Business Cluster Project 3

Letter of Transmittal

June 1, 2005

Mr. Tod Brokaw Dr. Gary CoombsDr. John KeiferMr. Larry RogersMr. Todd Myers

Dear Cluster Faculty:

Over the past three weeks, our group has researched RFID technology and determined what applications the Ohio University RFID Testing Center should focus on in order to help clients improve their business operations. From our research, our group was able to determine which industries will experience benefits from the implementation of RFID technology.

We also researched the major challenges that manufacturers face when utilizing RFID technology, as well as products and services that will help these manufacturers overcome these barriers. By using the following business plan, we are confident that the prospective Ohio University RFID Testing Center will be able to help clients develop effective RFID systems that will enhance their business operations.

We would like to extend our thanks to Mr. Todd Myers, professor of engineering, for providing his guidance and expertise pertaining to our industry research.

We would also like to thank the business cluster faculty for guiding us through the report process by providing insight and inspiration.

Sincerely,

Brian Burns

Ohio University RFID Testing Center Manufacturers Inventory Management

Prepared for

Professor Tod BrokawDr. Gary CoombsDr. John Keifer

Professor Todd MyersProfessor Larry Rogers

Prepared byPod 1

Dan BrottJeff Brown

Brian Burns Darren Dowd

Vince Fantozzi William Garofalo

Chris Hannah Chris Hartsel

Mike MaxfieldRyan Wien

June 1, 2005

http://images.google.com/imgres?imgurl=http://autoidlab.eleceng.adelaide.edu.au/RFIDimages/tag00.jpg&imgrefurl=http://autoidlab.eleceng.adelaide.edu.au/RFIDimages.html&h=595&w=842&sz=19&tbnid=ijTvxzV-VNoJ:&tbnh=101&tbnw=143&hl=en&start=14&prev=/images?q=RFID+tags&hl=en&lr=

Table of Contents

Executive Summary............................................................................................................iii

RFID Manufacturing Inventory Management.....................................................................1Mission Statement....................................................................................................1RFID Challenges......................................................................................................1

Value Proposition............................................................................................1TCS: Value Proposition..................................................................................2Evolution of RFID Technology......................................................................2TCS: Evolution of RFID Technology.............................................................2Integration of System......................................................................................2TCS: Integration of System............................................................................3RFID to Scale..................................................................................................3TCS: RFID to Scale........................................................................................3

RFID Target Market............................................................................................................3Computer and Electronics Manufactures.................................................................4

Benefits of RFID in Computers & Electronics...............................................4Automotive Manufactures.......................................................................................4

General Benefits of RFID in Auto Making.....................................................5Assembly Line Employee Disruption.............................................................5Expense of Assembly Line Disruption...........................................................5

Clothing Manufacturers...........................................................................................5General Benefits for Clothing Manufactures..................................................6Time Management Benefits............................................................................6

Food Manufactures..................................................................................................6Food Industry Benefits....................................................................................7Regulatory Compliance..................................................................................7Inventory Management...................................................................................7

RFID Marketing Mix...........................................................................................................7Service......................................................................................................................8

Manufacturing.................................................................................................8Inventory Management...................................................................................9

Summary of Testing Center Services......................................................................9Price.........................................................................................................................9Promotion...............................................................................................................10Distribution............................................................................................................10

Operational Plan.................................................................................................................10Funding..................................................................................................................10

Cyberinfrastructure TEAM (CI-TEAM).......................................................11Partnership for Innovation............................................................................11

Location: Central Classroom Building Floor One.................................................11Staffing...................................................................................................................12

i

Director.........................................................................................................12Financial Manager........................................................................................12Financial Assistant........................................................................................12Hardware/Software Technicians (2 positions, 1 hardware and 1 software). 13Sales Manager...............................................................................................13Engineering Interns.......................................................................................13

Other Resources.....................................................................................................13

Ownership..........................................................................................................................14

Partnership.........................................................................................................................14

Privacy Issues with RFID..................................................................................................15

Financial Analysis..............................................................................................................16Income Statement...................................................................................................16

Revenue.........................................................................................................16Cost of Operation..........................................................................................16Utilities..........................................................................................................16Equipment.....................................................................................................17Salary............................................................................................................17Rent and Renovation.....................................................................................18Advertising....................................................................................................18

Return on Investment (ROI)..................................................................................18Payback Period.......................................................................................................19

Implementation Plan..........................................................................................................19

Conclusion.........................................................................................................................19

Bibliography......................................................................................................................21

Appendix A: Staffing.........................................................................................................23Appendix B: Operational Equipment.................................................................................24Appendix C: Conflict of Interest........................................................................................25Appendix D: Income Statement.........................................................................................26Appendix E: Return on Investment....................................................................................27Appendix F: Payback Period.............................................................................................28

ii

Executive Summary

The purpose of this report is to provide the potential Ohio University RFID Testing Center with a business plan which includes a marketing plan, operational plan, financial information and a plan for implementation. This report was developed by researching RFID technology and studying various manufacturing industries that have a need for inventory management improvement. The overall goal is to provide an effective plan that will allow the Ohio University RFID Testing Center to become a successful reality.

Challenges

There are many challenges that manufacturers face today when considering the implementation of RFID technology. These four major challenges include: value proposition, evolution of the technology, integration of systems and bringing RFID to scale. Following each challenge, a solution is given to explain how the prospective Ohio University RFID Testing Center will help businesses overcome these challenges in order to have a successful RFID implementation.

