a sortation center, or a customer’s doorstep. As ever-increasing volumes of goods are transported through ports and across highways, products shipped from across the globe are filling up e-commerce fulfillment centers. Two-day fulfillment means inventory that could once be stored in just a single distribution center must now be stored around the country. The result? Retailers, warehouse operators, and third-party logistics providers (3PLs) alike have been searching for ways to speed up distribution

processes and increase the accuracy of inventory data across all the places that inventory is held.

While bar codes have been a traditional method for tracking products, most systems require a human to operate and scan items. With radio frequency identification (RFID), a form of wireless communication that uses radio waves to identify and track objects, enterprises can automatically check a shipment, simultaneously scan thousands of items, and instantaneously transmit data to centralized systems. Less human interaction reduces the opportunity for errors and can account for a reduction in labor costs.

Leading retailers are already familiar with RFID, and have used the technology to increase inventory accuracy. This improved accuracy in inventory data is the foundation for improvements in omnichannel applications such as in-store pickup and ship-from-store fulfillment. Accurate inventory data also allows a retailer to reduce safety stock and sell to the last item. Both of these areas can have positive impact on a retailer’s profitability. However, the value of RFID can be realized far earlier in the supply chain--—in the warehouse.

RAIN RFID

The term RFID encompasses multiple types of technologies. Of particular interest to the logistics industry is RAIN RFID. RAIN RFID is a battery-free (passive) type of RFID that wirelessly connects any item to an application or the internet. Since a battery isn’t required for tagged items, RAIN RFID is ideal for tracking goods in the supply chain. RAIN RFID can identify thousands of items per second and does not need line-of-sight to read items. Tags are low-cost and suitable to track all types of items.

2017 $117.2B

$141.6B2018E*

$168.2B2019E

$196.2B2020E

U.S. E-Commerce LOGISTICS COSTS

*Expected logistics costs

2©2018 Armstrong & Associates

Enabling Accuracy with RAIN RFID

High-volume warehousing operations require extraordinary accuracy. Small errors can quickly translate into hundreds or thousands of dissatisfied customers. Costs mount rapidly: mis-shipments double pick costs, expediting late items can increase outbound shipping costs five-fold, departure scan errors ding revenue, and customer service costs increase. Avoidable logistics costs eat away at profit, and accuracy is directly tied to the bottom line.

Yet as SKUs multiply and shipment volumes continue to grow, accuracy becomes more difficult to maintain. Manual tracking of pallet contents, inbound shipments, and outbound shipments can no longer keep pace with the speed of business. To be successful in today’s competitive marketplace businesses need to use technology to speed processes and improve the accuracy of inventory data managed in operations systems. Bill Hardgrave, founder of the RFID Research Center and Auburn University provost, put it simply: ”The only way to do that is inventory accuracy. The only way we’ve found to solve it in an efficient manner is RFID. We know it works. We know the benefits.”1

A recent study found that logistics experts from leading 3PLs unanimously agree that RAIN RFID technology improves inventory management, increases visibility with real-time data, and offers better tracking. In fact, inventory accuracy can increase from 70% to 90%–95% with the introduction of RFID technology.2

Shipment Verification at the Dock Door

RAIN RFID in the warehouse allows for multiple validation layers. Item-level tags ensure the correct items are placed in the correct box, and verify that those boxes are placed on the correct pallet. However, as items pass through the dock door going on and off trucks, verifying the right shipment is heading to the right destination is a challenge.

RFID shipment verification connects real-time data about items passing through dock doors with the

systems that run shipping and receiving. Warehouse operators can track what enters and leaves a warehouse, through which door, and when. Items can be tracked at the pallet level, carton level, or item level. That’s without the need for the dock worker to manually scan the item before placing it onto the truck.

Labor savings is key in today’s environment. It’s rarely been more challenging (or more expensive) to staff warehouses. In 2018, the unemployment rate dropped to the lowest rate in decades, an especially difficult situation for the already labor-strapped logistics industry. The demand for employees in the sector will continue to grow.

1 Real-time inventory and shipment data

2 Improved inventory management

3 Better tracking

4 Fewer mis-shipments

5Reduced need for manual cycle counts and verification steps

6 Fewer time delays

7Quick identification of bottlenecks and other process improvements

8Improved Key Performance Indicators (KPIs)

9 More efficient returns and recalls

10Increased order picking efficiency and employee stocking routes

11 Reduced labor costs

12 Faster, repeatable decisions

Advantages of RAIN RFID

©2018 Armstrong & Associates 3

According to a recent CBRE report, the rapid growth of e-commerce will require an additional 452,000 warehouse and distribution workers in 2018–19.3 The corollary, of course, is that wages are increasing, by a staggering 22.6% over the last four years.4 For e-commerce facilities, the effect is compounded, because labor-intensive piece picking work means three times as many employees are required per square foot, as compared to a typical warehouse.

