Equipment SelectionRFID vs. UPC

EGR 403 August 22, 2005

Team 3Saul Barbosa – Equipment Research

Ross Nichols – OrganizerChih-Yun Sun – Cost AnalysisGreg Temple – Summarizer

Equipment differences

-Parallel Bars Store Binary Code

-Universal Product Code

-UPC Labels

•UPC Barcode

Equipment differences

-Requires Manual Input

-Machine Readable

-Provide Information

•UPC Labels

Product FingerprintHelp Inventory Tracking

Identify Who Is Buying Products

Equipment differences

-RFID Tags

-Radio Frequency Identification•RFID

Intelligent Bar CodesSmart Labels

Equipment differences

-Communicate To A Network

-Automated Input

-Track Products Continuously

•RFID Tags

Local & RegionalIncoming & Outgoing

How do we profit?•Time Savings

–Product Promotion/Location

–Manpower–Universal Application

•Reduce Shrinkage–Stronger theft deterrent

Product Promotion/Location

•Increase of Sales– Promotional displays– Active selling locations– Promotional displays and

there impact on sales

Basic Assumptions•Blockbuster Corporation• 1.4 Billion in annual sales

– 7265 Stores– 2 Systems per store– $194,000 annual profit per store– 75% profit from register

products

Costs of Equipment•UPC

–$22,000 per system–$10,000 magnetic security system

•Other Costs–$18,000 Maintenance a year–$1,500 a year for labels

•Annual Costs–$207,725 –Includes Staff of 8 & 15% Shrinkage

Costs of Equipment•RFID

–$55,000 per system

•Other Costs–$18,000 Maintenance a year–$15,000 a year for labels

•Annual Costs–$157,800–Including staff of 6 and 5% Shrinkage

Basic Analysis

• Based on Present Cost analysis with 10% interest for 5 years.

• NPC of UPC is $851,441• NPC of RFID is $708,186• Assume fixed output (profit)• Lower net present cost will be more

preferred; therefore, RFID is the better option in this analysis

Sensitivity Analysis• Set NPC of UPC is $851,000• Cost of RFID increases 50%

– NPC of RFID is $763,000 (chose)• If RFID doesn’t improve sales or

reduce shrinkage– NPC of RFID is $791,000 (chose)

• If RFID doesn’t cut down man power– NPC of RFID is $866,000 (not chose)– If the period extend to 9 years, RFID

will be preferred.

Conclusion

•RFID– Improve Efficiency– Save Time– Reduce Staff Size– Expand Marketing– Increase Sales