It was a product development paper when I was at busienss school two years ago, co-writen with my teammates Somnath, Reagan and Brad. It maybe very immature from eyes of experts since we finished the paper in a very short period of time. Since then I haven’t done much research about RFID-GPS tag market. But I like to post the article here for sharing and for my further research.
The new RFID-GPS hybrid tag will include both RFID & GPS advantages to apply to or incorporated into a product, animal, or even person for the purpose of tracking and location navigation. It will locate the objective no matter it’s in door or out door. The tag user can log into internet to track the object location, or the tracking information can be fed into customer tracking system. The product cost will be the biggest concern for the customers. The hybrid tag will be priced at the same level of the traditional RFID. Hence the new product provides the customer additional value of GPS tracking by paying the same cost of RFID. It can be considered as 2nd generation of RFID tag.
Key Customer Benefits
It combines the advantage of both RFID and GPS. RFID can be used mainly for indoor tracking. GPS in the tag is used for outdoor movement tracking and short-term storage of recent location history. Through web portal, the customer can track the objects in real time in 24/7. The hybrid tag will improve the customers’ inventory management, asset management and enhance their operational efficiency to achieve cost saving.
1. Key Business Goals
- Time to Market – One year
- Desired financial performance – be profitable in 3 years
- Quality requirements – small size tag but store and transmit reliable data for product tracking
2. Target Market
- Retail – it will enhance the supply chain management by providing inventory visibility no matter the products are in door or on the road. It helps retail to improve their customer service by providing accurate product availability information.
- Tool, container and equipment pooling industry – the hybrid tag can help to track the location and leasing length of the leased products. The information will help them on asset management and also help them charge the customer accurately based on the exact leasing time.
- Livestock industry and pets owner – track the location of the animals
3. Assumptions and Constraints
The assumption for RFID-GPS hybrid tag development is that we don’t have R&D cost constraint. The major constraint for future development and production is the supplier power because we will rely on our hardware suppliers and software suppliers to achieve our cost objective for this new product.
- Suppliers – Suppliers of RFID and GPS, and the software developer.
- Partners – GPS cellular communication service to send tracking information
- Customers – users of RFID-GPS hybrid tag for their product
- Customer employees and consumers – concern of personal privacy
Potential market size
The market size is huge because the tag can be broadly used on merchandise, leasing tooling and equipment, and animals. In 2008, RFID market size will reach $7.26 Billion, which can be translated as future market size of RFID-GPS hybrid tag. Similar to the launch of RFID tag, we can work with the retail, such as Wal-Mart, to launch the hybrid tag.
Currently there are researches for RFID-GPS hybrid tag, but there is no product in the market yet. If we can be the first producer of the tag, we can be the leader in the market. Our goal is to obtain 20% of the $7.26 billion market before other competitors follow up, so time to market is very critical for us to win.
The customer requirements are:
- Low cost. Although RFID-GPS hybrid tag can provide the customers tremendous benefits from improved supply chain and asset management, the customers are still concern the cost of implementing new tag.
- Small size. The size of the tag is important for merchandise. The smaller, the better is for the customer to replace the tag in the products.
- Tag memory capacity. The customer will like comprehensive information to be stored in the tag for intensive movements tracking recording.
- GPS navigation accuracy. Only the accurate location information can provide the customer value added information, otherwise, it will mislead the direction and create unnecessary waste.
- Easiness for information tracking and data collection. We need not only to provide the hardware quality and price, but also to provide convenience and easiness for the customer to obtain tracking information and data thought web portal. If the customers requires, we can also feed the information directly to their information systems.
The customer is concerned that additional tagging system will be transfer the cost to the consumers, although they understand the advantage of a fully implemented item-level tagging system to help to increase inventory visibility and reducing shrinkage due to theft, damage, etc and expiry of perishable. The biggest disadvantage of traditional RFID tag is the distance range of the RFID reader, while GPS resolves this problem, especially when the product is on the road. Thus the additional GPS tracking system in the tag will help the customer to achieve deeper cost saving.
Currently traditional RFID tag price is ranged widely based on memory capacity. It can be as low as 5 cents per tag. The low cost will allow the tag to be used at unit level. Since we’re the first one to launch RFID-GPS hybrid tag, the competitive product is the traditional RFID tag. We need to price the hybrid tag comparable and competitive to RFIF tag in order to convert the customers from traditional RFID tag to RFID-GPS hybrid tag. We will price our new product to be as same as the traditional RFID tag but providing additional value of GPS tracking. While a monthly service fee will be applied to the customers for GPS cellular communication service.
