Factors that enable and obstruct combined asset and goods tracking: A multiple case study Ville Hinkka 1, Jan Holmström 2 1
BIT Research Centre, Helsinki University of Technology FI-02015 Espoo, Finland
[email protected] 2 Dept of Industrial Engineering and Management, Helsinki University of Technology FI-02015 Espoo, Finland
[email protected] Abstract According to the dominant view in the tracking literature, the benefits of increased tracking and use of new tracking technologies such as RFID (Radio Frequency Identification) are to be found in the savings that better supply chain visibility offers for goods tracking. However, the increased use of returnable transport items (RTI) has recently introduced viewpoints that substantial savings can also be obtained by tracking the asset, where the products are carried. Furthermore, a review of the literature on tracking implementations shows that a strict partition between supply chain tracking and asset tracking is indeed not justified. The same tracking system may be designed to cover both supply chain and asset management needs. This paper presents the enabling and obstructing factors for successful combination of asset and goods tracking in four different tracking cases. In the first case both asset and goods are tracked, in the second case the company is considering the possibilities to enlarge goods tracking to cover also asset tracking, in the third case only assets are tracked, while in the fourth case the company is researching benefits to enlarge the scope of its asset tracking system to cover also goods tracking. In the reviewed cases, the main reason for different tracking coverage and different development of solutions is the differences in the ownership of asset and goods. These differences have lead to distinct development priorities and roadmaps to reach the target, even though an ultimate aim is a solution that combines asset and goods tracking. Keywords: Asset tracking, Radio Frequency Identification (RFID), Goods tracking, Returnable transport items (RTI)
1 Introduction Johansson and Hellström [7] noticed an area, which has been relatively seldom considered and documented in the tracking literature. Instead of tracking products in the supply chain, they claim that by tracking the asset, where the products are carried, savings can be more easily obtained. Their argument is that shrinkage and wrong placement of returnable transport items (RTI) causes considerable losses, which are relatively easy to decrease by tracking the RTI fleets. They criticize that tracking usually concentrates on goods tracking, even if these tracking systems are difficult to adopt and savings in goods tracking are usually difficult to obtain. This view is in opposition of the dominant view, where the benefits of the increased tracking and use of new tracking technologies such as RFID (Radio Frequency Identification) are estimated to be found mostly in the savings that better supply chain visibility offers (e.g. [10, 13]). But a review of the literature on tracking implementations shows that this strict partition between supply chain tracking and asset tracking is not justified. The same tracking system may cover both supply chain and asset management fields. For example Jones et al. [8] describe how the RFID application that British-owned retail store Marks & Spencer (M&S) has developed. M&S uses RFID systems to track frozen food pallets. In addition to manage reusable trays, pallets and 1
cages, the tracking system of M&S also enables the traceability of the food on the pallets, which is required by strict regulatory requirements. Evidently asset tracking and goods tracking can be achieved in the same tracking system. Therefore, the research problem in this paper is: When does it make sense to carry out asset tracking and goods tracking at the same time? 2 Literature review The use of returnable transport items (RTI) is increasing in various industries, because they may offer significant benefits over traditional single use packaging [7]. RTI include all the means of assembling goods for transport, storage, handling and product protection in the supply chain which are returned for further usage. Returnable pallets as well as all forms of reusable crates, totes, trays, boxes, roll pallets, roll cages, barrels, trolleys, pallet collars, racks, lids and refillable liquid or gas containers are included [6]. Johansson and Hellström [7] points out that even if RTI are critical for production and distribution, usually represent considerable value, and are vulnerable to theft or misplacement RTIs are often managed with limited control or visibility. They conclude that RTI fleet often represents a significant initial capital investment, and shrinkage may represent a considerable operating cost. Even if tracking and tracing are quite often used interchangeably, tracking is usually perceived as the following of the location of an entity in transit, while tracing is defined as locating the entity when needed. Tracking systems are based on check-points that register the movements of tracked items. When a tracked item arrives at a checkpoint the arrival is registered and a message considering the arrival is transmitted to a tracking database [11, 14]. The main function of tracking systems is that they connect physical material flow with information systems [19]. The identification of the tracked item at different points in the supply chain is usually done with automatic identification technology such as bar codes and radio frequency identification (RFID) [14, 16]. Most of the tracking systems are designed to increase the visibility of the supply chain considering the goods that are flowing. The simplest versions of goods tracking are the applications of automatic identification of incoming shipments that e.g. Wal-Mart has [1, 5]. In the more advanced tracking systems, the tracking information is used more widely and eventually shared across company boundaries. Applications that track both assets and goods are relatively scarce. The formerly described case of M&S foods supply chain works as a good example of combined asset and goods tracking. However, Kajosaari et al. [9] have developed a framework (Figure 1) that divides different tracking solutions into eight categories. The dimensions are ‘System functionality’ and ‘Material flow type’. The functionality dimension starts with automatic identification. The next level adds to the identification and on the third level the tracking information is shared across company boundaries. There are two basic options in material flow dimension. First, there is closed circulation and then there is flow through. The column between these options describes solutions, where closed circulation tracking is used for supply chain management. Figure 1 below presents the matrix. 2
