You’ve heard all the hype about RFID, maybe even attended a
Wal-Mart or DOD briefing.1 Considering that
before 2003, most senior management had never heard of RFID (and many
still can’t remember what it stands for), where do you begin? Not
only do you have to justify new RFID hardware, but most systems integrators
terrify you, and you’re measured on your next quarter’s performance,
not the success of your RFID initiative. Senior management is telling
you to spend the least amount possible to comply with Wal-Mart, Tesco,
Metro, or DOD mandates. Nonetheless, RFID is very real, and it’s
here to stay. It’s up to you and your RFID team to figure out how
to best apply RFID within your own organization.
RFID is not just for the consumer goods or A&D industries. Based
on customer, industry, and partner-supported research, we anticipate that
by 2006, more than 14 million RFID readers will be deployed in more than
120,000 supply chain facilities across consumer products, retail, pharmaceutical,
and DOD supply chains to support case- and pallet-level RFID tagging —
and this is just for finished goods supply chains. When manufacturers
start requiring their partners — raw material suppliers,
component manufacturers, and OEMs — to track assets throughout the
inbound supply chain, then virtually every industry, every company, will
So the question is, will you use this trend to your advantage, or face
the increasing margin and market pressure from competitors that are
able to capture these RFID benefits? Before you answer, know that there
is plenty of technology and support for bringing RFID to SAP solutions.
This article arms you with some solid business reasons to act now —
and then explores some technology to help you ready your company for automating
and improving its business processes.
Ubiquitous Computing Is Coming, Sooner Than You Think
When you consider that the average top-100
Wal-Mart supplier ships over 200 million cases
a year to Wal-Mart, and that the DOD runs the
largest supply chain in the world, with over
25,000 suppliers, it’s
clear that Electronic Product Codes (EPCs)
and Radio Frequency Identification (RFID) tags
will soon number in the billions. New forms
of wireless data-capture technology will emerge,
and the more pervasive RFID becomes, the more
accessible it will be, both in cost and size.
Already, RFID reader form factors have scaled
down to PCMCIA2 card size,
and RFID reader prices will fall to about $200 each over the next two
What’s more, Intel CEO Craig Barrett estimates that Moore’s
Law3 will apply for about another 15 years
with silicon as the core switch material. New materials and technology
are expected to carry this pace well into the next millennium. In other
words, if the current, state-of-the-art home PC is a 3.4 GHz Pentium 4
processor, by 2019 you can expect to see a Pentium 40 with at least 34
GHz capacity. With those trends, it won’t be long before today’s
heaviest ERP systems will be running on a PDA! Almost everything will
have some level of embedded intelligence and communications capabilities.
What changes will this bring to your data gathering and supply chain automation
activities, and to enterprise solutions in general?
From Draconian Five-Year Plans to Consumer-Driven Supply Networks
First, IT innovation will lead to a state of virtual perfect information,
whereby anyone can get any information they want, anytime, anywhere. Competitive
advantage will no longer be about acquiring valuable inside information
(such as in the pre-regulation Fair Disclosure days of the stock exchange).
It will instead follow a consumer-driven model
that relies on a company’s ability
to sense, interpret, respond to, and act
upon a wealth of available information.
To derive value from this data, applications will need to automatically
interpret and analyze it, turn it into useful information, apply business
rules and processes, and trigger associated workflow and events automatically.
An application will automatically order, produce, and replenish assets
as they are consumed throughout the supply chain, without any human intervention
other than physically unloading the assets. Procter & Gamble’s
CEO, Steve David, refers to this approach as a “Consumer-Driven
Supply Network” whereby it is consumers — not rigid, top-down
plans — that drive supply chain processes and get the consumer what
they want, when they want it.
The financial sector offers a prologue for what is to come. As by far
the largest purchaser of software compared to any industry, it is a leading
innovative force in automation and smart technology. Just look at the
dramatic growth in program-based trading, which hit almost 43% of NYSE’s
trading volume in December 2003, an average of 456.8 million shares daily.
Remarkably, program-based trading was less than 20% in 2002. Just as stock
price and company financial information automatically trigger trading
today, smart items, like RFID-enabled assets and their readers, will drive
automatic responses from future enterprise applications.
However, applications must also go beyond “traditional”
automatic identification (auto-ID) systems, such as bar code recognition
systems or basic RFID readers that automatically sense and respond to
this real-world information. Auto-ID applications must also become services
that enable complete trading-partner connectivity, seamless execution
of complete business processes, and access to enterprise information and
applications as Web services.
Whatever... So What Is SAP Doing?