Target Markets

Many different manufacturing companies in multiple industries are suitable for RFID technology. This is due to many different companies and industries having similar problems when comparing their manufacturing processes. Although many industries share these problems, food, clothing, auto and electronics manufacturers were targeted specifically. These industries showed the largest potential when researching who would gain the greatest benefits from RFID technology. Although these industries are important, it is vital to include any company which has a manufacturing/inventory management problem that can be improved by RFID.

Marketing Mix

Due to multiple industries sharing the same problems, one flexible marketing mix was created to reach a variety of businesses. Services offered by the testing center include the testing of RFID hardware and software, creating mock RFID implemented assembly processes which are product/company specific, installation of systems, RFID training sessions and selling written reports based on past testing results. Although each client will be receiving similar services, the RFID testing center will treat each individually in order to meet their specific needs.

Price will be determined by: time the client will be using the facility, complexity of testing, number of employees required to complete the tests, the quantity of RFID systems they wish to test, and supplementary equipment required for testing that the testing center does not own. Promotion will be done through sales calls, letters, and

iii

appointments by the center’s sales representative. The distribution of all testing services will take place in the Ohio University RFID Testing Center. Classes offered can take place at the testing center or at the client’s business.

Operational Plan

The operational plan provides a look into the testing center’s operations by exploring funding, location, staffing, and other resources. Its primary feature is flexibility, allowing the testing center to adapt to changes in demand of testing services. Startup costs will require a federal source of funding, but revenue from testing services will ultimately become the sole source of income in the future. The prospective center will be located on the first floor of the Central Classroom building, which offers 9,000 square feet of space. Many different positions are included in the testing center staff which include: testing center director, financial manager, financial assistant, hardware/software technicians, sales manager, engineering interns as well as other positions. A detailed description of equipment needed is also given, with a total estimated cost of around $216,000.

Ownership & Partnership

The RFID testing facility will be owned and run through Ohio University. More specifically, it will be run through the Russ College of Engineering and Technology and directed by Todd Myers. Partnerships that can aid the testing center include the Auto ID Center at Ohio University, EPCGLOBAL Network, and hardware/software companies which specialize in RFID technology.

Financial Analysis

The financial analysis includes an income statement, revenue analysis, cost of operations, utilities, salaries, rent and renovations, and advertising. All of these areas are explained in full detail, showing approximate costs of each area. A breakdown of different types of equipment needed and their costs is also included. Return on investment is discussed with an equation as well as benefits and costs.

Implementation Plan

The last section of the report focuses on the implementation of the RFID testing center in coordination with Ohio University and its partners. A description of activities and a timeline will be provided in order to determine when different steps will be implemented. The timeline will also give a description of the length each step will take, giving an overall estimated time of implementation from start to finish.

iv

RFID Testing Center 1

RFID Manufacturing Inventory Management

The following report is a business plan for the proposed Radio Frequency Identification (RFID) testing center located in Athens, Ohio. The report’s primary focus pertains to a more specific area within the RFID spectrum, manufacturing inventory management. Manufacturing companies in numerous industries could see substantial improvements from the implementation of an RFID system. This technology would allow businesses to track individual parts used during the manufacturing process, as well as view the status of individual products as they are being assembled by knowing its specific location on the assembly line. With some distributors and retailers already considering RFID, implementation on the manufacturing level also increases the number of companies a manufacturer has the ability to sell to.

Mission Statement

In order to give all companies an equal chance to determine if RFID technology is right for their business, the Ohio University testing center will allow companies to test their products and production methods using RFID. The center’s main objective will be to open a new window of opportunity for each business that decides to test within the facility, by showing the advantages that each business could yield through implementation. This center will also allow a company to determine if RFID works well with their products without incurring the cost of full implementation in their own store or warehouse.

RFID Challenges

Although RFID boasts great potential, not every aspect of this technology appeals to current businesses. With this in mind, four main challenges facing RFID implementation will be recognized and explained to provide a greater understanding of some of the barriers the industry faces today. TCS (Testing Center Solutions) will be given below each challenge to explain how the testing center will address these challenges, and ultimately help a company decide if RFID is right for them.

• Value Proposition• Evolution of RFID Technology• Integration of Systems• RFID to Scale

Value Proposition

With the cost of implementation reasonably high when compared to traditional barcodes, RFID must display an exclusive and valuable advantage over current scanning technologies. For a vast majority of businesses, substantial value will only appear long


after the system has been implemented. This requires a business to place a substantial amount of time into researching the cost/benefit factor of the technology. Many companies, unwilling to give up vast amounts of time or money by doing their own internal research, conclude that it is too complex and costly to effectively test the technology themselves.1

TCS: Value Proposition

Significant value added advantages can be realized for a company when working with the testing center. Research can be done with the business’s products while in an alternate location, instead of making a retail store or warehouse a real-time “guinea pig.” By collecting statistics about past errors and inventory disputes, the center will also be able to estimate company savings upon the implementation of RFID. This will allow businesses to see the value of RFID firsthand, in motion in the testing center, as well in reports generated for the client.