M lt ia er at
st Sy t nc fu
e yp
em
Asset mgmt
Supply chain management
y lit na io
Closed circulation
Flow through
Info sharing
Tracking system
Automatic Identification
Asset Management
Closed circulation SCM
Flow through SCM
Asset Tracking
Asset based Goods Tracking
Goods Tracking
Asset Identification
Goods Identification
Figure 1. A framework matrix which classifies different tracking solutions. [9] The benefits of tracking are according to Kärkkäinen [11]: First, tracking information can be used for real-time coordination of goods in transit. It also means that tracking systems work as a link between physical reality and information systems, and enable efficient co-ordination of material flows and many logistics services, such as, multi-modal transport and merge-in-transit. Second, there is the possibility to generate exception notices based on tracking information. This feature helps resolving unexpected events before they become big problems, for example, by informing delays or wrong place of products. Third, tracking can be used in increasing the efficiency of administrative processes, for example, by working as automatic payments to haulers, or by offering relevant input to management systems about finding out the place of costs incurred and profits obtained, and by verifying the quality of the processes. Furthermore, it is possible to use tracking information in developing logistics management metrics and analyses. [10] Johansson and Hellström [7] have concentrated on the benefits of asset tracking. They have reviewed the tracking and visibility literature and formulated a framework of potential benefits of asset visibility on costs associated with RTI systems. Their framework is presented in the Table 1 below. Comparing to the benefits that Kärkkäinen [11] and Kärkkäinen et al. [10] describe, Johansson and Hellström [7] highlight the indirect benefits of the tracking system, such as, decreased size of RTI fleet, which for its part decreases asset storage, handling and management costs. 3
RTI costs Investment in RTI fleet
Potential benefits through asset visibility Minimal sizing and configuration of RTI fleet Increased RTI availability Rental charges Reduced deposits Decreased rental charges Replacement cost Reduced shrinkage and counterfeiting Extended use life of RTI through improved maintenance Repair and maintenance cost Enables automatic handling of preventive maintenance Allows collection of historical repair data Transport cost More efficient staging Fewer emergency transports Reduction of erroneous shipments Warehousing and handling cost Decreased use of warehouse space Enables automatic sorting and handling Allows automatic cleaning procedures Table 1. Framework of potential benefits of asset visibility on RTI costs [7]. Literature about benefits of combining goods and asset tracking is scarce and there is only little research about the subject. The most obvious benefit is that when the same system can be used for two different purposes with one investment a better return on the investment can be made. Another approach is to link temporarily a goods tracking system to the asset tracking system. The benefit is that the visibility can be improved even in temporary networks [10]. 3 Methodology The method used in this paper is case study research [20]. Altogether four cases are analyzed. Two cases have been selected from literature, the information about one case has been obtained from literature and an interview, and one case has come from partner who is participating in an EU project, partly funding the research. The perspective of the research is design science. The design science approach proposed by Niiniluoto [17] focuses on understanding the problem-solving process in applied sciences by searching for the defined sets of identified problems and suitable solutions to them. The result of the ‘situation-problem-solution’ analysis has been discussed under the name technical norm by Niiniluoto, and the same subject is discussed also as means-ends proposition by Simon [18]. These concepts can be summarize as: “if you wish to achieve A, and you believe you are in a situation B, then you should do X”. The cases are described by concentrating on the following three aspects of tracking: 1) Situation, 2) Solution, and 3) Goal/Outcome. Then the cases are compared. The main issue in the case comparison is to better understand: Who builds what sort of tracking and why?
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4 Case descriptions This paper compares four different tracking cases in three different companies. The first case company M&S has two cases, because there has been two different ways to adopt RFID tracking systems inside the company. Jones et al. [8] present tracking solutions in M&S frozen food chain. In this case, asset tracking and goods tracking is combined in a same system. Later in 2006 M&S started to test item-level RFID tracking in its clothes supply chain [4]. The information about the second case company Arla Foods Group is obtained mainly from the paper of Johansson and Hellström [7] and from interview of the project manager from Arla. Arla Foods Group is one of the largest dairy companies in Europe. The tracking of roll containers were piloted in Arla and based on the results of the pilots, Johansson and Hellström conducted a simulation study to estimate the benefits of asset tracking in Arla. However, tracking in Arla concentrated only on roll containers tracking – the goods inside the containers did not belong to their study. The fourth case and the third company which is considered in this paper is Itella. Itella is the largest logistics service provider in Finland and it has plans to implement tracking of its roll containers. The purpose of the new tracking system is to manage company’s roll containers better, because shrinkage and misplacement of roll containers was a problem at the time this study was conducted. Even if Itella case has many similarities with the Arla case of Johansson and Hellström [7], there are some differences between the companies, which encourage the managers of Itella to think about enlarging the use of tracking also to the field of goods tracking. M&S (Foods)
M&S (Clothes)
Arla Foods
Itella
Who owns RTI?