Both RFID (Radio Frequency Identification) and GPS (Global Positioning System) are existing technologies. With the price drop in 2006, RFID tag is becoming inexpensive, especially for the merchandise. But RFID has limited tracking range because its position is tied to location of the antenna or reader. GPS, in the other hand, has the advantage to locate and measure the movement of an object by utilizing satellites transmitted signal. The RFID-GPS hybrid tag will combine the advantage of both technologies and allow the user to track an object at real time without geographic barriers.
The bill of material of RFID-GPS hybrid tag will include RFID memory chip, an antenna for receiving and transmitting the signal, GPS reader and GPS logger, which will store movement data. Currently there is a technology called chipless RFID allowing for discrete identification of tags without an integrated circuit, thereby the tags can be printed directly onto assets at lower cost than traditional tags. The biggest challenge will be the power supply for GPS. An alternative solution need to be provided as power supply in order to receive and send GPS signals. At the same time, we need to develop the internet portal to provide customers the tracking information and data, or develop a software program to feed information to the customer’s tracking system.
The compelling value of the RFDI-GPS hybrid tag is the real-time tracking capability for the object in door and out door without geographical barrier. The tag will help the customer to reduce their over all cost by completed inventory pipeline visibility, improved asset management and streamlined operations efficiency.
Product Development Plan
In order to be the winner of the new product, we need to be quick to get into the market. Both RFID and GPS are existing technologies, but it would still be challenging to implant both of them into one single small tag. The target product development lead time is one year through close partnership with our suppliers and partners. Below is the estimate timeline for the development phases:
- Portfolio and concept approval: 2 month
- Program approval and prototype: 6 month
- Pilot and launch – 4 month
The schedule is tight because we also need to source reliable suppliers and contract the partners at the same time. But establishing an aggressive goal of time-to-market will help us to be the leader of 2nd generation of RFID tag.
Currently there are plenty of RFID & GPS receiver suppliers in the market and many of them are located in low cost countries. Since many of merchandises are also produced in low cost countries. The tag, as a component of the finished goods, would be reasonable to be produced in low cost countries, close to our customers’ sourcing locations. For software development, we can utilize current RFID web portal program to include location and movement information through GPS tracking. At the same time, we need to negotiate a partner of cellular communication network to provide GPS tracking service.
In terms of resource required for this new product, other than R&E and development investment, we need engineer talents knowing the technologies of RFID and GPS to design the tag and work with our suppliers to develop the product. The procurement team will help to source reliable manufacturing suppliers. We also need information and communication system engineers to develop the web portable.
Market introduction will target to the retail and tooling leasing companies. Wal-Mart was the first one to adapt RFID technology and we believe they will be interested in the new hybrid tag. Tooling leasing company, such as CHEP, has been applying RFID to monitor their assets utilization. Again, the new tag will enhance their asset management. We can partner with them to launch and test the new products.
The estimated market size of traditional RFID tag is going to be $7.26 billion in 2008. When hope to capture 10% of the market, revenue of $1.45 billion for the first year, 20% in the second year and expand to 30% of the market share in the third years to $2.18 billion. Another revenue stream is the monthly fee for GPS cellular communication. We can negotiate with the network partner to share the monthly fee revenue. The monthly service fee can be structured based on the size of GPS data transfer. The customer will pay a fixed monthly fee first to cover a fixed amount of data transfer and then pay addition fee based on actual additional data. The estimated service fee will be $5 million annually.
Since it’s a start-up business, the fix cost to support future business need to be included when we calculate NPV. We estimate $40 million as the initial investment for product development. The variable cost for the future business will be the tag production cost. The SG&A cost will include web supporting, data transfer cost and marketing & administration cost. The estimated net income will be 10% of our revenue. But we might experience a declining gross margin when the competitors follow and will drive our net income margin down to 8% in the third year and remain this rate going forward. With an annual interest rate of 10%, NPV shows positive as 3 million at the end of forth year. At the sixth year, NPV of this business reaches to $22 million. GPS service fee income will be the incremental income for the company.
Regulatory, External Considerations
The major risks of this product development are the competitors’ entry and continuous product improvement because we don’t have our own manufacture and reply on the supplier for manufacturing. We can patent our design but the competitors can develop their own design for the similar product. In order to remain our competitive advantage, we need to differentiate us by providing continuous product development, and the world-class web tracking and data transfer service for our customers.
Another concern is the privacy of the customer employees and consumers. Because of the 24/7 real time tracking, the employees, such as truck drivers who carry the objects, will be monitored all the time. In retail, when the merchandises with tag are sold, the tracking signal needs to be removed from the tag through a signal remover. So the process of signal removal needs to be followed to avoid any consumer concern.