RFID--A New Technology Set to Explode? Part Two: Early Adopters, Challenges, and User Recommendations

Early Adopters

Radio frequency identification (RFID) technology could potentially replace bar coding in the long term, if global technical standards develop. While the radio transmitter technology has been around for decades, the technology got a major endorsement this past fall when both the U.S. Department of Defense and retailing giants Wal-Mart and the METRO Group decided to make RFID tags a key part of their logistics. To that end, Wal-Mart has recently instructed its top one hundred suppliers that it expects RFID transmitters on all pallets and cases starting January 2005, although there indications that the deadline will be delayed for a few months at least. 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 and 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 transmit significantly more useful data than UPC's), with a mandate to its top one hundred suppliers to provide RFID tags on cases and pallets at DCs, followed by item-level tagging at a much later, unspecified date. In theory, EPCs on RFID 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 require line-of-sight like bar-code scanners. This should result with less labor, fewer errors, and the 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 developments, intelligent shelving, and packaging, to name but a few. Furthermore, to gain benefits such as product tracking, supply chains should logically have to begin RFID implementation at the manufacturer's plant or warehouse, rather than at the distribution center, which is one step closer to a retailer in the supply chain. There are indeed some indications that the main burden for compliance will fall on suppliers, not retailers. To that end, RedPrairie has thirty of Wal-Mart's top one hundred suppliers as its clients, while the vendor guarantees 100 percent compliance for all customers, not just the mandated top one hundred. Still, "source tagging" cases at the manufacturer site will for some time remain too disruptive for most companies to implement.

Provia Software is another SCE provider. It began life as a subsidiary of German elevator system manufacturer Haushahn GmbH, whose elevator technology led it to develop material handling and automated storage and retrieval systems (AS/RS) in warehouses. Provia Software has been busy leveraging its material handling heritage to the use of RFID, which will be a topic of a separate article in the future.

This is Part Two of a two-part note.

Part One defined RFID technology and covered RFID pioneers.

Tier 1 SAP Response

SAP has been deeply involved in emerging RFID technologies, as mentioned in Part 1, and as illustrated by its announcement of SCM applications with built-in RFID capabilities at the recent National Retail Federation (NRF) show. SAP has been tacitly researching RFID-enabled processes since the late 1990s, in which time it has created an RFID customer council with over eighty customers. It was one of the first software suppliers to join the erstwhile Auto-ID center (now EPCglobal, an organization which is designing the critical elements and creating global standards for the next generation barcodes as a mainstream method of business-to-business [B2B] product identification. This process is called the EPC). SAP has created proof of concepts with retailers METRO and Procter & Gamble.

Having been an overall enterprise applications leader, SAP has a more holistic view of where RFID should fit and is building capabilities that will enable it to have more flexibility in how RFID is applied for specific customer requirements across the entire value chain. To that end, the solution provides out-of-the-box support for packing and unpacking, goods issue, receiving, and track and trace business processes. SAP applications bundled to provide these capabilities include SAP's Web Application Server, SAP Auto-ID Infrastructure, supply chain event management (SCEM), and SAP Enterprise Portal. The Auto-ID Infrastructure, which links RFID data to disparate back-end systems, includes a Business Rule Configurator for creating new business processes, while SAP Event Management aims at monitoring exceptions to business processes triggered by data coming from RFID-tagged products or other sources.

The core data structure of the solution will be built on the Handling Unit Management module within SAP Warehouse Management (WM), to which SAP has added RFID adaptors to integrate the data with its core enterprise resource planning (ERP), SAP APO (Advanced Planning & Optimization), and other supply chain management (SCM) applications. SAP's concept of a "handling unit" (i.e., a distinctively defined entity that can capture a nested setup of sub-elements, such as a mixed palette or multiple items in a case) is aimed at deploying RFID at various levels (such as palette, case, individual item), which will be important as RFID technology matures to support these intricate requirements. This RFID infrastructure with the handling unit concept appears a bit more ambitious and thus heavier and more expensive in terms of implementation services than that offered by supply chain execution (SCE) best-of-breed-vendors, but will eventually allow for the practical usage of RFID data across more and broader processes and applications within the value chain. Furthermore, the real benefits of RFID will be achieved when the integration of the EPC data will be a substantial part for the control of business processes. For example, the SAP solution could be applied in warehousing, manufacturing, and transportation and at touch points between these (for example., production line replenishment of the warehouse, cross-dock from receiving to production line, shipment verification in warehouse, to manifesting, control of yard movements, and then in-transit visibility up to a final proof of delivery in transportation).

Oracle too has recently introduced the Oracle Warehouse Management product offering by combining a rule-based architecture with its workflow engine, rendering it quite a configurable solution. The product tackles task dispatching and management functionality within its Task and Labor Planning Control Board module, while some other value-added WMS capabilities (including yard management and dock scheduling) are expected in future releases throughout 2004 and 2005 delivery. At its recent AppsWorld 2004 conference, the vendor unveiled RFID-ready versions of its SCM applications and middleware that include EPC capabilities and will use Oracle Database 10g and Oracle Application Server 10g. PeopleSoft and Microsoft have also joined the fray and updates that add RFID-data support to their warehouse and inventory management applications and data-collection middleware are in the works and expected to be delivered some time in late 2004.

