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RFID and the Adaptive Enterprise: What's Real Now? What's Next?

by Raymond J. Blanchard | SAPinsider

April 1, 2004

by Raymond J. Blanchard, Jr. SAPinsider - 2004 (Volume 5), April (Issue 2)
 

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 be affected.

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 years.

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 IT environments.

Figure 1
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 our customers’ 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 greater.

  • 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 sources.

  • 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.

Potential Benefits of RFID Tagging

Revenue Improvement
Improve stock availability by 5% to 10%
Increase sales by 3% to 7% due to improved stock availability
Increase customer retention by 0.3% to 0.5%
Achieve 25% to 40% higher profits due to improved logistics for returns
Increase revenue by 1% to 2% due to improved returns management

Cost Reduction
Reduce losses due to theft by 40% to 50%
Speed pickup and delivery by 10%

Reduce labor costs:

  • Reduce yard management costs by 30%
  • Reduce store labor costs by up to 65%
  • Reduce stocking costs by up to 25%
  • Reduce cycle counting costs by up to 25%
Increase warehouse product throughput by 20%
Reduce spoilage and obsolescence write-offs by up to 20%
Reduce bad-data costs by up to $100 million
Reduce claims from lost packages by 98%

Note that these numbers are meant to serve as a general order-of-magnitude guide and will obviously vary by industry, customer, product class, depth, and level of RFID tagging.

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 Figure 2).

Phase 1:
Wal-Mart Compliance

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.

Phase 2:
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.
Phase 3:
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.
Figure 2
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 supply chain.

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.

Conclusion

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, please contact:

Timothy Motter
Product Manager, RFID Solutions,
BSG Manufacturing, SAP AG
timothy.motter@sap.com

Dr. Christoph Lessmoellmann
Business Development Director, RFID Solutions,
BSG Manufacturing, SAP AG
christoph.lessmoellmann@sap.com


1 In 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 similar announcements.

2 A standard for PC cards for mobile devices.

3 Moore’s 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.

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