M&S
M&S
Arla Foods
Itella
Who
handles
M&S
M&S
Arla Foods
Itella
Who owns goods?
M&S
M&S
Customer
Customer
Solution
RTI
Started with goods
RTI tracking, no
RTI tracking tests,
tracking, interests in
tracking for goods
interests in goods
Situation
deliveries?
and
goods
tracking
extending
to
RTI
tracking
tracking
Outcome
in
Better performance in
Simulation
been
stores by using goods
shows considerable
managing RTI fleet
tracking.
cost
in
are similar to Arla
RTI
case. Benefits of
control
increased in
supply
RTI
study
Savings
Primary benefit has
savings
chain. Enables the
tracking is expected
managing
use of RTI instead of
to lead better control
fleet.
disposable
and
packaging.
shrinkage of RTI.
decreased
goods depends
tracking on
customers.
Table 2. Summary of cases. [3-5, 7] 5
Table 2 above summarizes the presented cases by explaining the situations in the companies, the used or planned solution for tracking system and experienced or expected outcome of the system. The cases are presented in more detailed later in this chapter. The companies handle deliveries and they own the used RTI in all four cases. But only M&S owns the products it handles. Arla has manufactured the product, but does not own them any more when they are leaving the distribution center, because the ownership of the product has already been transferred to the customer in that phase. Itella has never owned the product it handles as the company is acting as logistics service provider. The tracking solution in M&S foods supply chain is combined asset and goods tracking. In the company’s clothes supply chain, the tracking has started with goods tracking, but the company is planning to add asset tracking together with goods tracking. In Arla, the asset tracking has offered promising results, but the company seems not to be interested in goods tracking. Itella is planning to start with asset tracking, and is finding out the interest of its customers for goods tracking. M&S has 520 stores in UK and 240 primarily franchise business stores outside UK. The company has two almost equally big areas according to the turnover: foods and clothing. [15] M&S tested RFID in its food supply chain in 2002. As a result of the success of the tests, company rolled out RFID in all its depots during 2004 and started to deploy RFID enabled systems in their stores in 2005. The retailers of M&S tag the plastic pallet it uses to move goods from suppliers to its stores. [3] The shipments are handled in the distribution centers of M&S and delivered to the M&S stores. According to the head of supply chain logistics and IT for food at M&S, the main benefit of tracking has been to control that the right product in the right quantity is in the right depot at the right time [3]. One purpose for the use of RFID was to introduce recyclable plastic trays. The introduction of these trays has saved around 30,000 tonnes of cardboard every year [4]. M&S started the item-level RFID trial in its clothes supply chain in the beginning of 2006, when its spring/summer clothing ranges came into stores. The benefits of item-level tracking has been better availability of stocks, when store staff know more quickly and more frequently, which sizes, styles and colors need replacing. M&S is also looking at tagging the pallets and roll cages used by its clothing business so that it can keep track of goods as they move trough the supply chain. The main reason for tracking transport units is to save money by reducing the number of pallets or roll cages that get lost or delayed. [5] Arla is a manufacturer of dairy products and distributes fresh products directly to its customers’ retail outlets. In order to distribute its products efficiently, the company uses different types of RTI. Arla had more than 120 000 roll containers in its operations. The company had estimated that the shrinkage of the roll containers is 10 % annually. Therefore the company invests 2 million euros annually in RTI to cover the lost assets. Arla wanted to decrease the shrinkage and replacement costs of the roll containers by adding RFID tags and bar code labels to the roll containers to identify the unit. [7]
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Arla tested the effect of roll container tracking by adding bar code labels and RFID tags for almost 9000 new roll containers, which were introduced in two of the company’s distribution centers in Sweden. The company followed the movements of these containers during a seven month period. After getting the tracking data about that period, the researchers made a simulation study, where they calculated the need for roll containers in order to estimate the optimal size of the RTI fleet. [7] According to the results of the simulation study in Arla, the investment cost in RTI can be reduced by approximately 52 % and the total costs of managing RTI fleets can be reduced by close to 34 % if asset visibility is coupled with the proper managerial actions. Adopting tracking system increases costs by 2 %, which is a tiny figure comparing with potential savings. [7] Itella operates inside nine north Europe countries. In Finland, it is the biggest logistics service provider and it has approximately 100 company customers, whose products are stored and handled in Itella’s warehouses. Itella manages the transports for most of its customers and works also as a carrier. The customers act in different industries and their products vary a lot. Itella had a quite similar situation as Arla considering its use of RTI. Itella has approximately 300 000 roll containers and the company’s