Electronics Manufacturing Services Firm Looks To RFID

Many electronics vendors have unloaded their manufacturing facilities and now outsource production to services companies, which assemble and fulfill computer and router orders. It's a job that requires a close watch on supply chain and production processes--and some say a perfect fit for up-and-coming radio-frequency identification technology.

That's what Celestica Inc. is betting on. The $6.7 billion-a-year Canadian assembly and engineering company is integrating RFID into its Reynosa, Mexico, fulfillment center to track its customers' orders as they're shipped to retailers. The service will launch in the first quarter of 2005 and will use Matrics AR400 readers and Matrics class 0+ passive tags that operate on a 915-950 MHz frequency. (Symbol Technologies Inc. acquired Matrics for its RFID business earlier this year.) The North American facility is the first to deploy the service, but Celestica may roll it out globally to more than 40 manufacturing facilities worldwide that serve such customers as Cisco Systems, IBM, Hewlett-Packard, and Lucent Technologies.

The RFID deployment follows an aggressive, two-year IT strategy that was designed to cut costs, streamline business processes, and improve operations. In 2002, Celestica began consolidating about 20 enterprise-resource-planning platforms used around the world. "The overhead to maintain data convergence, data warehouses, training, and business processes required for that many systems is mind boggling," says Iain Kennedy, Celestica's CIO. Now the company uses SAP's ERP platform, MatrixOne's Matrix10 product-life-cycle management software, and i2 Technologies' Aspect database, which has since been renamed i2 Electronics Database.

As a result, IT spending has been reduced by a little more than 30% in the last two years. The RFID initiative won't add too much to that tightened budget because, Kennedy says, the application suites Celestica now uses already support RFID. The ongoing IT projects are also squeezing costs out of other places. The company has been able to shrink inventory and cut out excess costs in overhead by reducing the amount of components required on-hand to build products.

There are other benefits. Celestica can now offer its customers a service designed to help electronics companies monitor hazardous material used in electronic components. Called Green Services, it helps companies comply with environmental directives in the United States and Europe, such as the European Union's Restriction of Hazardous Substances and Waste Electrical and Electronic Equipment. These two directives include bans on high levels of certain hazardous materials and require companies to report information on raw material compounds used in finished products, and parts of them will take effect in 2005.

To abide by the reporting directive, for example, companies that build electronic equipment must have access to auditing and reporting tools that can track product numbers and chemical percentages that each product contains. These reports must follow the product through all cycles, from design and manufacturing to final assembly, test, and fulfillment. The combination of Celestica's new IT systems--particularly its PLM system--will make it easier to track that data throughout the manufacturing process, Kennedy says.

Though it's far into its IT overhaul, Celestica still has work to do. SAP's ERP suite, which includes supply chain, finance, and human-resources applications and customer and supplier portals, is more than 85% deployed. Today, all of Asia and Europe runs on SAP. Integration is about one-third complete in the Americas, with roughly 12 months to go. "The greatest difficulty is during the early stages of implementation because business processes must be recognized and developed, and capabilities defined and enabled," Kennedy says. And the RFID deployment, which is only just beginning, will likely take a few years.