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Leveraging Technology to Maintain a Competitive Edge During Tough Economic Times--A Panel Discussion Analyzed Part Four: RFID Software Issues

Written By: Predrag Jakovljevic
Published On: May 20 2004

Introduction

At the IFS Executive Forum, which took place on March 29 and 30 in Orlando, Florida (US), leading research analysts and industry experts discussed how companies can still leverage technology to maintain their competitive edge, even during tough economic times. The event was held in conjunction with IFS World Conference 2004, and it included six panel discussions, with each panel including top executives, analysts, and journalists. Some of the renowned panelists were Geoff Dodge, vice president, Business Week; Dave Caruso, senior vice president, AMR Research; Barry Wilderman, vice president, Meta Group; Leo Quinn, vice president of operations, Global Manufacturing Solutions, Rockwell Automation; Dave Brousell, editor-in-chief, Managing Automation; David Berger, Western Management Consultants; and Josh Greenbaum, principal, Enterprise Applications Consulting. Breakout sessions explored such topics as turning global competitive threats into opportunities, increasing the bottom line through operational efficiency, complying with the Sarbanes-Oxley Act of 2002, and using enterprise software to prepare for future challenges.

Technology Evaluation Centers (TEC) was represented at the executive panel titled "The Future of Enterprise Software and How It Impacts Your Profitability", which was aimed at helping companies find out where enterprise software is going in the next five years, and how it can make or break their profitability and market share. The panel, which was moderated by Josh Greenbaum, included the following participants: Barry Wilderman; Peggy Smedley, president and editorial director; Start Magazine; Dave Turbide, an independent consultant and renowned columnist for magazines such as The Manufacturing Systems; and Predrag Jakovljevic, research director, TEC. In preparation for the event, we polled the thoughts and opinions of our experts and contributors: Olin Thompson, Jim Brown, Joseph Strub, Kevin Ramesan, and Lou Talarico, given they were unable to attend the event in person.

Below are the questions and consolidated thoughts and answers that transpired from the panel discussion. We also took the liberty to expand with a few pertinent questions and thoughts that were not discussed at the panel per se (due to the time limit), but transpired from many other interactions and presentations at the conference. Also, some pertinent articles published previously on our site, which may shed more light at the respective topic are mentioned as further recommended readings.

The questions are

Q1. What is the one piece of new software or technology that will be a must-have in the next five years? (see Part One)

Q2. Some pundits say the future of enterprise software lies in service-oriented architectures and component applications. True? False? (see Part One)

Q3. How does the development of new business processes and business process modeling fit in? (see Part Two)

Q4. What are applications hosting and other service models? (see Part Three)

Q5. Radio frequency identification (RFID) is on everyone's mind these days. Let's discuss the software issues around RFID and what kind of software solutions will be taking advantage of RFID. (see Part Four)

Q6. Technology aside for a moment, what can we say about its impact on profitability? (see Part Five)

Q7. With all this new technology, the question is what happens to existing applications and technology. Nobody wants to start over, but how much will existing IT systems have to change? (see Part Five)

Q8. Will the newest and greatest only come from packaged software? What about custom development? What is the build versus buy equation look like in the near future? (see Part Six)

Q9. How will the latest improvements in software flexibility and agility play in the single-vendor versus multi-vendor solution equation at multi-division corporations? (see Part Six)

This is Part Four of a multipart trend note.

Each of the parts covers questions and answers addressed by the panel.

Questions and Answers (continued)

Q5. RFID is on everyone's mind these days. Let's discuss the software issues around RFID and what kind of software solutions will be taking advantage of RFID.

A5: Well, we will have all likely heard of some concrete examples (or imagined ideas) of expensive (and thus highly pilfered) retail items (such as razors, prescription drugs, apparel, and DVDs) packaged with pin-sized chips and tiny antennae that send retailers and manufacturers information about their use, and even about those who buy (or attempt to steal) them. Or the stories of grocery clerks immediately knowing when perishable items on the shelf have expired and replacing them before the items are purchased. We've also have heard of a consumer ordering the latest "hot item" and tracking it in the real time through the entire supply chain right up to the time when it is ready to be picked up. How about the idea of tracking employees and their labor with an RFID chip embedded in their ID badges to automatically record their transactions and even control their authorizations for a given area to detect security issues?

These futuristic-sounding scenarios (though not necessarily of the future, given such technology was employed decades ago, but only where its price was justified, like in the defense industry or to track the movements of precious pets) are being touted as the applications of an automatic identification and data capture technology named radio frequency identification (RFID). RFID uses low-powered radio transmitters to read data stored in smart tags embedded with minuscule chips and antennae. The tags are attached to packaged goods that can communicate with electronic reading devices and deliver a message to a computer that alerts retailers, suppliers, and manufacturers when a product's state has changed and requires action.