Evolution of RFID Technology

RFID is rapidly changing to adapt to different applications and environments in which it will be used. Different assortments of tags are used to track specific products, and varying methods of tag attachment are being researched as well. Cost is also in a state of evolution, with innovation factors driving price upward when compared to UPC prices. Reader accuracy is also critical when applying systems to different products and environments. Faulty readers can mean a substantial loss or miscount of products. Hardware and middleware systems are also in an evolutionary state, constantly trying to keep up with changing tags and readers.2

TCS: Evolution of RFID Technology

Although a testing center cannot eliminate evolutionary changes in technology, it can properly inform its clients about current effective technologies, as well as upcoming technologies which may be worth considering. By being knowledgeable about its products and the industry, the testing center will provide clients with answers to their questions about factors of evolution.

Integration of Systems

Integration is complicated when considering RFID. Internal integration as well as supply chair integration are both necessary to have effective inventory control. Applying a new system to existing inventory, especially in a retail environment, could prove to be a daunting task for many businesses. For the most efficient results, all members of a particular supply chain would need to have an RFID system so that the products could be


easily recognized. This is an obstacle for many companies and their suppliers who currently don’t have the funds to implement such an expensive system.3

TCS: Integration of Systems

Through the services provided by the testing center, companies will be able to have a more effective transition from their existing technology to RFID. Information will be available about previous installations, helping to guide the business through this process. Information will also be provided that will show the company how to work effectively with their supplies who have not yet successfully implemented their own RFID systems. If testing is successful and implementation is desired, a company would also be given the option of installation services provided by the testing center. Due to the fact that the testing center would have already worked with the company’s products, it would increase the understanding of the project’s goals as well as create a smoother installation process than if it were contracted to another firm.

RFID to Scale

Currently, RFID is utilized in many different forms including case-level tags, as well as individual item tags so that retailers can effectively track their inventory. Depending on the scale and goals of the company, different levels of tags will need to be used. The level of integration and dependency on the system will impact other aspects of the business as well which include employees and business processes. Employees will need to be properly trained to operate and maintain the system to ensure maximum efficiency. Complete business processes such as shipping and receiving will also need to be modified in order to have successful operations.4

TCS: RFID to Scale

The testing center can work with any company to determine the case-level tagging requirements for their products. This would depend solely on the number of orders being shipped in and out of the establishment, as well as quantities shipped per order. The center would also prepare management to train their employees when using the system, and show them how the system is applied to modify specific processes in order to make each task more efficient. Seminars and training sessions can also be given to employees directly from testing center representatives if they are desired.

RFID Target Markets

RFID technology seeks to improve inventory management on every level of the supply chain, as well as increase the overall efficiency of various tasks and processes. This could help companies who are struggling with these issues, or wish to improve the


efficiency of their current procedures. Each company and industry mentioned below is an example of what type of business could benefit from this technology, but potential targets should not be limited to just these four industries. Implementation should be based on the need for the product, which would be best described as those seeking improved efficiency while gaining greater control of their inventory, with an ultimate goal of benefiting the customer.

Computer & Electronics Manufacturers

The computer industry could greatly benefit from the implementation of RFID on the manufacturing level. Many unique parts are brought together to create a finished product. The demand to keep track of these individual parts is high because in many cases without a certain component the product’s performance becomes inadequate. Depending on the part, many manufacturing components can be expensive, so having the ability to monitor the location of these parts can be a valuable asset.

Benefits of RFID in Computers & Electronics

Various components are mixed and matched when creating customer orders or different levels and lines of products. This means that certain components are used in the manufacturing process more often than others, causing certain parts to go out of stock quicker than others. RFID could keep track of parts inventory while simultaneously speeding up the entire manufacturing process by making the need to scan individual parts obsolete. It would also be possible to track specific orders as they are being produced on the assembly line.

Benefits could also be realized on the finished product side of inventory management. Case-level tags could be placed on these products to prevent theft and keep tabs on every product that has been produced. The last benefit occurs in the area of shipping. When products are shipped out to retail stores or distributors, there will be no need to scan individual boxes or products. RFID will log what items are being shipped, to whom they are being shipped to, and the quantities of each. This will speed up the shipping process while simultaneously providing defending against errors.

Automotive Manufacturers

The automotive manufacturing industry is a great target for the RFID testing center not only because it is the world’s largest industry, but because the technology will greatly help the automotive supply chain. Automotive manufacturing and associated businesses employ one-seventh of U.S workers and account for one-tenth of America’s consumer spending.5


RFID in the automotive manufacturing industry is becoming a part of the industries efforts to reduce production costs while trying to maintain quality. It is helping bring the consumer lower prices while providing them with high-tech features. Since RFID is becoming so successful in the auto making industry, manufacturers will always be looking for new ways to implement these systems. This is where the RFID testing center comes into play.6

General Benefits of RFID in Auto Making

RFID tags are well suited for the automotive industry because they work well with WIP tracking on the assembly line, because of there ability to withstand high temperatures, shock, paint coverage, and they do not require line-of-sight reading. RFID tags can be used in the automotive manufacturing industry to store vehicle identification numbers and part IDs. They can also be used on crates and pallets in the auto making plant in order to track their movement throughout the manufacturing plant.7

Assembly Line Employee Disruptions

Another way that RFID will help automotive manufacturers is on the assembly line. By designing an RFID system that can track car parts throughout the assembly process, it would keep the assembly line running more smoothly and save money from reduced downtime. Employees find ways to disrupt operations in order to get a break. Line shut downs can be caused by employees simply moving a part out of sequence. Besides the cost of this downtime, some auto parts can malfunction because of missing a key station in the assembly process.8

