Manufacturing and Distribution Group Newsletter – Winter 2014
Joel A. Herman

Playing Tag:  Tracking Technologies Can Improve Inventory Management


Modern Technology continues to change the way we run our business and manage our inventory, but not without a cost.  Radio frequency identification (RFID) is the latest technology in inventory management.  However, before investing thousands of dollars in converting to RFID tags and readers, manufacturers and distributors should consider whether bar coding — or a combination of these two options — is the optimal choice for their company.  Bar codes are generally less expensive, but RFID offers a host of additional benefits.  This article discusses how the two technologies work and the considerations that should be addressed in deciding which technology to adopt.

Radio frequency identification (RFID) is the wireless non-contact use of radio frequency electromagnetic fields to transfer data.  RFID tags are intelligent bar codes that can talk to a networked system to track inventory or products moving through a plant.

RFID tags, a technology once limited to tracking cattle, have more recently been used to track vehicles, airline passengers, Alzheimer’s patients and pets.  They are now being used to track consumer products worldwide.  Many manufacturers and distributors use the tags to track the location of each product from the time it is assembled or acquired, to where it is stored, to when it is pulled off the shelf and shipped to a customer.

More than half of the companies surveyed in a recent release by CYBRA, a manufacturer of inventory tracking systems, are using, piloting or implementing RFID tags.  But, before you invest thousands of dollars in converting from bar codes to RFID tags and readers, consider whether bar coding — or a combination of these two options — is the optimal choice for your manufacturing or distribution company.

What Technologies Can Track Inventory?

Bar coding and RFID fall under the umbrella of automatic identification (auto ID) technologies.  In general, such technologies serve to increase accuracy and overall efficiency in identifying, tracking and distributing inventory.  They can also improve customer service and the accuracy of your inventory records.

But they differ in how they work.  Bar coding is a line-of-sight type technology, meaning, it uses scanning devices that essentially see and read bar codes affixed to inventory.  To be read, bar codes must be carefully positioned toward the scanning device and be in good condition.  Dirty or damaged labels cannot be properly scanned.  Bar codes also are limited in the amount of information they can include.  For example, they can identify the manufacturer/vendor and product, but not always additional specifics of the item.

An RFID system, on the other hand, communicates inventory data via a radio frequency channel or wireless technology.  A reader device transmits an identification request to an identification tag affixed to inventory.  The tag relays the requested information back to the reader device, which then transmits it to a computer.

Data encoded within an RFID tag may include the item type, location (such as in the warehouse or in transit), and any special handling instructions.  More expensive tags may be “fully loaded” with all the bells and whistles, such as tampering indicators, temperature or moisture sensors and encryption codes.  RFID tags do not require a direct line of sight to be read; they can be detected as long as they are within range of a reader device.

What Are the Costs and Benefits of RFID?

Whether RFID is better than bar coding depends on the needs of your business and the type of inventory you store or distribute.  Bar coding generally is less expensive to implement than RFID, and it provides adequate, cost-effective inventory identification and tracking capabilities, especially for smaller manufacturers and distributors that warehouse less expensive inventory items.  Bar coding also makes sense if you carry liquid or metal inventory that might interfere with certain radio frequencies.  In some cases, combining the use of RFID and bar coding technologies also may provide a cost-effective solution.

Cost is a key difference between bar coding and RFID technology.  A bar code generally costs just pennies.  RFID technology prices vary significantly depending on the desired functionality, but fully loaded RFID tags can cost as much as $50 each.

The primary advantage to RFID is that it offers faster data processing and broader ranges for reading data on tags, which do not need to be positioned outward to be read and offer more specific data.  RFID tags also last longer and can be updated, reprogrammed or reused.

Keep in mind that continued standardization efforts are also essential to furthering the use of RFID worldwide.  In fact, the frequencies used for RFID in the United States currently are incompatible with those of Europe or Japan.

Will RFID Jeopardize Security and Privacy?

Some technology experts advise caution regarding the potential for security risks with the use of RFID technology.  Some RFID applications lack crucial user identification and encryption features or could possess coding errors or weaknesses, making them vulnerable to hackers, counterfeiters and destructive viruses and worms.

Before upgrading to RFID technology, ask whether your data will be encrypted or password protected to guard against potential security risks.  Malicious attacks that exploit such vulnerabilities could wreak havoc on your computer systems.

Should You Jump on the RFID Bandwagon?

Inventory management can make or break a manufacturer or distributor.  Bar codes typically serve a company’s basic needs and are generally less expensive, but RFID offers a host of additional benefits.  We can help you determine whether the benefits of RFID outweigh the costs — or whether bar coding is a more cost-effective option.

If you have would like to discuss the best options for your company, contact your ORBA advisor or 312.670.7444.

