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LEGO Puts the RFID Pieces Together
By integrating RFID into its current shipping operations, the company not only is able to comply with mandates from Target and Wal-Mart, it is also saving money and labor compared with a standalone tagging system.
Feb 12, 2006—Many early adopters of RFID in the retail supply chain have focused on setting up a standalone tagging system, in order to meet retailer or government mandates in the near-term, with sights on eventually moving toward a more integrated approach that will provide internal benefits.
Not so with LEGO Systems, the U.S. division of building-block toy manufacturer LEGO Group. To meet the latest RFID mandate deadlines from retailers Target and Wal-Mart Stores, LEGO's Enfield, Conn., distribution center deployed a tagging system that is incorporated with its existing shipping and order verification processes, rather than separate. That's because the lead system architects—Patrick McGrath, project manager of distribution, and Gary Deets, applications manager of global IT, both with LEGO Systems—knew that starting off with a standalone system just wouldn't fly.
For one thing, management would not have been happy with the added labor costs of a system requiring new, separate processes in the warehouse. The architects did not do a cost analysis of a standalone system to see just what those added labor costs would be—a standalone system, they say, was never a consideration—but McGrath believes the costs would have been "catastrophic" to the facility's operations. In the system they deployed, extra labor accounts for only 10 percent of the incremental cost of adding RFID to LEGO's operational budget. The other 90 percent is the cost of RFID labels, as Deets says LEGO is currently paying 24 cents per label. Secondly, Deets and McGrath didn't want to ruin a good thing.
"From a distribution systematic standpoint, we are pretty sophisticated [in terms of shipping accuracy and efficiency] to begin with," says McGrath, "so it's tough to get any return on investment [through RFID enhancements] from that perspective."
A standalone system would have also slowed operations because any goods requiring RFID tags would have had to be cordoned off from the main flow of order processing and dealt with separately. "Being very seasonal, we have to get 40 percent of our business through our DC in less than three months," says McGrath. Every minute is valuable to the company during those busy months leading up to Christmas.
LEGO wanted a solution that would let its warehouse workers apply RFID-enabled labels to cases of product in the same way they apply labels not containing the inlays. That way, the tagging process would not disrupt its order-picking and shipping processes at the Enfield facility.
"We went into this whole project with a vision, up front, about how we wanted it to work," says Deets. "Vendors will tell you, 'My solution does everything,' but that doesn't mean it's necessarily the right thing for you. If you don't go into something like this with a vision about what you truly want to do, you're selling yourself short."
In building this vision, Deets and McGrath included input from the very people who would be most intimate with the RFID element of LEGO's system once it was deployed: the hourly workers who process orders. McGrath says they were brought into the design process to give them ownership of the project, and to provide input on how RFID tagging could best be integrated into their day-to-day operations.
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