Employees also find other ways to cause disruption in order to take breaks. Bar-coded build tickets are used to track parts throughout the assembly line process. For this system to work there needs to be an employee using a bar code scanner at all times. However, many times these scanners are “accidentally” dropped or run over by forklifts.9

Expense of Assembly Line Disruptions

These disruptions cause companies an extreme expense. An inoperable or missing part causes the automobile production line to stop and the only way to get a car off of the line is to drive it off. For every minute the automotive manufacturer’s production line is shut down the supplier of that component part is charged between $15,000 and $20,000.10

Clothing Manufacturers

Clothing manufacturers provide many services and tasks of making clothes including pattern making, grading, marker making, cutting, private label sewing, and pressing and


packaging.11 These companies normally operate a vast amount of machinery that performs the various tasks, and the continuously worked on product is moved along from operation to operation on an assembly line. These machines consist of cutters, sewers, and embroidering machinery. 12 To make a shirt, it takes approximately 40 different steps to get a finished product.13 The amount of equipment and number of processes clothing manufacturing involves builds up heavy expense, making it even more difficult for mid-level and smaller clothing companies to compete with the large “big dogs” in the industry.

General Benefits for Clothing Manufacturers

It is known to clothing manufacturers that RFID has the ability to take away some of the expenses that the industry currently has. It is because of the following potential benefits that the RFID testing center should target clothing manufacturers. The operations and equipment that clothing manufacturers use, including the assembly line process, makes it easy for the testing center to adapt to companies in other industries who use similar manufacturing processes. This keeps a wider range of clients the testing center can obtain. The testing center offers a way for these manufacturers to figure out how RFID can work for them, without the expense of implementing RFID in their own warehouse. Smaller clothing manufacturers can find ways for RFID to cut their expenses allowing them to better compete with larger companies in the industry.

Time Management Benefits

There are several benefits that reduce the amount of time and effort involved in manufacturing clothing. RFID can reduce the amount of steps involved to get a finished product when manufacturing clothing. At the same time, the amount of labor costs would diminish as the steps involved are shortened. Items can be RFID tagged, so the assembly line can read to what operation to send the clothing item on to. This would obviously create efficiency and reduce time as well. Pressing and shipping can also be a timely process because of the necessity to ship out the right products to the right people. RFID can help with shipping from the manufacturer to the distributor.

Food Manufacturers

The final target that will be discussed in the marketing plan is the food manufacturing industry. Mandates by the Department of Defense and Wal-Mart have placed a lot of pressure on food manufacturers to comply with RFID standards. In fact, thirty of Wal-Mart’s first one hundred suppliers that will follow the mandate are food manufacturers.14

These mandates suggest that other companies will feel obligated to follow suit in order to maintain a competitive position within the food manufacturing industry. The Ohio University RFID Testing Center should consider this trend when deciding what industries


to focus on. The following marketing mix will describe how the Ohio University RFID Testing Center should plan to assist those in the food manufacturing industry.

Food Industry Benefits

Companies in the food industry are highly concerned with the quality and consistency of their products. Food manufacturers pride themselves in providing great tasting foods that always taste the same. Tracking and tracing raw materials through the entire manufacturing process increases quality, consistency, and accurate reproduction of products. The RFID testing center will help food manufacturers develop systems that will help them achieve these goals.15

Regulatory Compliance

The FDA requires food manufacturers to comply with a large number of regulations in order to keep the public safe. By implementing RFID, companies will be able to document the product from production to purchase, which will help with quality and safety regulations compliance. Recent threats to security and terrorist activity have led to the development and enactment of several policies aimed at food safety. Regulations such as the Bioterrorism Act of 2002 have put a great deal of pressure on food manufacturers to keep a close eye on their products through the entire production process.16 Tracking and tracing products with RFID systems offers a dependable method to reach regulatory compliance required of them by such legislation.

Inventory management

Implementing RFID will help companies manage raw materials and perishable finished goods. The testing center will work with companies to develop systems that allow them to manage the purchase and storage of their raw materials. Tracking and tracing actual material usage can allow companies to reduce their safety stock of supplies, which reduces their inventory storage costs. Using RFID to track finished perishable goods will help food manufacturers ensure that they do not lose track of their fresh products, and also allows them to make sure that they are shipping goods that need to be moved first. RFID will also be beneficial in the event of a recall. The increased efficiency of an RFID inventory system will help manufacturers know what defective products were shipped from their facility and where they went. The data collected during the production process will also aid the companies in figuring out why the defective products were produced.17

RFID Marketing Mix Multiple companies across different industries can gain the same types of benefits from implementation of RFID into their manufacturing processes. Although these industries have differing products, many share the same inventory management problems. Two


main areas were focused on when evaluating the problems many companies had that could be improved by RFID. It was determined that the manufacturing process itself, along with inventory management were the two key areas which could see a huge gain in efficiency from implementation. Due to the similarity of challenges that these industries face, one marketing mix was created that would effectively meet the needs of numerous companies in varying industries. Variation occurs in each area of the mix depending on the duration and type of service(s) requested by each individual client. An explanation of the different variations is also included within each specific area of the mix below.

Service

The service that will be provided to clients within the targeted manufacturing industries is testing the implementation of an RFID system, which would include hardware and software, into their operations. The type of testing that the center will perform will be dependent on the situation of the client, and will also rely on which aspects of their operations they wish to apply this technology. The testing could take place at the manufacturing level and the inventory management level.

