SCM Spotlight:
RFID and the Adaptive Enterprise:
What’s Real Now? What’s Next?
by Raymond J. Blanchard, Jr.

You’ve he...
communications capabilities. What changes will this bring
to your data gathering and supply chain automation activi-
generated by our customers’ RFID-enabled environments,
    Potential Benefits of RFID Tagging                            a...
Phase 1:                                Near-term tactical deployment of SAP’s RFID solution package enables customers
standard EPC data with your trading partners to automati-
cally trigger and manage your processes based upon your
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RFID and the Adaptive Enterprise: What's Real Now? What's Next?


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

  1. 1. 123 SCM Spotlight: RFID and the Adaptive Enterprise: What’s Real Now? What’s Next? by Raymond J. Blanchard, Jr. You’ve heard all the hype about RFID, maybe even from competitors that are able to capture these RFID attended a Wal-Mart or DOD briefing.1 Considering that benefits? Before you answer, know that there is plenty before 2003, most senior management had never heard of of technology and support for bringing RFID to SAP solu- RFID (and many still can’t remember what it stands for), tions. This article arms you with some solid business reasons where do you begin? Not only do you have to justify new to act now — and then explores some technology to help RFID hardware, but most systems integrators terrify you, you ready your company for automating and improving its and you’re measured on your next quarter’s performance, business processes. not the success of your RFID initiative. Senior management is telling you to spend the least amount possible to comply Ubiquitous Computing Is Coming, Sooner with Wal-Mart, Tesco, Metro, or DOD mandates. Nonetheless, Than You Think 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 When you consider that the average top-100 Wal-Mart within your own organization. supplier ships over 200 million cases a year to Wal-Mart, and that the DOD runs the largest supply chain in the world, RFID is not just for the consumer goods or A&D with over 25,000 suppliers, it’s clear that Electronic industries. Based on customer, industry, and partner- Product Codes (EPCs) and Radio Frequency Identification supported research, we anticipate that by 2006, more than (RFID) tags will soon number in the billions. New forms of 14 million RFID readers will be deployed in more than wireless data-capture technology will emerge, and the more 120,000 supply chain facilities across consumer products, pervasive RFID becomes, the more accessible it will be, both retail, pharmaceutical, and DOD supply chains to support in cost and size. Already, RFID reader form factors have case- and pallet-level RFID tagging — and this is just for scaled down to PCMCIA2 card size, and RFID reader prices finished goods supply chains. When manufacturers start will fall to about $200 each over the next two years. requiring their partners — raw material suppliers, component manufacturers, and OEMs — to track assets What’s more, Intel CEO Craig Barrett estimates that throughout the inbound supply chain, then virtually every Moore’s Law3 will apply for about another 15 years with industry, every company, will be affected. silicon as the core switch material. New materials and tech- nology are expected to carry this pace well into the next So the question is, will you use this trend to your advan- millennium. In other words, if the current, state-of-the-art tage, or face the increasing margin and market pressure 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 1 In November 2003, Wal-Mart held its top 100 supplier briefing on using Electronic capacity. With those trends, it won’t be long before today’s Product Code (EPC) together with Radio Frequency Identification (RFID) tech- heaviest ERP systems will be running on a PDA! Almost nology to automate tracking of goods into the company’s distribution centers and everything will have some level of embedded intelligence 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 2 A standard for PC cards for mobile devices. January 2005 date for suppliers to use RFID tags on packaging. Retailers Tesco 3 and Metro AG have recently followed suit with similar announcements. Moore’s Law states that semiconductor capacity doubles every 18 months. www.SAPinsider.com | Apr ■ May ■ Jun 2004 SAP insider 123
  2. 2. communications capabilities. What changes will this bring to your data gathering and supply chain automation activi- ties, 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. Figure 1 RFID Solution Package 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 Whatever... So What Is SAP Doing? trigger associated workflow and events automatically. An In January 2004, SAP announced the SAP Auto-ID application will automatically order, produce, and replenish Infrastructure solution, a new Java-based product that assets as they are consumed throughout the supply chain, helps sense what is actually happening in the real world of without any human intervention other than physically merchandise, products, parts, etc., and then transfers that unloading the assets. Procter & Gamble’s CEO, Steve information to existing SAP solutions like mySAP