WHEN 99% JUST ISN’T ENOUGH

Benefits of Improved Read Rates in Logistics Scanning

 WHEN 99% JUST ISN'T ENOUGH
Benefits of Improved Read Rates in Logistics Scanning

Over the last year, consumers have fundamentally changed how, where, and when they
shop. Brick and mortar stores must now compete with traditional e-commerce platforms
using omni-channel operations to survive. Customers expect to make their purchases
online and either receive free shipping or pick up the product at a local store in a matter
of hours. This shift in expectations has vastly increased demand and has put pressure
on retail distribution, e-commerce fulfillment, and parcel processing facilities to increase
their throughput. If customer needs are not met due to delayed shipping or lost orders,
companies incur additional costs, such as extra shipping, extensions of free shipping
memberships, or store credit to please their customers.

To keep up with increased demand and customer expectations, logistics organizations are
evaluating investments in high-volume logistics barcode scanning tunnels. By increasing
read rates—even by a small percentage—fewer packages will need to be handled
manually and fewer workers will be required for relabeling or rerouting rejects. In addition,
barcode scanning tunnels enable traceability so packages that get “lost” within the facility
are quickly found and put back on their way to the customer. Overall, companies save
money on labor and avoid “customer retention” costs.

2 White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning
 MARKET SHIFTS, TECHNOLOGY ADVANCEMENTS,
AND OPERATIONAL SAVINGS DRIVE DEMAND
FOR IMAGE-BASED BARCODE READING
Senior Cognex Fellow Emeritus Bill Silver stated: “If contemporary technology has a grand
theme, it is that eventually digital will replace analog, and solid state will replace mechanical.
Whether it be music or video, publishing or photography, telecommunications or engine
control, the story is similar. Mechanical, analog machines have been around for decades,
sometimes centuries. They are mature technologies—the kinks have been worked out,
the costs have been squeezed as much as possible, the strengths and weaknesses are
well understood. The newer solid state, digital challengers at first offer more promise than
performance, but with continued innovation and development they come to dominate the
market. So, it will be with linear barcode readers.”

The limitations of laser scanners are well known. Laser scanners only capture a single
scan line at a time, which means they have a much more limited ability to obtain a ‘read’,
especially on barcodes that may be poorly printed or damaged. Laser scanners also do not
capture an image of the barcode, which is essential for distribution centers (DCs) that want
to conduct root cause analysis on ‘no reads’ for process improvement. In addition, laser
scanners have moving parts that are subject to wear and often require repair or replacement.

The laser scanner challenger uses an imager similar to one found in a digital camera along
with a microprocessor to analyze images. Image-based barcode readers, like the DataMan®
product line from Cognex, deliver increased read rates on poorly printed or damaged codes,
provide the ability to save “no read” images for performance feedback, and are designed
with no moving parts enabling longer usable product life.

Sensor

Oscillating
Mirror
Barcode Barcode
Laser
Lighting Lens Sensor

Laser Scanners Image-based Barcode Readers

With the growth of e-commerce and out of necessity, the logistics market has widely adopted
image-based barcode reading. With rapid advances in technology and continued increases
in shipping volumes, small gains in performance can still have a huge payoff, even if
companies recently invested in laser technology.

White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning 3
 WHY READ RATES MATTER
In order to quantify the impact of read rates, it
is first important to understand what happens
when a barcode scanner cannot ‘read’ a barcode.
When a ‘no-read’ condition occurs, packages
must be diverted to a station where an operator
can manually type the information or replace the
defective barcode with a new barcode and resend
the package back through the sorting system.
This type of failed condition results in increased labor costs and reduced efficiency of
automated sorting equipment.

As you might expect, low read rates cause greater potential losses as throughput
increases. For example, a high-volume DC that processes 229,263 packages per day
and averages 99% read rates has the option to invest $150,000 USD into image-based
barcode reading systems. These image-based barcode readers will improve overall read
rates by 0.9%.

What will this investment deliver in real value for the DC? Before analyzing the value, we
will review the assumptions in Table 1 below.