Manufacturing

The scale to which a client would use RFID could rely on how far up and down stream in the supply chain the client will be affected. Mandates from suppliers and customers could force a client to develop a hardware and software system that ties operations together at both levels. However, clients may be making an independent decision to implement RFID in order to increase efficiency within their operations and maintain competitiveness. In either case, the main focus of the testing would be tracking raw materials through the manufacturing process, and tracking finished products. There are many reasons that a food manufacturer would choose, or be mandated, to implement RFID at the manufacturing level. Benefits include:

• Product Quality• Product Consistency• Ease of Data Collection

• Regulatory Compliance• Product Documentation• Responsive Supply Chain

The testing center would obtain these benefits by conducting specialized testing for each client. The testing center will have to mimic a client’s production process, and debug the process in order to demonstrate the benefits listed above. The mach manufacturing facility does not have to be the same scale as the actual facility, but complete enough to make a logical application to their manufacturing process as a whole. Of course, the testing center will have to find ways to help the client overcome the four major RFID challenges that were mentioned earlier.


Inventory Management

Inventories within the manufacturing facility can be reduced by implementing tracking and tracing systems that monitor and record actual usages in real time. Since most manufacturers do not have these types of systems, they assume that a standard quantity of raw material is used in each step of the process.18 Tracking and tracing solutions can be deployed to gather data on actual material usages in each step of the manufacturing process. The actual usages can then be deducted from the inventory levels maintained in the business systems. This enables the manufacturer to know actual inventory levels and to order just the amount of raw material that it needs, eliminating the cost of extra quantity for safety stock.(1) Once again, the testing center will help the client implement an RFID system that achieves these benefits in inventory management by creating a mach inventory flow system that is consistent with that of the client’s.

Summary of Testing Center Services

• Research with company’s actual products & processes• Analyze company statistics and provide cost/effectiveness relationship• Reports of other companies and testing will be readily available for sale• Provide answers to questions about emerging and current technologies• Installation of system into current establishment• Solutions to work with suppliers who have not implemented RFID• Determine tagging requirements for a company’s product line• Management training for employees• RFID employee workshops held at the manufacturing facility• Provide reports on how the system impacts current operational practices

Price

Price will be dependent on the amount of the time the client will be using the facility, the complexity of the testing required, the amount of employees required to complete the tests, the quantity of RFID systems they wish to test, and any supplementary equipment required for testing that the testing center does not own. The client could keep any additional equipment that is purchased, which will eliminate the need for the RFID Testing Center to store that equipment. Markups could be made on RFID hardware and software. Employee salaries can be based on the amount of expertise that is required to perform a certain duty during testing. Rates for building rental could be based on an amount per day, week, or month. Rates will also change incrementally in conjunction with the complexity of preparation needed prior to performing tests. Refer to the Financial Analysis for the exact price recommended for the first year of operation.


Promotion

Promotion will be done through sales calls, letters, and appointments by the center’s sales representative. The cost is the salary of the sales rep, phone bills, and mailing costs. Promotion will also be done through the testing center’s web site. Advertisement channels will be consistent for the different targets, but the message that is presented within those channels will be different for each target. Sales calls, letters, and meetings with clients will be focused on explaining the benefits for their specific needs. Clients within different industries may need different testing strategies, use different hardware and software applications, and require diverse expertise to solve their specific problems. A main point that should be promoted to all targets is that this is a specialized service that will be designed to meet their specific needs and goals.

Distribution

The distribution of all testing services will take place in the Ohio University RFID Testing Center. Actual products from the manufacturer will be shipped to the testing facility in order to properly analyze their performance when exposed to RFID. If desired, employee workshops would take place at the client’s manufacturing facility. Managerial training for RFID operations can occur at the testing center or at the client’s business site. Reports of previous in-house tests, statistics relating to implementation into various businesses and other RFID statistics will be available online for a set fee.

Operational Plan

The operational plan provides a look into the testing centers operations by exploring funding, location, staffing, and other resources.

Funding

To cover the startup and maintenance costs of the testing center will require an outside source of funding. To cover the expected implementation costs, the largest and straightforward source of funding would be from grants. The government awards money to organizations that display a willingness and ability to hasten technologies advancement.

These sources are looking for organizations that will prepare current and future generations of students studying in fields of science and engineering. Many sources of funding are provided by the National Science Federation (NSF). Because the competition from other programs for these grants is high, consideration should be given to the relationship between the mission of the center and the funding program.


Cyberinfrastructure TEAM (CI-TEAM)

The CI-TEAM NSF program is committed to the advancement of cyberinfrastructure. This program is going to fund organizations that are willing to advance the tools, systems, and services that are profoundly impacted by information technology. The CI-TEAM is looking to award 10-20 awards to organizations, worth up to $250,000 in a two-year period to selected demonstration projects.

The RFID testing center’s purpose clearly falls in this description. With the inseparable connection between the future of RFID and information technology, the testing center has considerable chance to be one of the awarded programs. The newly-formed testing center employees would have to submit a report to the CI-TEAM no longer than 15 pages describing the intellectual merit and the intended impact of the RFID testing center and developments of future technology.19

Partnerships for Innovation

The Partnerships for Innovation program is also a program under the National Science Foundation. Their goal is to support the innovations that are the presiding sources of gains in productivity and new endeavors of the future. The Partnerships for Innovation program wishes to encourage innovation by creating a partnership with universities that are pushing to expand the capacity for innovation in the U.S. The Partnerships for Innovation are willing to award selected universities up to $600,000.