SCM, David, refers to this approach as a “Consumer-Driven Warehouse Management, SAP BW, and mySAP ERP. Supply Network” whereby it is consumers — not rigid, top-down plans — that drive supply chain processes and From the lessons learned in our pilot experience with get the consumer what they want, when they want it. Metro4 and P&G, SAP is now offering the RFID solution package, which combines the SAP Auto-ID Infra- The financial sector offers a prologue for what is to structure, SAP Event Management, and SAP Enterprise come. As by far the largest purchaser of software Portal, and includes preconfigured backend SAP R/3 compared to any industry, it is a leading innovative force in adapters (see Figure 1). It is an optimal and simple solu- automation and smart technology. Just look at the dramatic tion to RFID challenges that takes seamless management growth in program-based trading, which hit almost 43% of and communication of RFID data one step further, by NYSE’s trading volume in December 2003, an average of using business content to automate your RFID-enabled 456.8 million shares daily. Remarkably, program-based business processes. What’s more, it is built on SAP Web trading was less than 20% in 2002. Just as stock price and Application Server (a technology component in company financial information automatically trigger trading SAP NetWeaver) to ensure seamless extensibility and today, smart items, like RFID-enabled assets and their integration with SAP and non-SAP IT environments. readers, will drive automatic responses from future enter- prise applications. As a key component of SAP NetWeaver’s multi- channel access and mobile infrastructure, SAP Auto-ID However, applications must also go beyond “traditional” Infrastructure provides complete real-world connectivity, automatic identification (auto-ID) systems, such as bar management, and visibility of RFID-enabled assets. code recognition systems or basic RFID readers that auto- matically sense and respond to this real-world information. First, the standalone package enables basic Wal-Mart Auto-ID applications must also become services that enable compliance by allowing customers to send and receive complete trading-partner connectivity, seamless execution 4 This Wall Street Journal Europe Innovation Award was presented to SAP for of complete business processes, and access to enterprise its work on the Metro Future Store (www.future-store.org). For details, see information and applications as Web services. www.dowjones.com/european-innovation/ei_winners_2003.html. 124 SAP insider Apr May Jun 2004 | www.SAPinsider.com ■ ■
  3. 3. generated by our customers’ RFID-enabled environments, Potential Benefits of RFID Tagging as well as to help your company benefit from your RFID data by enabling out-of-the-box business process integra- Revenue Improvement tion into SAP R/3 4.6C or greater. ✔ Improve stock availability by 5% to 10% ✔ Increase sales by 3% to 7% due to improved ■ Is not just a bar code replacement solution or generic stock availability middleware technology, but a full auto-ID solution with ✔ Increase customer retention by 0.3% to 0.5% services and functions that extend from RFID readers into enterprise applications, backend systems, wireless devices, ✔ Achieve 25% to 40% higher profits due to and GPS and RTLS data capture sources. improved logistics for returns ✔ Increase revenue by 1% to 2% due to improved ■ Is designed to leverage and link RFID data to drive returns management business process automation. ■ Replaces custom-built, expensive, proprietary auto-ID Cost Reduction integration solutions and applications. ✔ Reduce losses due to theft by 40% to 50% ✔ Speed pickup and delivery by 10% ■ Does not require other SAP applications or SAP backend ✔ Reduce labor costs: to operate the core package.5 ■ Reduce yard management costs by 30% We are currently piloting several RFID-enabled mobile ■ Reduce store labor costs by up to 65% asset manage-ment processes for mobile RFID data-capture ■ Reduce stocking costs by up to 25% devices with our SAP Mobile Infrastructure, and we are extending the reach of SAP Auto-ID Infrastructure based on ■ Reduce cycle counting costs by up to 25% the key priorities identified in a comprehensive study of over ✔ Increase warehouse product throughput by 20% 500 customers as well as by members of our Auto-ID ✔ Reduce spoilage and obsolescence write-offs by Customer Council. (See “Where SAP Customers Look for up to 20% ROI from RFID” in the online version of this article at ✔ Reduce bad-data costs by up to $100 million www.SAPinsider.com.) ✔ Reduce claims from lost packages by 98% In our next release of SAP Auto-ID Infrastructure, we will offer out-of-the-box integration into SAP Advanced Note that these numbers are meant to serve as a Planning and Optimization (SAP APO) and production plan- general order-of-magnitude guide and will obviously ning (PP) to enable the next stage of RFID integration into vary by industry, customer, product class, depth, and replenishment, purchasing, and production operations. level of RFID tagging. So, What Are the Benefits? Based upon business cases, pilots, and customer case studies advance shipping notifications (ASNs) with EPC informa- conducted over the past few years by the Auto-ID Center,6 tion, track and trace RFID-enabled assets, share the IBM Business Consulting Services, and Accenture, in data with key trading partners, and analyze key business conjunction with several Auto-ID Center customers and our metrics. But this is just the start. Over the long term, it Auto-ID Customer Council members, the sidebar above reduces the need for multiple, custom data integration summarizes the anticipated range of benefits associated with solutions and provides a platform for total process case- and pallet-level RFID tagging. integration of RFID data to leverage the full value of your RFID investments. 