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How do we obtain Traceability?

Are you part of a CPG company trying to comply with mandates from retailers to start tagging pallets and cases with RFID (radio frequency identification), and seeking to formulate strategies to derive value out of the investment? Or are you a big-box retailer who has mandated suppliers on RFID but are still looking forward to devising means of obtaining end-to-end traceability? Or do you belong to a container-pooling organization worried about the visibility of your assets across the supply-chain?

Very often, it has been seen that not all the supply chain players that deployed RFID in their business processes have garnered its promised benefits. Some of them faced challenges where there was not enough ROI (Return On Investment), no end-to-end traceability, and no value-addition. In order to realize the true potential of RFID, it is indispensable for organizations to enable business processes across the value chain and provide end-to-end traceability by capturing information throughout the life-cycle of the RFID-tagged assets or products.

A lot of questions pop up in the mind as to which is the right way to go forward with a complete RFID deployment, especially when it comes to maintaining the EPC (Electronic Product Code) data. Traditional WMS (Warehouse Management System) or ERP (Enterprise Resource Planning) applications are not designed to hold EPC data, especially at case or sales-unit levels. Should we go ahead with a third party vendor-hosted repository which is completely disconnected from our ERP systems but holds our information, or should we modify all our existing WMS/ ERP systems to process and maintain the highly granular RFID data? Is there a better approach that can streamline the processes in our WMS systems by enabling them with RFID as just a new technology similar to barcode?

I will add more details about this in my subsequent posts as to whether there is an EPCIS-compliant and standard way of solving this problem around Track and Trace. Meanwhile, if you have any experiences or thoughts to share on this topic, please feel free to comment and let me know.

Comments

Mayank,
You have raised appropriate questions regarding implementation challenges of RFID in supply chain. Organisations need to have a long term vision with respect to RFID enablement of supply chain, instead of short term goals of performing pilots, compliance to mandates etc.

Mayank,

Retailers have mandated putting RFID tags but as you mentioned there are many challenges. Especially for companies where profit on a pallet is just few dollars. We may redesign traditional WMS systems, but there should be less expensive options for compaines who do not see ROI in RFID tags.

Amit and Suchit - thanks for your comments.

Amit, you are right that a long term vision and strategy is required for RFID-enablement across the chain, rather than having short term goals simply to comply with mandates or to follow industry trends. The first and foremost step towards it from a technology-perspective would be to ensure that they follow standards set by EPC rather than depending upon proprietary technology.

Suchit, the retailers have started mandating only their top CPG suppliers to begin with, who would be capable enough to afford RFID-compliance. One option for them is to look at using RFID-tagged pallets from organizations such as CHEP or iGPS (in several regions, they do provide this). However, that will not help with case-level tagging. Another option (if they do not want to bear the cost of tagging themselves) is to share the cost with their suppliers (of raw-materials), i.e., if the suppliers start sending raw materials to the CPG companies on RFID-tagged pallets. These are just some options of doing cost-sharing and benefit-sharing in an eco-system.

However, modifying the WMS or ERP is a strict "No-no" from software product vendors like SAP. They recommend that we should use other products like AII and OER due to their capabilities in processing EPC data, and integrate them with the WMS.

Interesting Perspective..

Mayank,
Thanks for the article.
I have very basic questions to ask -
1)You were mentioning about implementing business processes across the value chain for the better use of RFID. Could you elaborate on this point?
2) I was wondering what's the harm in third party vendor-hosted repository, given that all the terms and conditions are preset? In a way it's good if someone else is doing it efficiently thereby saves our time and money.

1. The ROI (return on investment) in RFID is seen only when the deployment is done across the chain. For example, if you were a CPG/ FMCG company shipping products to a retailer on RFID tagged pallets or containers, it would not fetch you any benefit if the retailer was not RFID-enabled. However, if the retailers were RFID-enabled and use an EPC-ASN (Advanced Shipment Notice) to reconcile the receipts, it becomes useful for them. At the same time, if they can notify you of the receipt, it will help you track where your products are on real-time and similar visibility across the chain can help you do demand-forecasting, etc.

2. Having a third party repository for data which is not directly related to our critical business processes is good because we don't need to invest in the infrastructure. However, RFID should not be looked at as something which is isolated from our processes. RFID is an enabler for our business processes and should be looked at just similar to barcode. If we store the barcode/ SKU numbers in our own systems, why not the RFID/ EPC numbers? There are several issues with a third party repository:

2.1. They could be following proprietary interfaces instead of following industry standards.

2.2. Today, maybe that only one of our applications needs the data from this repository. Tomorrow, if 3 other applications need it, then we would need to build interfaces for all of them and it becomes more complex if the system is proprietary instead of a standard.

2.3. What if the vendor increases the hosting cost later? If we want to end the contract with the vendor, we might lose the earlier data which they were hosting. The dependency on vendors is a big risk, especially for information.

2.4. If our trading partners also need the data, then it becomes even more difficult if the vendor's repository is not accessible by all and if it is not an industry standard which they can easily adapt to or integrate with.

2.5. Its our data, so we should own it. Thomas Friedman talks about "making money from information" rather than "spending money on information" in his "Flat World" concept.

Mayank,
There are large CPG companies who do not use pallets(use carts instead) to ship their products. They have negotiated with retailers to send ASN with barcode data and completely avoid RFID. RFID adoption is less in companies having DSD model. Here is a report for further reading
http://www.rfidjournal.com/article/articleview/6950/1/565/

Suchit - that is not a general case. There are also certain large CPG companies (whom I've directly worked with the last 2 years) who are complying with the RFID mandates laid down by retailers to stay ahead of the competition and to utilize the investment to drive internal benefits. As a matter of fact, millions of dollars are lost every year due to misplaced DSD carts! That made another case for usage of RFID in the DSD area for one of my clients.