The core identification of an RFID testing center is innovation. With the testing center focused on supporting the advancement of RFID, innovation is unrestricted. Because of this, the chance that the RFID testing center would receive the full award is certain.20

Location: Central Classrooms Building Floor One

There are several elements to consider when deciding on the appropriate location of the RFID Testing Center. First, is the physical location of where the testing center will be placed. Since the testing center will be drawing some of its employees from the student body, and it is going to be university owned, placement of the testing facility should be on campus ground. Doing so will alleviate the amount of effort required to travel to and from the testing center. The central classrooms building is located on Union Street and is adjacent to Bromely Dormitory Hall.

The facility for the testing center should also have the adequate space for test, office, and storage areas. The Central Classroom Building provides 9,000 square feet for those purposes. The Kennedy Group’s RFID testing center is using a 7,000 square foot facility for testing. This indicates that 9,000 square feet is an optimal amount of space to work with.


The testing center should have access to a loading dock. There should be an easy way for companies to load and deliver the RFID supplies to. The central classrooms building has a loading dock that is ready for inclusion of an RFID reader. Since many companies are looking to implement RFID into logistics, it would be wise for the testing center to have available access to a loading dock to test RFID in loading/receiving.

The cost of preparing the first floor for the testing center is estimated to cost around $450,000 to $500,000. This cost is about the same amount that it would cost to renovate some of the open locations found in the Ridges. The chemicals still lingering around the ridges poses a threat too large to risk placing the testing center there. The central classrooms building does not pose that threat. A negotiated price to rent the facility came to around $40,000 per year. This is priced at about $44.50 a square foot.

Staffing

Ohio University’s RFID testing center will be managed by a director, probably Todd Myers. A financial manager will control economic relations with the school and grants from the state. A software and hardware technician will be needed for the testing process. All other positions will be interns hired on a need to have basis. The first year plan is to have four interns: financial assistant, sales manager, and two engineering interns. For a staffing chart, see Appendix A.

Director

Dictator, final say on everything at the testing center. Dr. Myers could teach one class in order to keep his tenure, but 90 percent of his time and effort would be towards the testing center. The director would be expected to know all about the operation and clients therefore the director would be making the business trips.

Financial Manager

Deals with the billing and budget. In charge of anything that has to do with money at the testing center. Manages the books and client’s accounts. Handles relations between the testing center and Ohio University on monetary concerns.

Financial Assistant

Internship offered to a College of Business student. Works under the financial manager as an assistance. Main job to assist in the gathering and computation of various financial statistics, but would be required to complete other tasks if asked by the financial manager.


Hardware/Software Technicians (2 positions 1 hardware and 1 software)

Would be graduate students trained at the auto ID center. The partnership with the auto ID center would allow for a training workshop for new employees. The reason for two technicians would allow for specialization.

Sales Manager

Internship offered through the sales center. Would be at least 300 hours and deal with sales. Mainly would research clients and prepare presentations for the director. Along with preparing the presentation the sales manager would travel with the director to potential clients. Clients like to talk to credible people so the sales manger would also work on the floor about once a week so he knew how the testing center operated. When working on the floor, his work description would be the same as the college of engineering interns.

Engineering Interns

Offered to College of Engineering students, but would need to be at least a junior. The hardware and software technicians along with the director would interview potential interns (the technicians would be apart of the process because the interns would be working directly under them). The interns would do research, but would mainly be used for busy work like tag slapping. The number of interns working at one time would be on a need to have basis, but 2 interns would be hired to get the center started.

Other Resources

The other resources that will be utilized with the testing center deal with the operations and the management of the testing center. The equipment is planned on being purchased, unless it will be provided to the center by the companies that are already closely affiliated with Ohio University.

The testing center might focus on companies like Intermec and Texas Instruments as a source of hardware supplies. Mr. Myers mentioned that he is hoping for Texas Instruments to provide us with some updated equipment. Also, if companies like Symbol, Think Magic, and Alien teamed up with the testing center, costs would decrease allowing for more revenue to be collected for the testing center. Listed below is the equipment that the testing center will need for the start of operations. For a list of the total desired equipment, see Appendix B.


Ownership

• The RFID testing facility will be owned and run through Ohio University• More specifically it will be run through the Russ College of Engineering and

Technology and directed by Todd Myers

Partnerships

• The Center for Auto-ID at Ohio University

A) The Auto-ID Center can provide vital information about RFID technology through their research. In turn, the RFID testing facility can provide the Auto-ID Center new valuable information in RFID through the day to day operations of the facilities.

B) The Auto-ID Center can provide training for employees for hardware, software and perhaps the research team through their research labs.

C) The Auto-ID Center provides the RFID testing facility with credibility through their awarded research in the field of auto identification. In turn, the RFID testing facility provides further credibility to the Auto-ID Center by successfully implementing Auto-ID research into real life supply chain applications.

D) The Auto-ID Center can provide the RFID testing facility with a network of clients interested in RFID technology. In turn the RFID testing facility can provide patrons interested in sponsoring further research in Auto-ID from the testing facilities clientele.

