The EPC Network (I): Putting RFID into Action in the Retail Supply Chain

Abstract

This case was developed in close collaboration with a global manufacturer, GenTech, in the retail industry. The case study is directed at senior undergraduates or MBA students taking courses in innovation, information systems, or technology management. Students are introduced to the development of the electronic product code (EPC) and its network, which some believe to be the ‘next big thing’ after the internet, or the ‘internet of things’. The case provides first hand insights into the innovation process of the EPC Network since its inception in the AutoID centre based at MIT and Cambridge University. Students are asked to examine the organising vision of the EPC Network as conceptualised by different stakeholder groups, and to suggest next steps/challenges for GenTech's adoption strategy. A key aspect of this strategy is to develop and present a convincing business case to senior management for implementing EPC within GenTech.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

Appendix I – The EPC Technology

The Auto-ID technology consists of a number of components that together provide the ability to uniquely identify and obtain real-time, global information about an object. The major components of the Auto-ID technology are:

  • Electronic product code
  • RFID tags
  • RFID readers
  • Savant
  • Object name service
  • Physical mark-up language

All these components together form the approach used by the Auto-ID Centre to develop a ubiquitous real-time automatic identification solution, by linking objects to data and information in a global network. Figure 1 shows how the components are linked together.

Figure 1 The Auto-ID architecture

Figure

Appendix II – Process-based Evaluation

Adapted from: Brian Subirana, B., Eckes, C., Herman, G., Sarma, S., Barrett, M., Malone, T. W. (2003) “Measuring the Value and Productivity of Auto-ID/RFID Technology using a Process-Based Approach” Auto-ID Labs, Research Paper Number: AIL-1

Value Generated by RFID – “Receive Physical Resource” Process

As-Is

To-Be

Process duration (in seconds)

265

45.00

Process duration (in minutes)

4.42

0.75

 Saved

3.67

 % improvement

83%

Pallets per hour

14

80

Pallets per week (constant)

7000

Barcode labels per pallet

2

Hours per week to perform process

515

88

Variable Costs

 Cost per hour of fork truck operator

$12.00

 Cost per hour of fork truck

$3.00

 Cost per barcode label

$0.02

Cost of process – fork truck and operator

 Per week

$7,729.17

$1,312.50

 Per year

$401,916.67

$68,250.00

Cost of process – barcode labels

 Per year

$13,104.00

$0.00

Total cost of process per year

$415,020.67

$68,250.00

Savings per year

$346,770.67

Input Variable to ROI Model – “Receive Physical Resource” Process

Constants

Cost of Capital

8%

Sales Growth Rate

4%

Tax Rate

36%

Tag Cost Burden

7%

System Integration Cost Burden

8%

Maintenance/Other Cost Burden

6%

Reader Cost Burden

100%

Antenna Cost Burden

100%

Year

Varying year-over-year

1

2

3

4

5

6

7

Cost of Tags

$0.05

$0.05

$0.05

$0.05

$0.05

$0.05

$0.05

Number of Tags

7,500,000

7,800,000

8,112,000

8,436,480

8,773,939

9,124,897

9,489,893

Cost of Readers

$1,500.00

$1,500.00

$1,000.00

$700.00

$500.00

$400.00

$300.00

Number of Readers

3

0

0

0

0

0

0

Cost of Antennas

$250.00

$200.00

$150.00

$120.00

$100.00

$100.00

$100.00

Number of Antennas

6

0

0

0

0

0

0

System Integration Costs

$200,000.00

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

Maintenance and Other Costs

$10,000.00

$10,000.00

$10,000.00

$10,000.00

$10,000.00

$10,000.00

$10,000.00

Depreciation Schedule

33%

33%

34%

0%

0%

0%

0%

Discounted Cash Flow – “Receive Physical Resource” Process

Year

1

2

3

4

5

6

7

Value

Receive Physical Resource

346,771

360,641

375,067

390,070

405,673

421,900

438,776

Total Value

346,771

360,641

375,067

390,070

405,673

421,900

438,776

Costs

Cash Out – COGS

Tags

26,250

27,300

28,392

29,528

30,709

31,937

33,215

Readers

4,500

-

-

-

-

-

-

Antennas

1,500

-

-

-

-

-

-

Maintenance/Other

600

600

600

600

600

600

600

Total Cash Out – COGS

32,850

27,900

28,992

30,128

31,309

32,537

33,815

Cash Out – Assets

System Integration

16,000

Total Cash Out – Assets

16,000

-

-

-

-

-

-

Cash Out – Taxes

COGS

32,850

27,900

28,992

30,128

31,309

32,537

33,815

Depreciation Expense

5,280

5,280

5,440

-

-

-

-

Taxes @ 35%

111,111

117,886

122,629

129,579

134,771

140,170

145,786

Total Cash Out – Taxes

111,111

117,886

122,629

129,579

134,771

140,170

145,786

Total Costs

159,961

145,786

151,621

159,707

166,080

172,708

179,601

Net Value

186,810

214,855

223,446

230,363

239,593

249,192

259,175

Net Present Value

186,810

197,115

188,070

177,882

169,734

161,958

154,538

Total NPV

$1,236,106.82

Total Investment

$881,641.59

ROI

140%

Figure

Appendix III – Privacy Concerns Emerging

The rise of sites such as

  • www.stoprfid.org “Protect your privacy: Don't buy items that contain tracking devices”
  • www.notags.co.uk “UK consumers against the pervasive use of RFID”

Figure

Appendix IV – Concept Change

Radiofrequency Identification (RFID)

Following decades of research and development, the 1980s saw full-scale commercial implementations of RFID, its primary use being in harsh environments where barcodes were not as effective. An RFID system consists of both RFID tags, attached to the items to be identified and contains the relevant identification number, as well as readers and antennae, used to read the tag information.

Electronic Barcode

Often used as a simplified explanation for RFID.

Auto-ID

Automatic identification, as a concept, has been around for a long time. In October 1999 the concept becomes part of the name of a group working towards the development of a ubiquitous automatic identification network i.e. the Auto-ID Centre. The integrated set of technologies developed at the Centre is named Auto-ID. RFID tags and readers are part of the Auto-ID technology and a wider communication infrastructure allowed the dream of global real-time tracking to become a reality.

Electronic Product Code (EPC)

The next generation Universal Product Code, often referred to as UPC or bar code. One of the components of the Auto- ID Centre's proposed Auto-ID technology, the EPC strictly refers to the unique number used to identify a product.

The EPC Network

The EPC Network replaces Auto-ID as the name for the integrated set of technologies developed at the Auto-ID Centre. After the Auto-ID Centre was closed down, EPCglobal was formed on 1st November 2003 to drive the further development and adoption of the EPC Network.

Radio Barcode

Tesco refers to the RFID tags used in its automatic identification implementation as radio barcodes.

Intelligent Label

Marks & Spencer refers to their non-EPC tags as intelligent labels in their successful pilot for men's suits

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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