As recently as on April 5, Microsoft announced the formation of a new Microsoft RFID Council focused on RFID technology, which will look at RFID requirements and how to take advantage of today's technology to make it easier for retailers and manufacturers to track and ship merchandise. The giant also highlighted a growing ecosystem of partners—spanning RFID hardware vendors, supply chain execution (SCE) retail systems and services providers—is using the Microsoft platform today to add value to their RFID solutions through Microsoft technologies such as Microsoft Windows CE, SQL Server, and BizTalk Server for collection, management, and integration of RFID data. These partners also are working with Visual Studio and Web Services Enhancements (WSE) for Microsoft .NET to create Web services-enabled RFID solutions.

The company plans to hold the first Microsoft RFID Council meeting in April and already has several partners, including Accenture, GlobeRanger Corporation, HighJump, Intermec, Manhattan Associates, and Provia Software, signed up to participate. As a part of the Microsoft RFID Council, Microsoft and partners plan to address industry needs for RFID solutions that are low-cost, simple to deploy and built on a robust scalable technology stack.

On its hand, Microsoft Business Solutions (MBS) division is also working with RFID partners to extend the capabilities of financial management and SCM solutions for small and midsize businesses. The company began a six-month RFID pilot at the end of 2003 to develop and test RFID software for commercial use hopefully in 2005. During its recent Convergence 2004 user conference in March, MBS showcased the pilot project for Danish snack manufacturing company KiMs, an MBS Axapta back-office user, which has leveraged RFID tags to track pallets from production plant to 3PL (3rd party logistics) warehouses, as to significantly improve their visibility and reduce (or completely preempt) pilferage rates, which have been painfully unacceptable in the past had been.

Microsoft also announced it has recently joined EPCglobal, and will work closely with it to take product and item identification to the next level across manufacturing and retail supply chains. The company is already a certified In Sync alliance partner of UCCnet Inc., an industry-endorsed initiative to resolve product data inaccuracies among trading partners. Earlier this year, Microsoft announced the Microsoft BizTalk Toolkit for UCCnet, which allows retailers and their suppliers to relatively quickly and cost-effectively connect to UCCnet and helps bring them together with trading partners.


On a more general note, while the potential of RFID technology is indisputable (for example, contrary to bar-code, RFID requires no direct contact nor line-of-sight scanning, and it provides streams of data that can be differentiated and interpreted before being passed off to an enterprise application), much more is required in moving RFID from a lab to a live environment, as one could glean from the above slew of announcements addressing recurring issues.

RFID has a 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, but only when (and if) it reaches a critical mass of adoption and maturity over the next several years. Over that time, many companies will begin to deliver and possibly receive a higher proportion of goods with RFID tags and, thus, they will have a better understanding of the technology and its potential toward broader business improvements per se rather than imposed Wal-Mart, DoD or Target compliance.

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 volumes in millions, costing 30 40 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.

Namely, to that end, the 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, in addition to reasonably lower tag prices, such as adoption of pervasive (if not unified) EPC standard, building the capability to manage in a mixed environment of bar codes and RFID tags, optimizing business practices to take advantage of an identification technology that does not require line-of-sight while dealing with certain materials and environments that interfere with RFID signals (such as metal and liquid products, or cold storage), are just a few. 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—which requires careful positioning and failsafe testing of tags and readers alike, especially while read-ranges of high-frequency tags remain quite short.

Similarly, the frequencies available vary across the globe, requiring international agreement and 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 might be the data from loyalty or frequent flyer cards from stores or airlines, "EZ" highway toll passes, credit and debit cards, numerous, easily obtainable customer databases and lists, or cell phone cards and bills—since 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 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 like Intel, Microsoft, Oracle, IBM, Dell, Sun Microsystems, BEA Systems, HP, and so on, salivating at the 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, this will be a far cry 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 to bring software up to a pilot stage, and after that, 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, companies should start now consider how to reap benefits well beyond just complying with mandates for the likes of Wal-Mart.

User Recommendations

Users should look warily at many vendors' claims of RFID readiness by citing that their applications are designed for automated data collection since they have been doing it for years with RF technology, and that RFID is yet another format. Namely, 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, regardless of the variety or quantity of product. While in its raw form, 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 a steep price that can be justifiable mainly for deploying them at the pallet level, 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, which might be a gamble at this stage. The read-only EPC tags contain only a manufacturer, a product, and serial number information. 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 more costly write-and-read standard that lets companies add additional 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, and they will have to work 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 tags' reusability is still evolving and not available. Uniform Code Council, a nonprofit organization that manages a standards-based item registry for companies' product data, as a platform for collaborative commerce, and which manages the UPC, has taken responsibility for commercializing EPC technology, 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 the speed of adoption because, at this stage, the technology is still regarded as too impractical or to difficult to execute, and declining research and development funds have put its implementation "on the back burner" in many vendors strategies. The exceptions, such as Provia, Manhattan Associates, RedPrairie, HighJump and SAP, which have significant installed bases in retail and CPG sectors, 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. 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. Like ever since the advent of the notion of inventory management—setting the safety stock trigger too low will cause products' stock-out, while setting it too high will create excess inventory.

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