That only gets tougher when there’s an Amazon fulfillment center in town (and there usually is). As Amazon boosts the minimum wage across its employee base to $15 per hour, wages across the board will continue to climb as warehouse operators struggle to attract and keep staff.

That’s why warehouse operators, 3PLs, and retailers alike are investing in technological enhancements. By reducing the need for labor within the warehouse and at the dock door, RAIN RFID is a key part of that investment.

RAIN RFID Drives Warehouse Efficiency One Step at a Time

As warehouse operators aim to meet ever-increasing customer requirements and fulfillment speed, getting ahead (or even keeping up) has become a matter of technology. The majority of warehouse operators are investing in equipment handling and information technology systems within the next year, with an average anticipated spend of $350,000.5 This is an area of opportunity for 3PLs. In a bid for speed, accuracy, and efficiency, customers of 3PLs are increasingly asking for advanced technology solutions.

While the majority are planning investments, others are looking closely at the costs and complexities of taking their warehouses to the next level. Scalability is key. Many companies have found success starting with improvements for their biggest pain point and expanding over time. Ideal solutions are both flexible

and scalable, like pick-to-light, voice picking, and certain scalable RAIN RFID technologies. For warehouse operators, innovation can start small and prove a return on investment (ROI) before expanding. 3PLs can use a pilot as a business case internally and to prove value to clients, who often clamor for technological enhancements with proven ROI. E-commerce has resulted in rapid growth for many small- and medium-sized retailers; scalable solutions can grow alongside retailers.

RAIN RFID is unique in the way that these solutions are intrinsically scalable. Rather than using disparate

4©2018 Armstrong & Associates

systems, organizations can start by using RFID tracking in one area, for example tracking shipments at the dock door, and leverage the infrastructure and integration investments to enable RFID tracking for other areas, such as building pallets or locating inventory.

In addition to showing ROI, RAIN RFID technology itself is impressive and efficient. In the last ten years, RFID technology has evolved at all levels, from improvements in tagging, capabilities of readers, and ease of data integration. Specialized RAIN RFID tags are available for a variety of hard-to-read items such as liquids and metals. Tag-read accuracy has increased and software applications now handle some of the complex calculations necessary to derive conclusions from tag read data, such as determining when an item has crossed a threshold. Real-time item-level data provides a much more connected and data-rich solution than batched barcode scans. Managing to KPIs and analytics is increasingly important, and a RAIN RFID solution provides accurate and timely data. Accuracy issues of decades past have been resolved and global standards have emerged.

Even as RFID technology becomes more sophisticated and use cases grow, costs are falling. A RAIN RFID tag that may have cost $0.25 a decade ago now runs

just $0.03 to $0.08. RFID technology has advanced into a more affordable, accurate, and global tracking solution.

Success Factors for RAIN RFID Projects

RAIN RFID has advanced greatly in the last several years, but not all solutions are equal. Customers should look for technology vendors with a single-platform capability. This consists of tiny microchips on tags, readers optimally designed to read these tags, and an operating system software layer bringing it all together. This will drive optimal accuracy, deployability, and scalability.

Many RFID solutions today rely on both readers and optical sensors in a dock door application. Optical sensors help determine whether an item is entering or exiting a warehouse. However, leading RFID providers now employ proprietary algorithms to determine the direction tags are traveling without complicated add-on sensors.

One of the key benefits of RAIN RFID, highly accurate and instantaneous data transmission, should result in actionable, accurate verification alerts. Look for a platform that includes event-alerting software.

Not All RFID is Created Equal WHAT TO LOOK FOR

RAIN RFID wireless technology

Sensor-free direction detection

Event-alerting software

RFID tuning abilities to adapt to specific environments

Remote reader health monitoring

Accurate, instantaneous data transmission

Reader configuration options

Ease of integration using RESTful APIs

Single-platform capability (tag microchips, readers, and operating system software)

5©2018 Armstrong & Associates

Customers should also seek custom configuration options. Look for systems that enable RFID tuning and RESTful API capabilities to easily configure to existing warehouse operation systems. Overhead reader configuration, an emerging innovation, is safe and ergonomically efficient in warehouses, out of the range of forklift damage and well positioned for accuracy. It is a simpler deployment and has lower installation and maintenance costs than a traditional system.