Agreed that a lot of companies were not able to comply with RFID but that was mainly due to the economic slowdown and hence they pushed back, because they did not want to invest in additional hardware infrastructure or software systems due to cost-cutting. Retailers also had to reduce the pressure due to the recession. However, certain CPG companies have continued to budget and adopt RFID, and it is likely that others will also join the race. This blog caters to those organizations.

I will also add more information in my subsequent posts as to how an organization which is looking forward to adopting RFID (or which has adopted but not reaped benefits) can do so using an EPCIS-compliant repository.

RFID has ROI for longer durations and only Big companies like Kraft,Walmart,Pepsi can buy into this idea. If RFID is made much more affordable, mid-size companies also may think of implementation and also which helps in attaining common standards for RFID at global level

Ravi - agreed that right now, its only the big players' cup of tea. However, hopefully with more mass-adoption, innovation and enforcing of standards, the cost of adoption will go down. That's true for any technology, like the Internet or cell-phones. The difference is that RFID came out into the market without being standardized whereas these other common technologies came into the market after all the research was over and the industry standards (communication protocols, data-exchange formats) were in place.

The last statemnet might not be essentially correct. RFID has been around for more than 20 years, and the standards are in place(EPC).
Also recently P&G, pulled out of placement on the shelf, using RFID, in Walmart, as ROI was not commensurate with the investment.

Punit, RFID has been around since the second world war but at that time only defence organizations were able to afford it. What I meant was that its only recently that all the EPC standards are coming into place, and that is primarily because of the drive from retailers such as Wal-Mart (it was not the other way round). For example, the EPC reader protocol standardization (version 1.1) was made publicly available in August 2006, only after Wal-Mart had put a mandate to its suppliers to comply with RFID (which was in 2005). The same holds true for the Gen-2 standardization with anti-collision.

Capital Structure: As seen over the years, return on investment has been used frequently but little does it say about the capital structure of the firm. Firms with a high operating leverage witness skewed return on investment because of the leverage effect. So, when the supply chain players look for financing their inventories or their cost centers, capital structure does play an important part. Modigliani-Miller theorem fails in this imperfect word with taxes and bankruptcy costs.

Operational Effect: One of the other factors is the lumpy demand with high variations. This causes a bullwhip effect and destroys the supply-side efficiency of the firms. Retailers like Walmart have a very thin bottom line and make up their profits because of economies of scale and scope. The bullwhip effect can be catastrophic for such players and these players would want to have a very sound forecasting and tracking mechanism

Nice one! And a question… Is there a way to modify the existing systems, keeping in mind the costs incurred to include the benefits of RFID? Wont, in the current scenario, the cost exceed the benefits if we have to build the systems from scratch?

Building that capability in existing systems is more expensive, because there will be many such different applications and systems used in different organizations. Instead, its easier to develop just one system that can handle RFID data and expose standard interfaces to it so that existing systems can invoke and use it when required.

Thanks to all you guys for putting in so much insight into the issues related to supply chain management and RFID technologies, which could perhaps offer cost-effective, comprehensive solutions to the issues faced by retailers, transporters, CPG companies, suppliers, vendors, etc.

My experience says:

1) RFID-enablement has to be across the Supply Chain Management (SCM) spectrum -- that is end2end -- in order to reap the full benefits out of the costs incurred in deploying RFID solutions. Otherwise, the purpose of RFID gets defeated, especially when all the bottlenecks and the possible failure points in the end2end supply chain are not fully addressed.

2) For any technologies, costs of their adoption decrease as their usages increase. It's totally a different discussion to analyze the causative factors behind such a much-observed phenomenon worldwide. But, it's obvious that as the RFID technologies get standardized and well understood in the markets across the world, so will the adoption of RFID go up, bringing the associated costs of adoption down. Isn't it? All businesses love to leverage economies of size, of scope, and of scale.

3) It's definitely not a good idea to overhaul all the existing IT systems of a company, just to accommodate ONE NEW FIELD -- and the associated ways of pulling things out of the "labyrinth" using this new magical field. I firmly believe that using the best expertise of a Systems Integrator (SI), this one very valuable field -- a "panacea" -- could well be accommodated to give the existing IT systems a COMMON CODE to talk to between them.

We must remember the revolutionary, magical efficiency formula which is something like this:

efficiency = output / input.

There are two obvious ways of boosting efficiency:

a) either decrease the input -- which could be any combinations of factors, such as disruptions caused, direct and indirect costs, efforts, time, risks, etc

b) or increase the output -- which could again be any combinations of factors, such as costs saved, quantitative reduction achieved as per the historic costs of the bullwhip effect, improvement in the turnaround time, increment in the throughput, reduction in the in-transit duration, etc.

There is even a third way out: do both, simultaneously.

Thank you everyone, for the overwhelming response on this topic. To throw more light on this topic from a technical standpoint, I have published a white-paper on "Supply Chain Traceability with RFID and SAP", which is available at http://www.infosys.com/RFID/resource-center/documents/supply-chain-traceability.pdf

Please also read Part 2 of this blog, which is posted at http://www.infosysblogs.com/retail-cpg/2010/02/how_do_we_obtain_traceability_1.html and continue the discussion there.

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