E) The RFID testing facility can provide funding to the Auto-ID Center to further research RFID technology which would be beneficial to both parties.21

• EPCGLOBAL Network

EPCGlobal is a network dedicated to enabling true time availability of information in the supply chain. There are two types of memberships, End Users and Solution Providers. End Users are the companies interested in implementing EPC technology within their supply chain. Solution Providers are the companies that enable the End Users to achieve real time supply chain management. There are several benefits to joining the EPCGlobal Network.

A) By joining the EPCGlobal network as a Solution Provider the RFID testing facility can achieve universal coding of information in RFID tags in the entire

supply chain can be achieved.


B) Training and education on implementation on EPC and the EPC Network

C) The ability to network with other businesses in the EPCGlobal Network for potential clientele. 22

• Hardware and Software Companies

Intermec: Intermec would provide the RFID testing facility with RFID

hardware. Intermec currently provides hardware the Center for Auto-ID and it would be beneficial to continue this relationship with the RFID testing facility.

Texas Instruments:Texas Instruments provided outdated equipment for the Center for

Auto- ID and it would be ideal to get updated hardware and software from Texas Instruments for the RFID testing Facility.

ActiveWave:ActiveWave can provide software solutions as inventory control and

pallet tracking for the RFID testing facility.23

Because there are two colleges that will be providing interns, a conflict of interest arises. For a description of terms on how revenue and investments of both colleges are divided, see Appendix C.

Privacy Issues with RFID

RFID is a relatively new technology, not all aspects of privacy are understood. The issue of most concern is that the public does not like the idea of having a traceable tag on an item purchased. To solve this problem Generation 2 tags have been implanted with kill switches to shut down after purchase. Another problem is that individuals with a scanner can read any tag. There is still being research done for this problem but one idea is legislation that regulates the appropriate use of personal scanners.

One final issue is the fact that the privacy and security regulations implemented today will have to last for decades to come. It is for this reason that we must be diligent in the challenge of developing and understanding all aspects of the privacy issues and necessary regulations in the field of RFID technology24.


Financial Analysis

Income Statement

The income statement is a very valuable financial resource to any company. It tells a company basically whether they are earning a profit or losing money. Most beginning businesses will spend the first couple of years in the red until it expands and can start earning more than it spends. The income statement provided by Pod 1 for the RFID testing center is a projection of revenue and costs, omitting taxes because it is a non-profit organization. A spreadsheet of the income statement is in Appendix D.

Revenue

Through thorough analysis of manufacturer’s growing interest in RFID, as well as consideration for the size of the testing complex and number of personnel on staff, the projected first-year revenue is approximately $179,140. This figure was projected from our suggested price ($120 + 44% mark-up = $215/hour of consulting) and our prediction of four clients in the first year, each requiring 200 hours of consulting. The last $7,140 will come from our clients purchasing our consulting reports which will include how they will benefit from implementing RFID into their company. As more manufacturing industries are considering RFID, we believe serving four clients in the first year is a realistic goal.

Cost of Operation

All companies can expect higher costs in the first year business than in any other. The testing center’s first year costs will be substantially more than its revenue, however, this will change in the future with decreasing costs as well as expansion within the testing center. The total cost of operations has been divided into five sections: utilities, equipment, salary, rent and advertising. The raw projection for total cost for first-year operations is approximately $924,528. Most of the projections are based on average costs, and could be subject to change depending on the desired quality of the products.

Utilities

Utility costs were projected according to the average use of water and electricity for businesses in a 9,000 square foot warehouse. The testing center will use approximately 6,500 kilowatts per month, and with the average retail price of electricity in Ohio at 8.27 cents per kilowatt, the cost of electricity will be approximately $7,000 a year.25 The average price of water is about $2.00 per 1,000 gallons of water used. Since the testing center will only need water for drinking and sewage, the projected cost of water will be approximately $300 a year.26 This bring the total utility costs to anywhere from $7,300 to


$9,000, depending on how much gas is used. Garbage is projected to be carried out by Ohio University.

Equipment

The cost of equipment for the RFID testing center will be dramatically more in the first year than in any other. This is due to all of the start-up machinery that will need to be purchased before testing can begin. The following equipment will have to be purchased in the first year only, and the testing center will not have to purchase more of this equipment until it decides to expand. Projected cost is listed as well.

• RFID readers ( 1 hand-held, 2 stationary) - $10,000• RFID printer - $4,000• RFID software (middleware and tracking application) - $240,00027

*Software will be financed at 25% down with 7% interest. First- year expense will be $101,028• Pallets (25) and pallet shelves (2 12ft. industrial) - $1,00028

• Forklift (enabled with RFID reader) - $8,000 + $1,600/month29

• Truck (18 ft., dock-height) – $9,000 + $150/month for insurance30 • Conveyor belt - $1,00031

• Computers (10), printers (3), fax machine(1) - $11,50032

• General office supplies - $1,00033

Todd Myers projects to spend approximately $50,000 on RFID tags to start the testing center. This is projected to equal out to approximately 125,000 passive tags. This amount should be enough to cover any testing job for the first year.

Salary

The RFID testing center should attempt to minimize the number of salary earners working on staff to reduce first-year costs. With a “hire-as-you-go” attitude, the testing center can bring in new workers as it expands and not waste money on unnecessary employees. Listed below are the first-year salaries for the testing center employees:

• Director - $75,000• Financial Manager - $65,000• Sales Manager (student) - $20,000• Software engineer (student) - $20,000• Hardware engineer (student) - $20,000• Research and support (start with 2 students) - $7,000


The salaries for the students do not necessarily have to be checks. Students could be paid in other ways such as in tuition or housing. The total salary expense for the first year is projected to be approximately $205,000.