5 For the technical requirements and capabilities of SAP Auto-ID Infrastructure, see the sidebar “How Will the Auto-ID Infrastructure Work with My Current Unlike other existing “auto-ID” middleware solutions, SAP Solutions?” in the online version of this article at www.SAPinsider.com. the SAP Auto-ID Infrastructure solution: 6 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 ■ Was explicitly designed and developed from the ground labs at five universities around the globe. For more information on the Auto-ID up to manage the massive volumes of data that will be Center and the Auto-ID Labs, visit www.epcglobalinc.org. 126 SAP insider Apr May Jun 2004 | www.SAPinsider.com ■ ■
  4. 4. Phase 1: Near-term tactical deployment of SAP’s RFID solution package enables customers Wal-Mart Compliance 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: The RFID solution package provides the ability to track and trace your RFID-enabled Business Case Development 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: After you have analyzed and established base KPIs targeted for improvement, customers Business Process Innovation & can use these KPIs to understand which processes they want to change and which Automation applications they want to integrate their RFID data into. Figure 2 Three Levels of Value with SAP’s RFID Solution Package As just one example, Wal-Mart RFID hardware tests pilot against. Track and trace your asset movements. View have shown 100% read rates of their tagged pallets, as and analyze your data for six months as an integral part well as 100% read rates on the de-aggregated cases of your pilot — after all, a business case is meaningless moving through their conveyors at about 600 feet per without testing how the technology will actually work in minute on all product classes. This is an order-of-magnitude your supply chain. improvement over the current industry average of about 40 feet per minute on conveyors utilizing the best bar After you identify how things are moving through your code scanning technology. So consider the returns you supply chain today, improve your organization’s comfort could achieve with just a few RFID processes in your level and its ability to deploy and trust its RFID hardware, supply chain. and identify which processes change and improve. Then define the appropriate integration strategy — where and Specifically, SAP’s RFID solution package, along with when you want to integrate RFID information with backend your RFID hardware, provides three levels of value to solutions. The last thing you want is to spend all the money customers. First is the near-term compliance with RFID on tags and a business case, pay for all the backend integra- (Wal-Mart) mandates. But in the longer term — 6 to 12 tion, and then decide you want to change your processes! months after you’ve reached compliance — when you’ve tagged all your assets and integrated the readers and With this three-phase approach, you can measure your labeling operations into your normal material flow and process change improvements against your baseline results business process, you will likely start to see benefits of while avoiding unnecessary up-front costs and time loss. real-world visibility, with accurate information for each And, ideally, each stage of deployment will help finance, RFID-enabled asset by location and time. These can be or at least justify, your next stage of investment and used as benchmarks to build your business case and commitment. identify key indicators. In Phase 1, you will have compliance, but it will be Then, once you’ve analyzed and established base difficult to clearly distinguish the other benefits associated KPIs for targeted improvement, you can use them to with hands-free automatic data capture, improved data determine your integration strategy (see Figure 2). 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 What Should I Do Now? capture, improved asset throughput, reduced error correc- Our advice is to start by putting tags on your cases and tion, and improved inventory accuracy. The longer term, pallets. Identify just a few key metrics to measure your process-level benefits will come from integrating your 128 SAP insider Apr May Jun 2004 | www.SAPinsider.com ■ ■
  5. 5. standard EPC data with your trading partners to automati- cally 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. Resources and additional information are available in the online version of this article at www.SAPinsider.com. 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 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 2001-2004, from initial concept development in Corporate Research through customer pilots and start of global rollout.