Bracket International: Rfid Decision Case Study

Bracket International:

RFID Decision Case Study

Catherine Fell

Davenport University

MGMT 357

Christopher Lai

March 24, 2019

Introduction

        Bracket International (BI) is a small manufacturing company headed by Mr. Jack Bracket. The company makes steel brackets and shelving out of three plants located in Ohio, Kentucky, and South Carolina. Two of the plants are standard shops and have an automated flow, and one specializes in small batch customer customized orders. They had sales of $78 million last year with cost of goods sold at $61 million, yielding a gross profit of $17 million (Collier and Evans, p. 79, 2017). Bracket International strives for customer satisfaction, high quality products, and low costs throughout their preproduction, production, and postproduction services.

        The company currently uses barcoding technology to track their inventory, projects, and production lines. Nearly every product at Bracket International is barcoded, as stated in the case, “whatever a bar code label can be stuck on is bar coded,” (Collier and Evans, p. 80, 2017). These labels are scanned in at each station of work by employees in order to keep consistent tracking records of inventory and project progression. While the company has been successful in their barcoding practice over the course of history, Mr. Bracket has recently begun to contemplate transitioning to radio-frequency identification device (RFID) systems. Mr. Bracket finds himself at a loss for a decision on which way to go in this issue and has drafted questions to help him formulate an opinion.

Case Questions

How does RFID compare to bar coding?

Bar coding is Bracket International’s primary organizational components and is responsible for tracking nearly all pieces of inventory, projects, and jobs. This technology requires employees to scan in what they are using or working on at each station of work. Radio-frequency identification (RFID) is another form of automatic identification and data capture technology. The major difference between the two tracking technologies is that an RFID tag does not need to be scanned by an employee to be tracked. The RFID tag transmissions would be automatically picked up by the RFID tracking software, so the items would be constantly tracked.

RFID technology is much faster than barcode technology. Scan time for an RFID reader is stated to be approximately 2/100ths of a second which is likened to being essentially instantaneous, whereas scan time for a barcode averages out to be 10 seconds per item, (Collier and Evans, p. 80, 2017).

What is the economic payback in years for this possible RFID adoption? (Hint: There are two benefits that can be quantified—labor savings due to faster scan times and misread savings. Annual benefits divided by economic benefits equals payback.)

Given that a Bracket International employee works 2,000 hours per year with a $69,000 salary, an hourly wage of $34.50 is paid to each employee. From this, it can be calculated that the cost of each 10-second barcode scan is approximately $0.10. At the rate of 9,850 scans per day, Bracket International could save $985 per day, or $256,100 annually, by switching to RFID tracking.

Additionally, the cost of misreads would change with a switch to RFID. Replacing a damaged or defective bar code label takes approximately 5 minutes, costing Bracket International $2.88 per replacement. Misreads account for an estimates 2 percent of total yearly scans, or 51,220 scans. This totals to a cost of $147,513.60 per year in misreads for the current barcode technology. With RFID technology, a misread is uncommon, accounting for 0.2 percent of annual scans, or 5,122 scans. At the given cost of $4 per misread, the total annual cost of misreads on an RFID system is $20,488. By switching, the company would save $127,025.60 on misreads each year.

The initial investment of transitioning to an RFID system is $1,100,000 ($620,000 for necessary hardware and software, plus $480,000 for new supply chain operating system software) (Collier and Evans, p. 80, 2017). By dividing the initial investment by the total annual economic benefits ($1,100,000 / ($256,100 + $127,025.60)), it can be found that the economic payback for the RFID system is 2.87 years.

What are the risks of adopting a new technology too early? Too late?

One major risk of adopting the technology too late is loss of business. As stated in the case, Bracket International lost the business of Wolf Furniture due to slow reaction time on order details (Collier and Evans, p. 80, 2017). The company’s largest customer, Home Depot, has also voiced concern on Bracket International’s slow reaction time, as the newer on-demand point-of-sale systems would lead to more frequent order changes. Losing the business of Home Depot could be catastrophic to Bracket International.