In January 2004, SAP announced the SAP Auto-ID Infrastructure
solution, a new Java-based product that helps sense what is actually happening
in the real world of merchandise, products, parts, etc., and then transfers
that information to existing SAP solutions like mySAP SCM, Warehouse Management,
SAP BW, and mySAP ERP.
From the lessons learned in our pilot experience with Metro4
and P&G, SAP is now offering the RFID solution package,
which combines the SAP Auto-ID Infrastructure, SAP Event Management, and
SAP Enterprise Portal, and includes preconfigured backend SAP R/3 adapters
(see Figure 1). It is an optimal and simple solution
to RFID challenges that takes seamless management and communication of
RFID data one step further, by using business content to automate
your RFID-enabled business processes. What’s more, it is built
on SAP Web Application Server (a technology component in SAP NetWeaver)
to ensure seamless extensibility and integration with SAP and non-SAP
|RFID Solution Package
As a key component of SAP NetWeaver’s multi-channel access and
mobile infrastructure, SAP Auto-ID Infrastructure provides complete real-world
connectivity, management, and visibility of RFID-enabled assets.
First, the standalone package enables basic Wal-Mart compliance by allowing
customers to send and receive advance shipping notifications (ASNs) with
EPC information, track and trace RFID-enabled assets, share the data with
key trading partners, and analyze key business metrics. But this is just
the start. Over the long term, it reduces the need for multiple, custom
data integration solutions and provides a platform for total process integration
of RFID data to leverage the full value of your RFID investments.
Unlike other existing “auto-ID” middleware solutions, the
SAP Auto-ID Infrastructure solution:
- Was explicitly designed and developed
from the ground up to manage the massive
volumes of data that will be generated by
RFID-enabled environments, as well as to
help your company benefit from your RFID
data by enabling out-of-the-box business
process integration into SAP R/3 4.6C or
- Is not just a bar code replacement
solution or generic middleware technology,
but a full auto-ID solution with services and
functions that extend from RFID readers into
enterprise applications, backend systems,
wireless devices, and GPS and RTLS data capture
- Is designed to leverage and link RFID
data to drive business process automation.
- Replaces custom-built, expensive, proprietary
auto-ID integration solutions and applications.
- Does not require other SAP applications
or SAP backend to operate the core package.
We are currently piloting several RFID-enabled
mobile asset management processes for mobile
RFID data-capture devices with our SAP Mobile
Infrastructure, and we are extending the reach
of SAP Auto-ID Infrastructure based on the
key priorities identified in a comprehensive
study of over 500 customers as well as by
members of our Auto-ID Customer Council.
In our next release of SAP Auto-ID Infrastructure,
we will offer out-of-the-box integration into
SAP Advanced Planning and Optimization (SAP
APO) and production planning (PP) to enable
the next stage of RFID integration into replenishment,
purchasing, and production operations.
So, What Are the Benefits?
Based upon business cases, pilots, and customer case studies conducted
over the past few years by the Auto-ID Center,5
IBM Business Consulting Services, and Accenture, in conjunction with several
Auto-ID Center customers and our Auto-ID Customer Council members, the
sidebar above summarizes the anticipated range of benefits associated
with case- and pallet-level RFID tagging.
As just one example, Wal-Mart RFID hardware tests have shown 100% read
rates of their tagged pallets, as well as 100% read rates on the de-aggregated
cases moving through their conveyors at about 600 feet per minute on all
product classes. This is an order-of-magnitude improvement over the current
industry average of about 40 feet per minute on conveyors utilizing the
best bar code scanning technology. So consider the returns you could achieve
with just a few RFID processes in your supply chain.
Specifically, SAP’s RFID solution package, along with your RFID
hardware, provides three levels of value to customers. First is the near-term
compliance with RFID (Wal-Mart) mandates. But in the longer term —
6 to 12 months after you’ve reached compliance — when you’ve
tagged all your assets and integrated the readers and labeling operations
into your normal material flow and business process, you will likely start
to see benefits of real-world visibility, with accurate information for
each RFID-enabled asset by location and time. These can be used as benchmarks
to build your business case and identify key indicators.
Then, once you’ve analyzed and established base KPIs for targeted
improvement, you can use them to determine your integration strategy (see
|Near-term tactical deployment of SAP’s RFID solution
package enables customers to encode (write) and associate RFID
tags at point of tag reading and writing and communicate EPC
data to Wal-Mart via ASN EDI messages as required by Wal-Mart.