While the potential of RFID technology is indisputable (for example, unlike bar-codes, RFID requires no direct contact or line-of-sight scanning, and it provides streams of data that can be differentiated and interpreted before being passed to an enterprise application), much more is required in moving RFID from a lab to a live environment. RFID has the potential of a new technology inflection point and it can be a missing piece in the long-lasting puzzle of squeezing excess inventory out of supply chains. It will be only this piece, however, when (and if) it reaches a critical mass of adoption and maturity over the next several years. Nowadays, the market is still in a "chicken-and-egg" conundrum—until more companies commit to RFID, the cost of tags and other infrastructure will remain prohibitively high for mass deployment. A few years ago, typical smart-label tags were between $1$2 (USD) each, while today we may be looking at production volumes in millions, costing 3040 cents (USD). This is further projected into billions of tags on individual items in the future causing the cost to ideally fall to five cents (USD) or so. Eventually, in the long term, the price might fall to a penny or less, with new technology and even greater volumes. Still, while the tag price might seem as a major barrier now, it will likely become a minor issue down the track, when many companies start grappling with RFID deployments in earnest.

Over that time, many companies will begin to deliver and potentially receive a higher proportion of goods with RFID tags and, thus, they will have a better understanding of the technology and its potential in broader business improvements per se rather than only due to the mandated Wal-Mart, (US) Department of Defense (DoD) or Target compliance. Namely, as the world's largest retailer, with over 5,000 outlets worldwide, Wal-Mart currently uses traditional bar-coding and UPCs (unique product codes) to identify items and cases or pallets of goods as they move through the supply-chain and out to the stores. By 2005, Wal-Mart has envisioned to have live implementations of RFID tagging using new EPCs (electronic product codes, which can carry more useful data than UPCs), with a mandate to the Top 100 suppliers to provide RFID tags on cases and pallets at distribution centers, followed by item-level tagging at a much later date. EPCs on tags should be easier and quicker to read than barcodes, since there is supposedly no need to unpack pallets to check contents, as RFID readers do not, unlike bar-code scanners, require line-of-sight, which should all result in less labor, fewer errors, and better management of inventory.

However, companies implementing RFID should expect increased labor in the first year or so, because vendors have yet to perfect solutions for automating tagging and embedding RFID in packaging material. Also, the current state of RFID technologies would also revolve around label creation and production, plastic chip development, intelligent shelving and packaging, to name but a few. Furthermore, to gain benefits such as product tracking, supply chains should logically begin RFID implementation at the manufacturing level, rather than at the distribution center, which is one step closer to a retailer in the supply chain. Still, "source tagging" cases at the manufacturer is too disruptive for most companies to implement.

Challenges

Nonetheless, with many software and hardware giants putting their weight behind RFID, the technology has the potential of becoming mainstream. Numerous manufacturers have indeed justified and implemented RFID based on their own internal needs. However, to that end, enterprises will have to build an RFID infrastructure that can be used across their businesses where there are still many issues that need to be addressed by vendors. These issues include creating reasonably lower tag prices; adopting pervasive (if not unified) EPC standards; building the capability to manage in a mixed environment of bar codes and RFID tags; and optimizing business practices benefit from an identification technology that does not require line-of-sight, while dealing with materials and environments that will interfere with RFID signals (such as metal and liquid products, cold storage).

Although many vendors have demonstrated success in reading multiple tags in close proximity (so-called "stacking"), the misread rate or "collision" of tags is still a potential problem in real world situations. So too is interference—from metal racks, liquid items, door-frames, fork-lift trucks, and so on—all which require the careful positioning and failsafe testing of tags and readers alike, especially while read-ranges of high-frequency tags remain quite short.

Similarly, available frequencies vary across the globe, and RFID requires an international agreement or standards on wavelengths and signal strengths. Then, there is the well-debated "privacy" issue, which has been exploited by the press and a number of, rightfully or not, concerned consumer organizations. In theory, these issues have already penetrated our lives—whether it be the data from loyalty and frequent flyer cards; "EZ highway" toll passes; credit and debit cards; cell phone cards and bills, and the numerous, and easily obtainable customer databases and lists. These technologies have already created a data collection infrastructure which could be used to pry personal data. In this context, RFID would be yet another low-level data collection means, and possibly less powerful than some of the above-mentioned technologies already tacitly in use. Indeed, considering the huge deluge of data which could be produced from RFID at the item level, it would take an inordinate amount of effort to collect, store, filter, and then act on that data, not to mention the cost of the infrastructure to support that effort. It is thus a small wonder to see hardware, database, middleware or server platform providers salivating at an opportunity that will require a highly scalable infrastructure. Still, at least two US states are drafting regulation that would demand the RFID tags be destroyed once the customer leaves the shop.