Table 1. High-volume Distribution Center Assumptions*

Sorter speed (feet/minute) 550
Average box size (inches) 20
Distance between boxes (inches) 18
Operation (hours/day) 22
Utilization (days/year) 350
Boxes/second 2.89
Boxes/hour 10,421
Maximum boxes/day 229,263
Maximum boxes/year 80,242,105
Rework time per no read (min) 1.5
Burden Rate per lost/late package (USD) 1
$5.00
Cust Retention Incentive/lost package2 (USD) $5.00
% of no reads that become lost/late 10%
* Based on a high-volume shipping sorter typical of a large retailer
1
Cost involved in reshipping a lost or incorrect package due to a barcode error
2
Cost involved to "compensate" customer due to "failure to meet service promise" — may include extension of free
shipping program, or future store credit

4 White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning
 WHEN A 0.9% IMPROVEMENT IN READ RATES
EQUALS $100,000s IN PROFITS
By making a $150,000 USD investment into image-based barcode reading systems, a 0.9%
read rate improvement reduces the number of packages that must be manually reworked
and fed back through the sorting machine by 2,063 packages per day or 722,050 packages
per year. If we assume that a typical operator making $15 USD per hour requires 1.5
minutes to rework a ‘no-read’ package, then this investment saves $270,769 USD per year.
In addition, if we assume that 10% of packages that cannot be read are lost or delayed such
that the company must incur a retention cost to appease their customer, then the company
can avoid an additional $361,025 USD per year in customer retention costs. Adding the
operator savings and the avoided customer retention costs results in the company achieving
full return on investment (ROI) for its $150,000 USD in just under three months. After two
years, the company would realize $1,113,587 USD in profits. With long product life, the new
image-based barcode readers can add hundreds of thousands to the bottom-line year after
year with just a 0.9% improvement in read rates. Table 4 illustrates the financial impact that
improving to 99.9% read rate can have in this example.

Table 2. High-volume Distribution Center Read Rate/Labor Cost Analysis

Number of
Maximum Total Rework
Operators Cost of Operators
Read Rate No-Reads Number of Time (Man
Required to (USD/Year)
Packages/Day Hours/Day)
Handle Rework
97% 6,878 222,385 171.95 21.5 $902,737.50
98% 4,586 224,678 114.65 14.3 $601,912.50
99% 2,293 226,971 57.33 7.2 $300,956.25
99.5% 1,147 228,117 28.68 3.6 $150,543.75
99.9% 230 229,034 5.75 0.7 $30,187.50

Table 3. High-volume Distribution Center Read Rate/Customer Retention

Cost Analysis
Customer
No-Reads Daily Customer
Maximum Retention
That Become Retention Cost
Read Rate No-Reads Number of Cost for Lost/
Lost/Late to for Lost/Late
Packages/Day Late Pkgs
Customer Pkgs
(USD/Year)
97% 6,878 222,385 688 $3,439 $1,203,650
98% 4,586 224,678 459 $2,293 $802,550
99% 2,293 226,971 229 $1,146 $401,275
99.5% 1,147 228,117 115 $574 $200,725
99.9% 230 229,034 23 $115 $40,250

White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning 5
 Table 4. ROI Calculations for High-volume Distribution Center Based on
Customer Retention Costs and Operator Savings
Customer Retention $150K Investment
Cost of Operators
Read Rate Cost for Lost/Late Pkgs Payback 99%–99.9%
(USD/Year)
(USD/Year) (months)
97% $902,737.50 $1,203,650
98% $601,912.50 $802,550
99% $300,956.25 $401,275
99.5% $150,543.75 $200,725
99.9% $30,187.50 $40,250 2.9 months

High-volume Distribution Center Cost Analysis

No-Reads Cost of Operators Customer Retention Time to Achieve

Read Rate Per Day Per Year Costs from Lost/Late Return on
Packages Per Year $150K Investment

99% 2,293 $300,956 $200,725

99.9% 230 $30,187 $40,250 2.9 months

6 White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning
 A FIVE-MONTH RETURN ON INVESTMENT (ROI)
FOR A $50,000 INVESTMENT
In a low-volume DC, the sample numbers are smaller, but no less important to their
operations. In this example, the center processes 115,200 packages per day. However, if
barcode scanners fail to automatically read just 2% of the packages passing through the
sort machine, that equals 2,304 packages per day, or 691,200 packages per year requiring
manual rework. As a result, daily throughput drops from 115,200 to 112,896 packages,
reducing annual throughput from 34.6 million packages to 33.9 million. Table 5 details the
assumptions for this example.