Health Care Reform:  What Employers Can Expect in 2014

The launch of health care marketplaces under the Affordable Care Act (ACA) is just one of the many important developments that go into effect during this year.  New tax credits, recordkeeping requirements and waiting periods all require tax planning and diligence for manufacturers that already offer — or are planning to offer — health insurance policies to their employees.  This article discusses options for small businesses in regard to public marketplaces, along with the option of private marketplaces for larger businesses.  A sidebar discusses the ACA’s large-employer health insurance mandate, to begin in 2015.

The Affordable Care Act (ACA) continues its decade-long rollout.  Health care coverage through government-run marketplaces has officially began for individuals and small businesses.  But the launch of these marketplaces is just one of the many important developments that takes effect during this year.

Tax credits, recordkeeping requirements and waiting periods all require tax planning and diligence for manufacturers that already offer, or are planning to offer, health insurance policies to their employees.

Public Marketplaces:  Small Business Options

While much of the media attention on the new insurance marketplaces focused on what they mean for individuals, many businesses are also eligible to participate in the Small Business Health Options Program (SHOP).

Generally, companies with up to 50 full-time employees (up to 100 beginning in 2016) can participate in this public exchange program, which allows them to complete one online application and easily compare multiple health plans.  Small businesses with fewer than 25 full-time equivalent employees (FTEs) may obtain substantial tax credits if they purchase health insurance through SHOP.  To determine FTEs for tax credit purposes, you generally add up the total hours for which you paid wages to employees (not to exceed 2,080 for any one employee) and divide the total by 2,080.  Then you round to the next lowest whole number.

To qualify for the tax credits, employers must pay at least 50% of their employees’ self-only health insurance premiums and average wages must be less than $50,000 per FTE per year.

These credits work on a sliding scale.  Smaller businesses receive bigger credits.  Businesses with ten or fewer FTEs may qualify to recoup as much as 50% of the cost of health insurance premiums in 2014.  To receive the maximum credit, average wages cannot exceed $25,000 per FTE per year.

Private Marketplaces:  Big Business Options

For larger companies, new private marketplaces offer many of the same options as the government-run programs.  These marketplaces, which are typically run by insurance companies and health care benefits management providers, offer defined-contribution options for companies looking to limit their health care expenses and to provide numerous plan choices for employees.

Private marketplaces may be an increasingly popular option for all employers in the future.  Reasons employers often prefer private marketplaces to public ones include expanded product choices (including ancillary products), greater design flexibility and improved customer service with private providers.  Some companies also express a general wariness of government-run entities.

Waiting Period Capped

Under the ACA, if a new employee opts to join his or her new employer’s health plan, coverage must begin within 90 days of the employee’s start date.  This new requirement, which became effective on January 1, 2014, applies to all eligible employees and their dependents.

For example, if a new full-time hourly employee starts work at your plant on July 1, that employee’s insurance coverage can begin no later than Sept. 28 — or earlier, if the 90th day falls on a weekend or public holiday.

More Changes Expected

As new ACA requirements and deadlines roll out, regulators will continue to issue guidance.  So, check with your advisor on an ongoing basis to ensure your business complies with the new rules in 2014 and beyond.

If you have questions about the Health Care Act, please contact Mark Soltys at 312.670.7444.

Sidebar:  Large-Employer Mandate in 2015

Originally scheduled for implementation in 2014, an Affordable Care Act provision requiring “large” employers to offer “affordable” health insurance providing at least a “minimum value” of coverage to all full-time employees or face a potential penalty now goes into effect on January 1, 2015.

The requirement, often referred to as the “shared responsibility” or “play or pay” provision, defines a large employer as one with 50 or more full-time employees or full-time equivalent employees (FTEs).  An employee is full-time if he or she works on average at least 30 hours per week.

However, FTEs are computed differently than for tax credit purposes.  For “play or pay” purposes, an FTE is basically two or more part-time workers who work on average at least 30 hours when combined.  For a given calendar month, FTEs are computed by totaling the hours worked by all part-timers and dividing the total by 120.

Under the Employer Shared Responsibility Payment provisions, an employer’s health insurance plan generally must not require employees to spend more than 9.5% of their household income on premiums (the affordability requirement).  And, the plan must cover at least 60% of all plan benefits (the minimum value requirement), including these four core categories of costs:

  1. Physician and mid-level practitioner care;
  2. Hospital and emergency room services;
  3. Pharmacy benefits; and
  4. Laboratory and imaging services.

Penalties for noncompliance will be steep.  Starting in 2015, large employers that do not offer health insurance will be required to pay an annual fine of $2,000 per full-time employee, not including the first 30 employees, if just one full-time employee receives a premium tax credit for purchasing coverage through a health insurance marketplace.

Different fines apply if you offer insurance but it does not meet the affordability and minimum value requirements. If you do offer insurance, but the insurance does not meet the minimum requirements, the annual payment is $3,000 per full-time employee who qualifies for premium savings in the marketplace.  Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax-deductible.

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