managers do not have explicit knowledge about the movement of company’s RTI fleet and exact number of usable roll containers. Annual shrinkage of containers is estimated to be about 10 % in Itella. Another problem, that the insufficient tracking of containers causes, is the misplacement of containers. It regularly happens that some warehouses do not have enough containers. That situation requires extra work, if there is need for emergency transport of containers or containers are replaced by pallets. Therefore Itella is interested to track the movements of its containers by identifying them with an unique identifier. Itella has estimated that if the shrinkage of RTI is possible to halve, the investment in asset tracking system is economically justified. The biggest savings that Itella is expecting, in addition to the decreased shrinkage, are possibilities to decrease the size of the RTI fleet and decrease the transportation costs of empty containers. As the RTI fleet size is reduced, also the handling and warehousing costs of the containers decrease. Itella is also interested in sorting out the possibilities to add goods tracking functionality for the asset tracking system. As introducing asset tracking system requires investments in tracking technologies and development efforts for information systems, the step toward asset based goods tracking is estimated to be simpler than direct adoption of goods tracking. The main reason, why Itella considers goods tracking is that some of company’s customers are interested in goods tracking. Itella can also improve its customer service by offering the same solution to other customers. Goods tracking also helps Itella to improve its own operations by exploiting the tracking information about the products. 5 Conclusions The example of M&S demonstrates the feasibility of combining asset and goods tracking. A reason, why M&S has headed towards combined goods and asset tracking while Arla seems to settle for asset tracking alone, is the difference in the ownership of the tracked goods. The deliveries of M&S are going to company’s retail stores. Therefore the company has interests in the goods tracking, because it can bring considerable benefits in company’s operations in retail 7
stores. In Arla, the products are going to the customers’ facilities and Arla can not see any benefits to track the goods, which belong to its customer. In that process, the only thing that interests Arla is the part of the RTIs, which are in the facilities of the customers. Therefore the main question when thinking about Itella’s motivation for goods tracking is: Would the customers of Itella gain any benefits, if their goods are tracked? However, there is also another reason, why tracking goods is more profitable for Itella than Arla. First, the products that Itella handle have bigger variance than Arla’s product, which are all dairy products. Some of the Itella’s customers’ products are, for example, valuable or their delivery is time-critical. Second, Itella has also bigger seasonal differences in its operations’ volume as Arla, which is delivering food products that has a quite smooth seasonal demand. Increased supply chain visibility is a way to control changing volumes and decrease the possibilities of emerging problems such as Bullwhip effect [12]. Kajosaari et al. [9] proposed that there are distinct roadmaps for adopting tracking systems. The idea of the roadmap is based on an assumption that tracking systems adoption starts with simple asset or goods tracking solutions and the successful adoption of the system leads to increases in functionality and the scope of tracking material types. Arla and Itella has tested asset tracking solutions while M&S clothes supply chain is exploiting goods tracking solutions. In the context of the framework in Figure 1, it can be seen that Itella and M&S clothes are heading to the same kind of asset based goods tracking system that M&S foods already have. However, it is possible to say Itella and M&S clothes have chosen different roads to reach the same type of solution. Itella starting from asset tracking and expanding to goods tracking while M&S clothes vice versa. The development in cases supports the notion of roadmaps presented by Kajosaari et al. [9]. The adoption of combined asset and goods tracking seems easier, if the company owns both the assets and goods as it happens in both M&S cases. For a logistics service provider, such as Itella, there is a need to convince the customer and the owner of the product that goods tracking offers benefits for customers operation, if the customer is not already tracking its goods. If the outcome is to develop a tracking solution, the issue for the further research is: How can Itella link its asset tracking to perhaps many different goods tracking systems? 6 Acknowledgements This work has been partly financed by the European Commission through IST Project TraSer: Identity Based Tracking and Web-Services for SMEs (No. FP6-2005-IST-5). The authors wish to acknowledge the Commission for their support. We also wish to acknowledge our gratitude to our TraSer project partner Itella and especially for Heikki Kauma for his support to our work by giving information about company’s plans and discussions with Arla personnel. 7 References 1. Chain Store Age. 2005. Research Confirms Wal-Mart’s RFID Benefit. Chain Store Age. Vol. 81, No 12, p. 80. 2. Hadfield, W. 2006. RFID tags overtake barcodes in M&S food business supply chain. Computer Weekly; Mar 28, 2006, p. 5.
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