Business Case Development
|The RFID solution package provides the ability to track and
trace your RFID-enabled assets among trading partners, identify
key metrics to target for improvement, and communicate the data
among key trading partners to help identify potential process
improvements and contractual changes. SAP’s RFID solution
package also allows customers to receive RFID and related EPC
data from Wal-Mart and other trading partners to track and analyze
the flow of goods from customer to retailer decision chains
and through the backroom of their retail stores. Phase 2 will
likely start approximately 6 to 12 months after Phase 1.
Business Process Innovation & Automation
|After you have analyzed and established base KPIs targeted
for improvement, customers can use these KPIs to understand
which processes they want to change and which applications they
want to integrate their RFID data into.
|Three Levels of Value with SAP's RFID Solution Package
What Should I Do Now?
Our advice is to start by putting tags on
your cases and pallets. Identify just a few
key metrics to measure your pilot against.
Track and trace your asset movements. View
and analyze your data for six months as an
integral part of your pilot — after all,
a business case is meaningless without testing
how the technology will actually work in your
After you identify how things are moving through your supply chain today,
improve your organization’s comfort level and its ability to deploy
and trust its RFID hardware, and identify which processes change and improve.
Then define the appropriate integration strategy — where
and when you want to integrate RFID information with backend solutions.
The last thing you want is to spend all the money on tags and a business
case, pay for all the backend integration, and then decide you want to
change your processes!
With this three-phase approach, you can measure your process change
improvements against your baseline results while avoiding unnecessary
up-front costs and time loss. And, ideally, each stage of deployment will
help finance, or at least justify, your next stage of investment and commitment.
In Phase 1, you will have compliance, but it will be difficult to clearly
distinguish the other benefits associated with hands-free automatic data
capture, improved data management, and unique item identification. You
will first see significant value in the next phase, with the one-off labor
savings associated with fast and accurate data capture, improved asset
throughput, reduced error correction, and improved inventory accuracy.
The longer term, process-level benefits will come from integrating your
standard EPC data with your trading partners to automatically trigger
and manage your processes based upon your real-world RFID information.
No matter where and when you reap the benefits, though, you can be assured
that a company like Wal-Mart is not moving forward with their RFID initiative
simply to help boost the semiconductor industry — they will get
scaled RFID benefits thanks to their suppliers’ tagging compliance,
and you should, too. Ensure this happens by working on RFID opportunities
with your own suppliers and trading partners in a scaled, measured manner.
SAP’s Auto-ID Infrastructure solution combines the virtual world
of transactions, business rules, and processes with the real world of
products and people. By providing accurate, real-world, real-time information,
SAP Auto-ID Infrastructure allows companies to close the loop between
acquiring data, converting it to meaningful information, and automating
all associated transactions and processes — helping businesses become
smarter, more responsive, and more adaptive.
For More Information
For further information on RFID and Auto-ID related processes,
Product Manager, RFID Solutions,
BSG Manufacturing, SAP AG
Dr. Christoph Lessmoellmann
Business Development Director, RFID Solutions,
BSG Manufacturing, SAP AG
November 2003, Wal-Mart held its top 100
supplier briefing on using Electronic Product
Code (EPC) together with Radio Frequency
Identification (RFID) technology to automate
tracking of goods into the company’s
distribution centers and retail stores. Wal-Mart
is requiring its top-100 suppliers to tag
all of their cases and pallets as of January
2005, and the rest of their suppliers must
do so by January 2006. Wal-Mart also requires
that all Class II narcotics suppliers tag
their assets by April 2004. In October 2003,
the U.S. Department of Defense (DOD) set
a January 2005 date for suppliers to use
RFID tags on packaging. Retailers Tesco and
Metro AG have recently followed suit with
2 A standard for PC cards for mobile
Law states that semiconductor capacity doubles
every 18 months.
4 This Wall Street Journal
Europe Innovation Award was presented to SAP for its work on the Metro
Future Store (www.future-store.org).
For details, see www.dowjones.com/european-innovation/ei_winners_2003.html..
5 The Auto-ID Center,
a predecessor of EPC Global, was an academic research project headquartered
at the Massachusetts Institute of Technology (M.I.T.) with labs at five
universities around the globe. For more information on the Auto-ID Center
and the Auto-ID Labs, visit www.epcglobalinc.org.
Raymond J. Blanchard served
as Business Development Director, Auto-ID solutions
for SAP Labs, Palo Alto, until January 2004.
Raymond was involved in business development
for SAP’s Auto-ID Infrastructure from
2001 to 2004, from initial concept development
in Corporate Research through customer pilots
and start of global rollout.