Table 5. Low-volume Distribution Center Assumptions*

Sorter speed (feet/minute) 400
Average box size (inches) 20
Distance between boxes (inches) 20
Operation (hours/day) 16
Utilization (days/year) 300
Boxes/second 2.00
Boxes/hour 7,200
Maximum boxes/day 115.200
Maximum boxes/year 34,560,000
* Based on a low-volume shipping sorter typical of an e-commerce fulfillment center

Using the same 1.5 minutes for a $15 per hour operator to rework a package, and an
overall read rate failure of 2% of packages equate to more than 57 hours per day in
additional labor at a cost of $259,200 USD per year. If the fulfillment center invests
$50,000 USD in image-based barcode readers that will improve read rates by 1%, it will
save $129,600 USD in labor each year, realizing 100% ROI in just over five months while
increasing line throughput by 1,152 packages per day.

White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning 7
 If the line was running at 99% read rates, and achieved 99.5% as a result of the upgrade,
the savings is almost $65,000 USD per year, allowing the center to achieve full ROI for its
$50,000 USD in just over nine months while increasing throughput to 114,624 packages
per day. Table 6 illustrates the financial impact that improving to a 99.5% read rate can
have in this example.

Table 6. Low-volume Distribution Center Read Rate/Labor Cost Analysis

Number of
Maximum Total Rework Cost of
Operators
Read Rate No-Reads Number of Time (Man Operators
Required to
Packages/Day Hours/Day) (USD/Year)
Handle Rework
98% 2,304 112,896 57.6 7.2 $259,200
99% 1,152 114,048 28.8 3.6 $129,600
99.5% 576 114,624 14.4 1.8 $64,800
99.9% 116 115,085 2.9 0.4 $13,050

Low-volume Distribution Center Cost Analysis

No-Reads Cost of Operators Time to Achieve

Read Rate Return on
Per Day Per Year
$50K Investment

99% 1,152 $129,600

99.5% 576 $64,900 9 months

8 White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning
 READ RATES DRIVE SAVINGS, EFFICIENCY
As the numbers in Figure 1 show, capital equipment improvement programs that increase
read rates are bankable investments that have short ROI schedules and positive impact on
profits over time. As DCs look to improve profit and throughput, and position themselves
for expected higher demands in the coming years, high performance, image-based
barcode readers can help to achieve these goals.

$900,000

$800,000 Packages Sorted Per Year

80,000,000
$700,000
60,000,000
Total Rework Cost Per Year

$600,000 40,000,000
30,000,000
$500,000
20,000,000

$400,000 10,000,000

$300,000

$200,000

$100,000

$-
97.0% 98.0% 99.0% 99.5% 99.9%

Barcode Scanner Read Rate

Figure 1: Cost impact of read rates

For more information about how industry leading Cognex barcode reading
technology is leading a revolution of change in the logistics industry:

▪ READ “A new foundation for 1D barcode reading: Hotbars® image

analysis technology”

▪ VISIT www.cognex.com/logistics to schedule an on-site

application evaluation

White Paper: When 99% Just Isn't Enough: Benefits of Improved Read Rates in Logistics Scanning 9
 COGNEX BARCODE READERS:
ANY CODE, EVERY TIME
Logistics Barcode Reading Systems and Tunnels
Cognex barcode scanning systems and single- and multi-sided scanning tunnels,
configured with a system of one or more image-based barcode readers, quickly read
codes on packages or parcels and communicate data to facility systems. These tunnels
help retail distribution, e-commerce fulfillment, and parcel processing organizations:
▪ Improve facility throughput at lower operational costs
▪ Scale growth efficiently
▪ Improve traceability from when a product enters a facility to the point where it leaves

DataMan 370 Fixed-Mount Barcode Readers

DataMan 370 series fixed-mount barcode readers solve challenging 1D and 2D code
applications. With twice the computing power of conventional readers in its class, the
DataMan 370 delivers faster decode speeds for greater throughput per facility, even when
applications have multiple codes and symbologies. The flexible optics, lighting options,
easy setup and quick deployment make them ideal for logistics applications such as
high-speed barcode reading tunnels and hands-free presentation reading stations.

DataMan 470 Fixed-Mount Barcode Readers

DataMan 470 series fixed-mount barcode readers solve complex, high-throughput
manufacturing and logistics applications with ease. DataMan 470's multi-core processing
power, imaging technology, high-resolution sensor, advanced 1D and 2D decoding
algorithms, flexible lighting options, and simple setup delivers maximum coverage, speed,
and ease-of-use. The DataMan 470 fixed-mount barcode reader is ideal for the most
demanding logistics applications, such as high-speed barcode reading tunnels.

Companies around the world rely on Cognex vision and barcode reading
solutions to optimize quality, drive down costs and control traceability.

Corporate Headquarters One Vision Drive Natick, MA 01760 USA

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