Rent and Renovations

The Central Classrooms Building on West Union is the desired location for the testing center. Although this building will take time and money to renovate, it is the best option considering its size, location and price. Renovations for the Central Classrooms Building are projected to cost $450,000 and take up to a maximum of six months to be completed. The rent expense will be approximately $40,000 a year, plus utilities which are discussed above.

Advertising

The methods for advertising are thoroughly discussed in the marketing mix. Since most of the methods are very low cost (if any cost at all), the projected advertising expense will only be $4,000 for the first year. This figure is subject to increase in later years depending on how fast the testing center expands.

Return on Investment (ROI)

The Return on Investment (ROI) is an important calculation that is used to give an approximation of what kind of return has been created in the first year of business. This equation presents the percentage returned on an investment.34 By generating an ROI for the first year that the RFID Testing Center is in business there can be an analysis of how the center is progressing.

Many different equations are used for ROI so there must be a clarification of what equation was used to calculate the ROI.35 The equation is presented as a percentage and the higher the percentage the better. For this project the standard ROI equation was used to determine the testing centers ROI. The equation is as follows:

Income/Investment x 10036

• Income = Revenue – Fixed and Variable Costs• Investment = Initial Startup Investment

To see the numbers and calculations of the ROI see Appendix E.

The expected ROI for the first year of operations for the Ohio University RFID Testing Center is -15.72%. This percentage was calculated using the equation and criteria listed


above. This percentage represents the amount of return on the investment for the first year of business .

Payback Period

The Payback Period is defined as the length of time required to recover an initial investment through cash flows generated from the investment. The payback period provides visibility as to the level of profitability of the investment in relation to time. The shorter the time period the better the investment opportunity:

Payback Period: Initial Investment/Cash Flow

In the first year, the business is expected to have a negative net cash flow. Therefore, a payback period can not be calculated. However, it is expected that business is going to pick up in the second year. It is expected that the net cash flow will be $47,000. This would give the company a payback period of about 14 years. It is our hope that this number can drop as the business becomes more known. For the calculations of the payback period, see Appendix F.

Implementation Plan

The RFID testing center, once approved by Ohio University, will take time to implement. To get the center up and running, the building renovation will take four to six months. After the building has been gutted and set up for testing, bringing in the equipment will also take time. While these steps are taking place the director needs to find hardware and software graduate students to be trained at the auto-ID center. A permanent financial manager will also be hired.

Once the main four staffing positions are filled, the intern positions need to be filled. Once all the positions are filled the building should be ready to start testing. The total time to get the center up and running would be about one year after the university approves the research center.

Conclusion

Through detailed analysis, Pod 1 has recommended four markets, a marketing mix, the operational plan and financial analysis. Focusing on specific manufacturing industries with problems in inventory management, the testing center will provide ideas for RFID implementation. With the help of the university and sufficient personnel, an RFID testing center has the potential to better the research and development for the economy as a whole. Like most businesses, the testing center will start slowly and expand in time, eventually reaching a high return on investment.

1 http://www.deloitte.com/dtt/cda/doc/content/001587_RFID_FINAL1.pdf2 IBID3 IBID4 IBID5 http://www.rmi.org/sitepages/pid421.php6 http://www.scs-mag.com/reader/1999_06/engi0699/engi0699.htm7 IBID8 http://www.businesssolutionsmag.com/Articles/2002_12/021202.htm9 IBID10 IBID11 http://www.sjprivatelabel.com12 IBID13 Thomson Gale, Encyclopedia of American Industries14 Enhancing Brand Value: Tracking and Tracing Applications in the Food Industry, http://domino.automation.rockwell.com/applications/gs/region/gtswebst.nsf/files/FOOD-WP001A-EN-P.pdf/$file/FOOD-WP001A-EN-P.pdf15 IBID16 IBID17 IBID18 IBID19 National Science Foundation. May 16, 2005. <http://www.nsf.gov/pubs/2005/nsf05560/nsf05560.htm>.20 National Science Foundation. May 16, 2005. <http://www.nsf.gov/pubs/2005/nsf05566/nsf05566.htm>.21 http://webit.ent.ohiou.edu/autoid/index.html22 http://www.epcglobalinc.org/about/about.html23 http://www.activewaveinc.com/products_software_solutions.html24 “A Bit of Privacy” Juels, Ari. RFID Journal. May 2, 2005.

http://www.rfidjournal.com/article/articlepring/1536/-1//1 25 Interview with Rick Farace, member of Energy Information Administration. eia.doe.gov26 http://www.awwa.org/Advocacy/pressroom/statswp5.cfm27 Ziff Davis Media Inc. Calculating Costs of Tracking Individual Items with RFID.28 www.woodpallet.com29 Interview with Nations Rent sales representative30 Interview with Steve Brown, former president of Self Adhering Products.31 www.gilmorekramer.com32 www.officemax.com33 www.officemax.com34 http://www.investopedia.com/terms/r/returnoninvestment.asp35 http://www.odellion.com/pages/financial%20models/ROI/financialmodels_roi_equation.htm36 http://www.nysscpa.org/cpajournal/old/12106229.htm

Business Cluster Project 3

Documents

Transcript of Business Cluster Project 3