Logically, RFID deployment will be a cry far from a minor development project that can be completed in a few months or weeks. It will take months and years to asses how RFID will affect the manufacturing and shipping operations and IT systems and to bring software up to a pilot stage. After that, it will take years of fine-tuning and IT system development to fully realize the gains in operational efficiency that the technology promises. Given the expected huge price tag owing to complex infrastructure and integration undertaking, high professional services spent on getting distribution centers operational, and due to a short supply of experienced RFID experts, companies should start now consider how (if at all) to reap benefits well beyond just complying with mandates for the likes of Wal-Mart.

User Recommendations

Users should be warily of supply chain management (SCM) vendors who claim RFID readiness by citing that their applications are designed for automated data collection because they have been doing it with RF technology for years, and that RFID is yet another format. The process to gather bar code data follows a very structured and straightforward practice, requiring a stock-keeping unit (SKU), case, or pallet to be scanned individually, whereas in an RFID environment, data collection is not such a discrete process. Namely, a bundle of data is collected in one scan while in its raw form, regardless of the variety or quantity of product, the data shows no relationship between pallet, case, and SKU, necessary for inventory integrity. Therefore, a middleware, similar but more complex than those developed for RF and automated material handling equipment, is required by the vendors to transform an unstructured mass of data into an input the system can understand and process.

In addition to the current tag unreliability and steep price (that can be justifiable mainly for deploying them at the pallet level), and the lack of standards now might cause the risk of obsolescence once the standards are adopted. Companies have to decide which EPC standard they will support, and which might be a gamble at this stage. The read-only EPC tags contain only a manufacturer, a product, and serial number. That means for the tags to be of any value, suppliers will have to create a database that contains information about what the item is, where it was made, and what its expiration date is. There is a more complex and costly write-and-read standard that lets companies add information to the tag. Retailers will need to figure out exactly what information they need, what format it should be in and how it should be shared, in addition to working together with their suppliers to solve these issues.

Furthermore, it is not yet clear how companies will transition from the universal product code (UPC) incorporated in traditional bar codes to EPC tags, while the next-generation EPC standard that will support multiple reads and writes and reusable tags is still evolving and not available. The Uniform Code Council, a nonprofit organization that manages a standards-based item registry for product data from different companies, is a platform for collaborative commerce, and manages the UPC. It has taken responsibility for commercializing EPC technology, but has not spelled out a clear migration path for retailers, suppliers, and software vendors. There might be a chance of standards emerging in time for suppliers to meet Wal-Mart's 2005 deadline.

In any case, software vendors will thus have to create new data fields to cope with the inevitable data deluge by ensuring that data tables, transaction systems and data warehouses can handle all of it, and, in general, vendors have been by and large responding to the RFID challenge. In some cases, there is doubt over speed of adoption because, at this stage, the technology is still regarded as too impractical and to difficult to execute. Moreover, declining research and development funds have put these on the back burner in many vendors strategies. The exceptions might be vendors which have significant installed bases in retail and consumer packaged goods (CPG) sectors, which have been leading the pack by developing the RFID interface to their applications, and by adding software modules or upgrading their products to cope with the serial numbers in RFID tags.

But these effective, albeit not necessarily neat solutions, will still require suppliers and retailers to deploy specialized middleware and hardware that manages the huge amount of data coming from the readers. The more proactive companies are thinking about putting the right business intelligence (BI) and analytic architecture in place to make the most out of RFID data and drive better supply chain decisions. Users should also check out these vendors' services at their labs that include consulting and integration, as well as painstaking testing multiple vendors' RFID equipment and hardware to simulate real world supply chain business processes.

One of the main obstacles is the lack of integration, since there is a dearth of software tools from enterprise application integration vendors to get data from RFID tags and readers into existing business systems. This means that companies are often forced to do expensive custom integration work. Together with the vendors, they will have to devise ways to filter out false or redundant reads and pass on only useful information to enterprise applications. Also, the traditional skills and empowerment of line and warehouse managers will be required more than ever to properly leverage and configure these systems. For instance, IT and business managers will have to figure out when inventory in the warehouse needs to be replenished. Ever since the advent of inventory management—setting the safety stock trigger too low will cause products' stock-out, while setting it too high will create excess inventory.

For more information, see the following recommended readings: RFID—A New Technology Set to Explode?

This concludes Part Four of a multipart trend note.

Each of the parts covers questions and answers addressed by the panel.

 
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