RFID Required: LEGO's Integrated RFID System

You've probably heard the stories of frustration with RFID: high overheads and little returns, constant implementation challenges, and business benefits that will be realized someday. So I'm sure you'll be as floored as I was when you hear LEGO Systems, Inc.'s story. Pat McGrath, project manager, distribution, Americas; and Gary Deets, applications manager, global IT, are so positive about RFID that you'd think they're speaking pure conjecture, or at the very least, a bunch of marketing fluff. But, they aren't. McGrath and Deets are speaking from real experience, from implementing an RFID solution into a LEGO DC (distribution center) to comply with both Wal-Mart's and Target's mandates – compliance they gained three months ahead of schedule.

LEGO is a global toy company headquartered in Billund, Denmark with manufacturing and distribution sites in Europe and the United States. LEGO bricks (the building block pieces) are manufactured in Europe, with 75% of the products packaged in the United States. A 450,000-square-foot DC in Connecticut, which ships 10 million cases a year, handles the distribution of products to LEGO's U.S. trading partners (and 40% of that volume takes place in the three months before the December holidays).

TRADE SHOW NETWORKING
PROVIDES RFID PROJECT VISION
In mid-2004, LEGO received notification that it needed to comply with Wal-Mart's RFID mandate. "I can remember the exact date of the meeting Wal-Mart held with several of its suppliers, and that was June 16, 2004," says McGrath. "Wal-Mart was actually quite proactive during the meeting, educating us about RFID and presenting some examples of what early adopting suppliers had done." Following that meeting, Deets and McGrath and their colleagues began researching the technology even more, spending three months educating themselves by reading articles, talking with people at EPCglobal, and attending industry trade shows. Following those three months of research, LEGO came away with a vision of an RFID solution where it was integrated within LEGO's DC processes. "We found from talking to people at the shows that an RFID system needed to be practically seamless to be effective," says McGrath. "RFID was a process that was often tacked onto the end of companies' DC processes. But we didn't like the idea of putting RFID in the corner."

LEGO's DC is highly automated, so "putting RFID in a corner" would have been detrimental to the business processes. In the DC, LEGO's SAP ERP (enterprise resource planning) system is linked to the ERP systems of LEGO's trading partners. All partner interaction at LEGO (e.g. sales, support, and distribution) is routed through the ERP system. When fill orders come in, the ERP system recognizes them and routes them to LEGO's WMS (warehouse management system), which is Manhattan Associates PkMS. The WMS then optimizes pick orders, which are presented to DC employees on vehicle-mounted displays on forklifts. Orders are not picked by one employee alone; once picked, the orders are placed on conveyor belts and deposited in a sorting area. Once sorted, the orders are validated with bar code scans (which update the WMS), palletized, and wrapped. Employees apply pallet tags that have printed on a bank of nearby Zebra printers. The orders are then staged to be shipped, where another scan will take place to validate the pallet once again.

DEVELOP RFID PROJECT PLAN
WITH INPUT FROM BUSINESS USERS
All of LEGO's DC automation relies on its WMS; therefore, the crux of the RFID project lay with the middleware. "We knew we needed to start the project with middleware," says Deets. "Beginning with hardware would have been silly." LEGO had narrowed down a short list of vendors from its trade show networking, so it compiled a team of business and IT employees, along with a selection of key hourly operators and DC team managers to create a detailed description of what was needed from a middleware solution. McGrath highly recommends involving DC-level employees – the actual technology users – in the planning of an RFID project. "They provided excellent insight into what would work and what a system needed to do, as they're the ones used to our automation," he says. "We also provided them with ownership of the project, so the acceptance level was very high at the end of the project."

Armed with the description, which included the roles the middleware, the WMS, and the ERP systems would need to play, along with how LEGO envisioned processes working on the floor, LEGO contacted vendors on its short list. In the end, LEGO went with Acsis, Inc. because the middleware, Data-Link Enterprise, was more customizable and it could be integrated with LEGO's WMS more cost-effectively than other solutions.

DESIGNATE RFID TAG NEEDS IN ERP SYSTEM
Working with Acsis, which offers a range of consultative/professional services, LEGO integrated the middleware with its WMS. In its ERP system, LEGO flagged the DCs to which Wal-Mart and Target require RFID-tagged products be shipped. Now, when an order comes from the ERP system for a specified RFID-receiving DC, LEGO's WMS routes the order to the Acsis middleware, which handles the order in the same fashion regular orders are handled.

The middleware manages six Zebra RFID printers (placed in the same areas as the bar code printers), sending down print runs for orders requiring RFID. The RFID labels are printed on tags with RFID inlays from UPM Rafsec. (See sidebar on page 12 to learn about the customization this took.) DC employees picking RFID orders apply the tagged shipment labels to the cases as they are picked. The cases are then put on conveyors to go to the sorting area. While the cases are on the conveyors, Alien Technology RFID readers and antennas read the RFID tags and update the middleware, which informs the conveyor operating system that the correct cases have been picked. The system also reassociates the case with its pallet, and the middleware sends a pallet tag print order to a Zebra printer in the sorting area. Once a pallet is built, it is wrapped at a point where LEGO has installed four Alien antennas. Another RFID read takes place to verify that the correct cases are together and associated with the correct pallet. To date those reads have been at 99% accuracy for LEGO. Once the pallet is wrapped, the pallet RFID tag is applied and the pallet goes to the staging area. A final RFID read is taken via portal readers around the dock doors when the pallet is shipped.

In the case of full pallets ordered by an RFID-receiving DC, LEGO must depart a bit from its automated process. There really is no other way around it – a full pallet is already shrink-wrapped, yet the cases need to be individually tagged. To address this, LEGO has built an exception-handling system, of sorts. A LEGO DC employee picks a pallet as instructed and takes the pallet to the bank of label printers. He scans the bar code pallet tag and if the pallet (and the cases on it) require RFID tags, the printer spits out a label reading ‘RFID required.' The DC worker then drives the pallet to a designated area where another printer has the RFID case tags ready. The employee then breaks down the pallet, tags each case, rebuilds the pallet, and brings the pallet to the shipping area.

LEGO began shipping RFID-tagged products to Wal-Mart in October 2005, earning the retailer's certification of compliance. In December, LEGO began shipping to Target. Since October, LEGO has shipped more than 10,000 cases with RFID tags and has experienced 100% read accuracy at the dock doors, with Wal-Mart and Target reporting back 99% to 100% accuracy upon receipt. Wal-Mart and Target have not required RFID-tagged shipments bound for any other of their DCs, but if they do, LEGO is ready. "The beauty of tagging by DC ship-to destination, rather than SKU [stock keeping unit], is that the project is instantly scalable," says Deets. "We just flag another DC in our ERP system, and, boom, we can tag as many cases as needed."

LEGO doesn't plan to be finished with its RFID work in the near future. On tap next is deploying RFID in its European facilities for compliance with European retailers. Back in the United States, LEGO plans to use the RFID data it has received from Wal-Mart and Target to better understand the position of its product in the Wal-Mart and Target stores served by the RFID-requiring DCs. LEGO is also planning to use RFID data to enhance its ASNs (advanced shipping notices) to further streamline its distribution processes. Finally, LEGO is preparing for a Gen 2 upgrade later in 2006.