Finally, remote reader health monitoring that heightens system performance is a must.

The Future of RFID in the Age of E-Commerce

RFID, once a supply chain solution limited to the tracking of pallets and cases, is now used up and down the supply chain, at every point where product transitions occur. With use cases across industries as diverse as retail and healthcare, supply chain and industrial manufacturing, and even food and air transportation, RFID has become a truly universal technology. Leading 3PLs use RFID, as do the retailers that are revolutionizing omnichannel retail, from Target to Zara. Retailers can leverage the data to more accurately manage inventory, resulting in fewer stock outs, and retailers’ cost for holding safety stock is reduced. Management can also quickly locate items that may have been misplaced.

Just as omnichannel retail finds the right balance of physical and digital stores, the supply chain of the future will be at the intersection of the physical

and the digital. That’s a concept that comes up frequently. It’s a defining principle of one of today’s hottest topics: the “Internet of Things” (IoT). IoT is an ecosystem of technologies monitoring the status of physical objects, capturing meaningful data, and communicating that information through IP networks to software applications.6

If that sounds familiar, it’s no surprise. The Internet of Things has its roots in RFID; the moniker originally referred to an RFID-connected global network of objects. 3PLs and warehouse operators that want to incorporate this cutting-edge technology need not look any further than RFID. RAIN RFID’s unique applicability to connect high volumes of low-cost items and items that have no electrical or computing capabilities mean that it can extend an IoT system to include virtually any “thing” an organization desires to track.

As the Internet of Things becomes part of everyday life, RAIN RFID has the potential to be a key enabler of a connected omnichannel supply chain, allowing businesses and consumers to track items from their source, throughout the supply chain, and into the home.

RAIN RFID technology gives logistics providers a competitive advantage. Leading companies leverage RAIN RFID to reduce labor costs, increase supply chain visibility, ensure inventory accuracy, and obtain data for strategic business decisions. RFID adds value at all links of the supply chain. Savvy warehouse operators, 3PLs, and retailers can make shipment verification a 2019 initiative, starting at the most vulnerable part of warehouse operations, the dock door.

©2018 Armstrong & Associates

This white paper is sponsored by ImpinjABOUT IMPINJ

Founded in 2000, RAIN RFID provider Impinj is the market leader their source, the manufacturing process, throughout the supply chain and into the home. Its platform, comprising both hardware and software, uses RAIN RFID to wirelessly connect everyday items to the internet, delivering digital life to the physical world. Imping is helping companies around the world increase sales, improve efficiencies, and deliver compelling experiences. With more than 250 patents driving its technology, Impinj has connected over 25 billion items. A rapidly growing global company, Impinj has partners in 60 countries.

ABOUT ARMSTRONG & ASSOCIATES, INC.

Armstrong & Associates, Inc. (A&A) was established in 1980 to meet the needs of a newly deregulated domestic transportation market. Since then, through its leading third-party logistics (3PL) market research and history of helping companies outsource logistics functions, A&A has become an internationally recognized key information resource for 3PL market research and consulting.

A&A’s mission is to have leading proprietary supply chain knowledge and market research not available anywhere else. As proof of its continued work in supporting its mission, A&A’s 3PL market estimates are the most often cited in securities filings by publicly traded 3PLs, media articles and trade publications. In addition, A&A’s email newsletter currently has over 62,000 subscribers globally.

A&A’s research complements its consulting activities by providing a continually updated detailed database for analysis. Based upon its unsurpassed knowledge of the 3PL market and the operations of leading 3PLs, A&A has provided strategic planning consulting services to over 30 3PLs, supported 20 closed investment transactions, and provided advice to numerous companies looking to benchmark existing 3PL operations or outsource logistics functions.

Endnotes1 https://www.supplychaindive.com/news/RFID-rise-fall-and-return-retail/530608/2 Radio Frequency Identification (RFID) and Its Impacts on Logistics Activities, Binh Doan, 20173 Industrial & Logistics Labor Report, CBRE Research, 2018, ttps://researchgateway.cbre.com/Layouts/GKCSearch/DownLoadPublicUrl.ashx4 https://www.supplychaindive.com/news/warehouse-wages-rising-supply-chain-budgets/531529/5 Peerless Research Group6 https://blog.atlasrfidstore.com/internet-of-things-and-rfid

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The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Armstrong & Associates delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such, Armstrong & Associates can accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect.