0 Million Usd One Time Costs example essay topic

Electronic Product Code Project Table of Contents Executive Overview... 3 Stage 1: Determination of Scope and Objectives... 4 Stage 2 - Systems Investigation and Feasibility... 4 Stage 3 - Systems Analysis... 7 UPC DFD (Legacy System)...

9 Stage 4 - System Design... 9 Stage 5 - Detail System Design... 10 EPC DFD (New System)... 14 Stage 6 - Implementation... 14 Stage 7 - Changeover... 15 Stage 8 - Evaluation and Maintenance...

17 Appendix A - Cost Benefit Analysis Chart... 19 References... 23 Executive Overview: As a small grocery chain we are currently struggling to maintain our revenue stream and profitability against the competitive threats of the global warehouse chains (Costco, Wal-Mart, etc). We continue to find ourselves behind the curve in this competitive situation. These larger retailers have been able to use their greater resources and economies of scale to not only beat us on cost but also industry innovation.

According to the electronic periodical Baseline, "Several dozen retailers and suppliers, including Unilever, Coca-Cola, Kraft Foods, and Wal-Mart have signed on to the next generation UPC called the Electronic Product Code (EPC) ", (Mullin, 2002). With the implementation of this technology a customer will be able to virtually walk through a store, collect all their groceries, and walk out without ever having to stop for a cashier or checkout procedure. The electronic retail chain Best Buy, which sells electronic devices along with household appliances, implemented this technology in many of its stores and has increased revenue, along with customer satisfaction due to always having proper stock on hand. We believe that this innovation will have a profound effect on our customer base, especially the highly desired, short attention span, and technically astute demographic of the 20-45 year olds. There are many other large retailers looking at this technology for the same reason (increased revenue) and studies show that smaller retailers would be willing to implement this same technology if initial installation costs decreased (2002). Our grocery chain is currently using the UPC system which is pretty much the standard for all grocery retailers both large and small.

We believe that by working with the EPC consortium we can implement this technology cost effectively. To be competitive, increase our revenue, and maintain a high return on that revenue we must pursue this project Stage 1 - Determination of Scope and Objectives The general goal of this project is to evaluate the feasibility of and outline design requirements for replacing the current Universal Product Barcode (UPC) system with a next generation Electronic Product Code (EPC) system for a small chain of grocery stores. The EPC system uses new industry standards and Radio Frequency Identification (RFID) to track inventory and gather information by embedding chips into merchandise. We will be addressing the business objectives, overview of current process (UPC), project constraints, functional requirements, new business process model, design requirements, and cost / benefit analysis.

This project which is the implementation of the EPC / RFID (Electronic Product Code / Radio Frequency Identification) technology will create a leaner and more efficient process for managing our inventory, as well as, allow us to become an early adaptor of a new process that we believe will provide a competitive advantage in the very near future. The challenge for all stakeholders in this project will be to migrate from the current industry standard UPC system to the next generation EPC system. Stage 2 - Systems Investigation and Feasibility During the investigation we " ve found that many vendors are willing to help absorb the small cost of EPC embedded products since the current cost is down to $0.05 per product. The absorption rate is determined by the quantity ordered in a given time frame. This is due to the benefit they will receive on a quarterly basis, since there will be no waiting for the grocery stores order submission. Customer acceptance is another potential issue; privacy concerns and fear of new technologies may make the customer reluctant to continue to shop at our store but we feel we can curtail these issues by making the customer aware of the new technology and showing them how it provides them a more error free shopping experience in regards to speed of checkout, stock shortages, and less checkout errors.

According to the cost-benefit analysis we found that switching over from the old UPC system to the new EPC system will provide a huge cost benefit. The new system helps to eliminate the high expenditures associated with the costs from hiring inventory specialists to come in on an annual basis and complete store wide inventory audits. It will also help eliminate the enormous costs associated with the time and personnel needed to do daily, weekly, and monthly inventories and to initiate and process orders for additional product. Using the calculator provided by Auto ID and utilizing the default values provided produces a cost savings on average of 46.9 million dollars per year. This is demonstrated in the table below: As you can see this will not only be an increase in efficiency and time savings but will also be a huge budgetary costs savings. This will allow us to not only save money but should allow us to stay competitive for years with the large retailers such as Wal-Mart and Costco.

Once the large chains start utilizing this same technology we will then have to look at other ways to remain competitive. We also spoke with the employees and found they were concerned about losing their jobs, this in mind, we initially felt that they probably would be reluctant to assist in anything. We had several employee meetings and stressed that jobs shouldn't be lost as long as sales increased, and for this to happen they would have to make every customer feel very comfortable in the changeover and with the new technology. We also stressed that they would have more of a chance of loosing their jobs with the old technology when compared with the new.

We found that to implement this project our current stockroom and shelving would need minor modifications to allow the installation of the new technology. The checkout area would also need minor modification to allow the checkout process to run with the new technology. After investigating the current servers and checkout counter workstations we found that they would more than meet the requirements for this upgrade. We also found that modifications needed for the stockroom and shelving could be completed by our internal IS department but the checkout modifications would have to be outsourced to the vendor of choice, who would also take care of the server and workstation upgrades. We " ve determined that with the added benefits of giving us a real time snapshot of our inventory and the ability to order exactly what the customers are using to the store where it is required at exactly the right time along with increasing the revenue will make this a very feasible project. The alternative to this solution would be to convert back to the normal checkout method involving a cashier and cash register, the other possible solution would be to upgrade the current UPC system that would allow for speedier type checkout and also add a feature that would allow the ability to have orders placed and shipped automatically.

After investigation of these two alternatives we " ve found that stepping backwards to old technology being the cashier and cash register would be a bad move because we would definitely loose customer base. The possibility of upgrading to a more modern UPC system would be cheaper, but still would put us behind in technology. We decided at this point that it would be better to implement the EPC system for an added cost instead of saving money and upgrading the UPC system. This was determined to be the best move because after the implementation of EPC we would be linked with the leaders in the industry along with the ability of providing a strong convenience to our customers. Since we are financially set for the upgrade this year we feel that further investigating any possible alternatives that may be released in the near future was not feasible because the funds may not be available at that time.

Stage 3 - Systems Analysis The new system will replace the current UPC Barcode technology that has reached its life expectancy and is needed to compete in a growing commercial world of large retailers. From a requirement perspective the new system must be able to perform all of the duties that the current system does plus add ease of checkout and maintain an accurate up to date inventory of all items on the shelves as well as in the storeroom, but in a more automated process. This new system must also provide accurate pricing for the customer when checking out. The new system must have the ability to retrieve the needed information for stock as it is moved from the delivery truck and placed in the storeroom, this information must be accurate as to quantity unloaded, date and time, as well as product name. The system must also monitor the storeroom so the quantity on hand will be known at any given moment. The monitors on the shelves must also maintain accurate tracking of these items and correspond with the stockroom monitors so when an item is removed from the shelf it notifies the stock person /'s that an item needs replaced, when the stock person /'s retrieves the item from the storeroom the item then reports how much stock is on hand and orders more of the item as needed.

The checkout areas must provide the customer with a fast efficient error free checkout process, and allow cashier intervention when needed. We have determined that we must have cashiers on hand to make the customers feel more at ease with this automated process, and to bag the groceries. The new system must be able to give the customer the added sense of security which may have been lost while converting to the new system, this can be accomplished by the cashier explaining briefly how the system works along with the security safeguards in place, and show how the systems up time creates a more error free work environment. The system must be able to perform with minimal downtime and upkeep; by this we mean that the system must be extremely reliable and be able to be maintained by the in-house IT department, both of which the UPC technology has provided.

The system must also allow us the option to upgrade to the newest technology that may be released with minimal expense. To ensure that the new process will take foothold and keep our current customer base along with adding new customers we must ensure that the entire migration process takes place within a parallel type implementation, where the EPC technology is introduced and the UPC technology slowly being faded out. By doing this we will have less downtime and be able to slowly migrate to the new system with the ability to fall back if needed. We must also make the customers aware that this technology is not something to fear but something that will enhance there shopping experience. Stage 4 - System Design With the new EPC technology it will allow computer systems to 'see' physical objects. This will allow managers to better mange and track products from the manufacturer to the warehouses right down to the shelf at the grocery store.

The manufacturer will place radio frequency identification (RFID) tags on items as they are produced. They will also apply tags to the cases and pallets as the products are packaged and prepared for shipment. These tags will communicate with the central inventory system via readers placed above the loading dock doors at the manufacturer, the warehouse, the grocery store, as well as readers attached to the store's shelves and at the checkout lanes. These readers will report back the total items, cases, and pallets that are being shipped, received, bought, and required for replenishment in real time with no user intervention. Stage 5 - Detail System Design Adding Identity to Products The manufacturer will add radio frequency identification (RFID) tags to each item that is produced during manufacturing.

Each tag is cheap - it costs about five cents - and contains a unique Electronic Product Code, or EPC. This is stored in the tag's microchip which, at 400 microns square, is smaller than a grain of sand. The tag also includes a tiny radio antenna. Adding Identity to Cases By adding these tags to each can they can be tracked and counted in an efficient and cost effective way. The cans are then placed inside cases that are then labeled with their own unique RFID tag. All the cases then are packed on pallets that are also tagged.

Reading the Tags The pallets then are taken to the load docks to be placed on trucks for delivery. As these pallets are pushed through the loading dock doors a RFID reader positioned above the door activates the tags. Each tag is activated individually by the reader and starts transmitting its information over the programmed frequency. The reader turns on, reads, and then turns off each tag on each item, case, and pallet till it has read each and every tag. Savant at Work The reader is wired into a computer system running Savant. The computer receives each of the tags ids, much like MAC addresses.

The Savant system then contact an Object Name Service (ONS) database which takes the id number and retrieves its address. ONS at Work The ONS server matches the EPC number (the only information on the tag) to the address of a server with all the information that pertains to said product. This data is available to, and can be augmented by, Savant systems all around the world. PML at Work The second server uses Physical Markup Language (PML) to store all the comprehensive information about each product and its manufacturer. When the EPC comes in the server recognizes what product it refers to as well as the manufacturer of the product. The server now knows what plant the product was manufactured in since it knows the location of the readers.

If a defect on tampering issue arose this would make it simple to know the exact locations of all the affected projects and make a recall quite simple. Efficiency in Distribution Upon arrival at the distribution center the RFID readers placed above the unloading dock doors allows the products to be unloaded and inventoried without opening and repacking the boxes to insure all the product is there. As the products go through the reader the Savant system is able to route the products to the awaiting trucks for distribution to the retail stores. Efficiency in Inventory Once the shipment arrives at the retail store they unload the products through their own loading docks which also have RFID readers above them. The store having their own Savant system they have been tracking the load since its departure from the manufacturer and distributor. Upon passing through the RFID readers the stores inventory is automatically updated to account for each and every item delivered.

In this manner the store is able to update and track its entire inventory without incurring cost. Overstocking Eliminated In addition to the loading dock readers the shelves are also outfitted with readers. As the product gets placed on the shelf the system knows what is being placed their and how much. Once a customer pulls product the readers on the shelves update the local systems inventory and automatically notifies the distributor that the store needs more stock. This eliminates the need for keep additional 'safety stock' in local warehouses. Consumer Convenience RFID's will make the customers life easier as well.

Rather than standing in long checkout lanes the customer simply passes under a reader that identifies each and every product in the shopper's cart. Once identified, the price is drawn from the database and the customer receives the total. Now, with a simple swipe of a debit or credit card the customer is on their way in just seconds rather than minutes. Stage 6 - Implementation We have determined that the best means of installing and converting to the new EPC / RFID system would be within a parallel type changeover. This would prevent less system downtime, customer inconvenience, and loss of revenue. Also, we want to be cognizant of the privacy concerns from our customers.

One of the benefits of the EPC is that, much like cookies on the Internet, a customer's spending habits and preferences can be tracked. It's because of this that we believe customers will still want the option of using the old system. We will consider the parallel implementation complete when approximately 85% of our checkout procedures have changed over. We will maintain about a 15% UPC checkout capability until we believe these privacy issues are no longer a customer concern. Part of this implementation will require that the UPC legacy data can continue to be captured in the EPC system, which will be the primary system... Stage 7 - Changeover This parallel changeover will take six weeks, and will take place as follows: Weeks 1 and 2 We will begin the install of all RFID readers on the loading dock overhead doors, above the checkout lanes, and on all of the store shelving; these will allow the tags to be transmitted to the store's Savant Server.

During weeks one through three the current stock will have EPC labels placed on them until new stock comes in, these labels are needed so sales can continue until the new stock comes in. Week 3 The new Savant server will be installed and there will be a compaction of database and software from the four current UPC servers to two servers, once this is completed the two freed up servers will be rebuilt and software loaded for the ONS and PML server. The additional two servers will run the current UPC technology until change over is complete, when the EPC changeover is complete the two UPC servers will be rebuilt and have software loaded for the ONS and PML servers these servers will run in unison with the first two which will provide load balancing and additional space. During this week the new servers will be populated with pricing information and initial stock. Week 4 During week four we will convert five of the 10 checkout devices and receipt printers over to the new technology the five to be converted will be aisle's 1, 3, 5, 7, and 9. By following this technique we will have a fail over to the old UPC system if something should go wrong, and also provide the customer as well as the cashier time to get used to the new system.

We will provide training for all of the cashiers during this one week phase since training on the new checkout system will be minimal and the only cashier intervention in the new checkout process will be to take funds, and provide error correction should there be an error on product cost along with the bagging of the groceries. During this time frame the Savant specialist will train the local IT folks on the housekeeping of the three servers along with the new backup procedures. There will also be specialists on site for weeks four through six to provide customer relations for the new product. Week 5 During week five checkout aisle's 2, 4, 6, 8, and 10 will be converted to the new EPC system, and additional training will continue if needed. Week 6 The two servers which are being utilized for the old UPC system will have full backups performed and converted to ONS and PML servers to be coupled with the first two; this will provide load balancing and additional space if needed. During this week any remaining training or questions will be provided or answered as necessary along with the customer relations specialist turning over duties to the grocery store.

Stage 8 - Evaluation and Maintenance During this stage the biggest part of evaluation will be monitoring the usage of the servers to ensure they continue to meet the requirements of the new system. If these should move out of specification there will be a need to budget for a more robust system, but at this time analysis shows that we should have five years of service with the current server equipment and ten to fifteen years of service for the readers on the loading dock, shelving, and above the checkout aisles. Naturally this is normal service life not including abuse or breakage due to contact. It has been determined that the checkout systems should have five years of normal service available. Operating system maintenance will be required as needed for updates, patches, service packs, etc deemed necessary by the IT department on a schedule of there choice. Software maintenance will include database maintenance and software updates as provided by the vendor.

All maintenance will be completed by the onsite IT department with support provided by the vendor for one year from time of purchase (or more if an additional maintenance agreement is signed). Another thing that we will monitor / evaluate is the employee - system relationship to ensure that they are functioning seamlessly. This is very important because without the flawless integration the employees may tend to outcast the system which will make it appear as if the system is not functioning as it should. After six months of use we will evaluate the system to ensure it is operating smoothly, and at this time make any modifications that are deemed necessary. We will again evaluate the system on the one year mark then every year there after to determine if any changes are needed, with this in place we will ensure that if a change or enhancement is needed it will be found before our budgetary time. This will allow our store to budget for the cost in the present year instead of having to wait an entire year for funding.

Appendix A Cost Analysis Chart The following benefits have been selected: Benefits at outlets: Retrieving Efficiency and Accuracy Improved Stock Visibility Reduction in Inventory Physical Inventory Counting Efficiency Picking Efficiency Reduction in Theft Reduction in Unsaleables Reduction in Out-of-Stock Point of Sale Efficiency Inputs Entered: General: Number of distribution centers 4 Number of shipping and receiving dock doors: 20 Average size of distribution centers: 430,560.00 square feet Inventory in distribution centers: 6.5% of sales Number of retail outlets 200 Average size of outlet: 53,820.00 square feet Inventory in backroom and on shop floor: 6.0% of sales Yearly sales: 3,800.00 million USD Average value of item: 1.75 USD Average margin: 11% of sales Implementation Start Year: 2003 Applications: Receiving efficiency at outlets: Time saved to check deliveries for errors at outlet 12 hours per day per outlet Time saved for data entry of items placed in backroom at outlet 2 hours per day per outlet Improved stock visibility at outlets: Time needed to check for item availability at outlet 8 hours per day per outlet Reduction in inventory at outlets: Safety stock due to poor visibility 25% of outlet inventory Physical inventory counting efficiency at outlets: Number of inventory counts annually 6 Time needed for inventory counting on floor and backroom 400 hours per outlet Picking efficiency at outlets: Time saved for data entry of items picked for placement on floor 2 hours per day per outlet Reduction in theft: Combined theft of items at outlets and distribution centers 1.4% of sales Possible theft reduction at outlets if items are tagged 0.15%-points Possible theft reduction at distribution centers if items are tagged %-pointsReduction in Unsaleables: Combined unsaleable's at outlets and distribution centers 1.9% of sales Reduction in unsaleable's at outlet if actual status of items is known 0.09%-pointsReduction in unsaleable's at distribution centers if actual status of items is known %-pointsReduction in Out-of-Stock: Time items are out-of-stock 3.5% of time Reduction of out-of-stocks if actual availability of cases delivered were known 2.0%-points Increase in sales due to reduction in out-of-stocks 50%Point of sale efficiency: Reduction in time needed for check-out process 15 seconds per check-out process Number of check-out processes 2500 per day per outlet Settings: General Planning horizon 7 years Time before solution is fully available 2 years Cost of capital 10% Average hourly wage in distribution center 20.00 USD Average hourly wage in outlet 10.00 USD Length of aisles 91.44 feet per 1000 sq. feet Check-out counters in outlet 0.37 per 1000 sq. feet Working hours per day 8 hours Working days 360 days per year Cost for truck waiting time 100.00 USD per hr Average daily wage for trainers or installation personnel 500.00 USD Cost per tag and reader Cost per reader 2002 500.00 USD Cost per reader 2003 250.00 USD Cost per reader 2004 150.00 USD Cost per reader 2005 100.00 USD Cost per reader 2006 and afterwards 70.00 USD Cost per tag 2002 0.40 USD Cost per tag 2003 0.30 USD Cost per tag 2004 0.20 USD Cost per tag 2005 0.10 USD Cost per tag 2006 and afterwards 0.05 USD Antenna cost Cost per antenna 20.00 USD Antennas per reader at dock door at distribution center 4 Antennas per reader in distribution center 2 Antennas per reader in backroom 4 Antennas per reader on shop floor 4 Installation cost Time needed for installation of readers in distribution center 0.15 days per reader Material cost needed for installation of readers in distribution center 500.00 USD per reader Time needed for installation of readers in backroom 0.15 days per reader Material cost needed for installation of readers in backroom 500.00 USD per reader Time needed for installation of readers on shop floor 0.03 days per reader Material cost needed for installation of readers on shop floor 100.00 USD per reader Readers required Readers per dock door at distribution center 1 Readers in distribution center 1.39 per 1000 sq. feet Readers in backroom 0.37 per 1000 sq. feet Readers on shop floor 1.83 per 10 feet Readers per check-out counter 1.00 Integration cost Software integration cost 0.40 million USD Additional software integration cost per benefit 0.10 million USD Cost for central infrastructure 0.20 million USD Integration cost per distribution center 25,000.00 USD Hardware cost per distribution center 5,000.00 USD Software cost per distribution center 4,000.00 USD Integration cost per outlet 25,000.00 USD Hardware cost per outlet 2,500.00 USD Software cost per outlet 2,000.00 USD Time needed for training of employees in stores or distribution centers 1 days per outlet or distribution center Employees to be trained 0.19 per 1000 sq. feet Maintenance cost Maintenance cost 10% of implementation and reader cost Results: Based on the inputs you provided the following benefits may be realized: Net present value: 23.4 million USD Amortization time: 5.0 years Potential Savings per Year: Benefits at outlets: per item Receiving Efficiency and Accuracy 10.1 million USD 0.005 USD Improved Stock Visibility 5.8 million USD 0.003 USDReduction in Inventory 5.1 million USD 0.002 USD Physical Inventory Counting Efficiency 4.8 million USD 0.002 USD Picking Efficiency 1.4 million USD 0.001 USDReduction in Theft 5.1 million USD 0.002 USDReduction in Unsaleables 3.0 million USD 0.001 USDReduction in Out-of-Stock 4.2 million USD 0.002 USD Point of Sale Efficiency 7.5 million USD 0.003 USD Total savings at outlets 46.9 million USD 0.022 USD Estimated Costs: Annual Costs: 9.7 million USD Tag Costs: 0.0 million USD One-time Costs: 96.6 million USD Integration Cost: 7.8 million USD Reader Costs (including installation): 88.7 million USD It is assumed that all tags costs are carried by your supply chain partners

Bibliography

Mullin, Eileen; (September 5, 2002).
Electronic Product Code, Baseline, Retrieved February, 17th 2004 from web Global Website: web AA RFID Incorporated Website: web News Website: web Journal Website: web Online Source Book: web.