From Promise to Practice

Authors: Amar Singh and Krish Mantripragada, both SAP

Is radio frequency identification (RFID) over-hyped? Not really. As it moves from a reactive response to retailer demands and regulatory requirements toward the real-time tracking of goods through the supply network, it is already providing wide-ranging benefits and solid

ROI.

In 2004, driven primarily by retailer and government mandates, companies began to real-world-enable their operations. While the majority focused on "slap and ship" (apply RFID tags, ensure they can be read, and ship the product), leading companies are looking beyond compliance mandates and generating value by making their core business processes "real world aware."

Turning visibility into value



In consumer products and retail, trading partners are exchanging RFID data at various points in the supply chain to gain unprecedented visibility into product movement. In addition to electronic product code (EPC), location, and timestamp data, they are collaborating to further qualify the read event. 

The first processes benefiting from this collaboration are in shipping and receiving. The retail industry has a longstanding problem of invoice discrepancies between consumer-products suppliers and retailers. Highly manual and error-prone processes, combined with Stock Keeping Unit (SKU)-level product information, introduce mismatches between invoices and payments. Either time is wasted in long disputes, or both parties accept a certain threshold of deductions as the cost of doing business. It is estimated that consumer products companies lose between 4-9 percent of total annual sales to invoice deductions. 

The additional levels of granularity, accuracy, and timeliness provided by EPC data allows for automatically matching the flow of goods to information flow of business transactions along the supply chain. This reduces discrepancies before they lead to disputes. By reading the RFID tags before loading the truck, manufacturers can ensure that the ASN, shipment, and invoice match exactly the quantity in the purchase order.

Similarly, the RFID data at the retailer's distribution center and in movement to the stores can generate an automatic electronic proof-of-delivery of the received quantity. This benefits both manufacturers and retailers, since invoices accurately reflect the goods sent and received. By eliminating unwarranted deductions and long dispute cycles, it increases the transparency of operations between the trading partners.

Early adopters are experiencing positive ROI from their pilot implementations and see this as a first step toward a suite of applications benefiting from the additional levels of visibility. The data also provides insights into product velocity, real-time inventory, and lead times. This is critical to monitoring promotion-execution and compliance, a key requirement for both manufacturers and retailers because of the significant investments involved, limited promotion life spans, and the associated selling uplift. Using this data, companies are beginning to devise more responsive replenishment policies to meet changing demand patterns.

Securing the supply network



The other category of rapid adoption of RFID is safety and security in the supply network. In industries such as life-sciences, aerospace and defense, hi-tech, and automotive, growing safety concerns and regulatory requirements increase the importance of product-tracking through the supply network.

In life sciences, counterfeit medicines and unlawful diversions pose a serious threat to public health and cost manufacturers between 0.22-0.73 percent of revenues. Florida, California, and 23 other U.S. states are drafting pedigree laws to combat these malpractices. The FDA has published guidelines for track-and-trace and is expected to issue mandatory requirements in 2007. Combined with increased competitive pressures, these moves are forcing pharmaceutical companies to adopt new practices and technologies to track the flow of products.

Securing the supply network involves establishing both the authenticity of the product and the chain of custody to ensure that a legitimate product came from a legitimate source at every point. EPC/RFID are rapidly emerging as the key technologies to address these requirements while also providing other benefits. A unique EPC at the item level, combined with packaging hierarchy, channel distribution rules, and Gen2 features such as TagID, applies a layered approach to uniquely identify and authenticate every instance of the product shipped.

EPC data - when combined with production and business transaction data - lays the foundation for building a pedigree document. A pedigree is a record of every transaction for every instance of a drug, from the point of dispensing back to the original manufacturer, providing a complete, traceable chain of custody for the product.

Some pharmaceutical manufacturers are working with retail pharmacies to build capability to support authentication at the point of dispensing. Such an application will serve the immediate need of product authentication while the industry waits for distributors to build RFID receiving and shipping capability. The retail approach involves reading the product at the pharmacy just before dispensing and interrogating the EPCIS (EPC Information Service) of the manufacturer to establish its legitimacy. 

Keeping track of assets



Asset and service management are also emerging as key areas to benefit from RFID. Until recently, many manufacturers considered maintenance and repair a necessary evil - an expense that they'd just as soon have the customer shoulder. Now, service has become a major profit center, and RFID is enabling companies to maximize their income there. 

One such example is Airbus, which builds many of the world's most widely flown aircraft and also helps its customers keep those airplanes in tip-top shape. One important support service is rental of specialized tools needed by aircraft repair crews. RFID helps automate Airbus processes for leasing and maintaining these tools and tracking them throughout their life cycles, as they are selected, used, returned, and recalibrated by Airbus personnel. RFID tags attached to the tools record their technical state as well as administrative information. Using this data, Airbus aims to make its service supply chain more transparent and increase tool availability and use. Each minute they're not in use is a minute of lost revenue.

Another interesting example is Fraport, the company that manages Germany's Frankfurt Airport. Fire safety is a top priority in all facilities that serve the public, especially at such a large and busy operation. Until recently, scheduled maintenance was handled through a paper-intensive process. RFID tags now help automate the work, eliminating paper, cutting costs, improving accuracy, and helping maintenance crews operate more efficiently. RFID provides detailed real-time data and ensures the smooth exchange of information between back-end systems and the technicians on site. 

As these examples show, leading companies across industries, striving to advance beyond slap and ship, are already achieving significant savings and process improvements. SAP is working with many of them to build a roadmap to ROI and leverage the potential of RFID. Its time for every company to build its own roadmap to capitalize on this innovative technology.