Integration of RFID and ERP Challenges and possibilities

1. Integration of RFID and ERPChallenges and possibilities Humberto Moran Research Fellow Judge Institute of Management University of Cambridge June 2004 h.moran@jims.cam.ac.uk © Humberto Moran

2. What is RFID? – an invention RFID is an old invention that became less expensive • The reader ‘queries’ the chip with a radio wave • The chip replies with its identification (EPC) and other optional data

3. What is RFID? – an innovation Intelligent interoperable products High Transformation of society (lifestyle) Technology as perception Technology as embedded system Way of increasing product quality Way of developing new products Reshape the consumer experience Mass customization enabler Supply chain productivity tool Building block of a modern supply network Restructuring of the supply chain Technology as production network Depth of the impact Physical extension of the Internet Information processing tool Generation of new business models Data gathering device Productivity tool Extension of information systems Support of business processes Barcode substitute Manufacturing tool Tool for automation Support of operational processes Labor substitution tool Productivity tool Low High/ Active Low/ Passive Degree of coupling with environment

4. RFID from a ERP perspective • A set of inter-organisational standards • Identify physical objects • Trace information on products • A powerful tool for automation • Provides computers with new senses, new data (and new possibilities…) • A Revolution in the SW area ??

5. Integration of RFID/ERP: there is a gap between both worlds Information world Business meaning Business intelligence Sales and marketing ERP and related ? Financial Logistics and distribution Information about physical objects Low-level interface Inventory Manufacturing Readers Physical meaning Physical world

6. Why is it important to integrate both worlds? • Both worlds complement each other creating important complementarities • To allow/ease the adoption of RFID applications • To provide RFID-generated data with useful meaning • To provide ERP systems with accurate, timely and reliable information about physical objects • To make the best possible usage of the new information from a business point of view

7. What are the challenges posed by this integration? • RFID-Generated data are dispersed, fragmented, duplicated, inaccurate and lack business meaning • Interpretation is context- and information-dependent • Interpretation requires sharing inter-organisational information • RFID-Generated data might generate business transactions targeting different systems/modules • Duplicity of Information and functionality of RFID-enhanced systems and that of existing ERPs • Amount of new data is stunning

8. (1) RFID data are dispersed, fragmented, duplicated, inaccurate and lack business meaning • Readers can detect the same objects many times, with random gaps • Some tags can be missed • Reading order is random • Logically related and unrelated objects are read all together • The data consist on identification numbers (EPC) and other optional data, which lack business meaning

9. (2) Interpretation is context- and knowledge-dependent • Business meaning depends on: • Location of the object • Whether the object is static or moving • Direction/speed of movement • Detection intervals • Aggregation information (e.g. compound products, batches, tools etc.) • Business transactions (e.g. ASN, warehouse transfers, sales etc.) • Previous status of the object (e.g. location etc.)

10. Illustration - characteristics of the data and its interpretation Data comes fragmented and dispersed Some transactions are duplicated EPC EPC EPC EPC EPC EPC ? EPC Reader 1 o o o o EPC EPC ? EPC EPC EPC EPC EPC Reader 2 There is a need for location and aggregation information o o o Low-level interface The information about the employee and/or equipment is in the HR and Fixed Assets modules respectively The information about the products is in the inventory module Readers Some tags might not be read Products are often handled in groups

11. Implications - characteristics of the data and its interpretation • The integration layer must combine data from many different sources – some degree of centralisation is required • Hence, there is a need for interoperability • A GIS must be incorporated or linked to the interface • These data requires sorting - a grammar-like processor is required • Since data may be incomplete or contradictory, the integrator may incorporate “fuzzy” logic or artificial intelligence

12. (3) Interpretation requires sharing inter-organisational information • Most of the value of RFID comes from inter-organisational applications • Information about products • Communicating/tracing shipments • Vendor managed inventory (VMI) • Anti-counterfeit, anti-smuggling etc. • However, these exchanges cannot be easily done at ERP level • Heterogeneity of vendors and versions • Limited funcionality

13. INTERNET INTERNET RFID-enhanced and non-RFID-enhanced systems must coexist Information world Company C Company A Company B Non-RFID-enhanced ERP RFID-enhanced ERP RFID-enhanced ERP Integrator Integrator Integrator Interface Interface Interface Readers Readers Readers Physical world

14. Implications – sharing of information • There is a need for inter-organisational interoperability at the integration level • As ERPs cannot be replaced overnight, the integration layer must perform the exchange of inter-organisational information • In the future, traditional e-commerce transactions must be expanded to include information about physical objects

15. (4) RFID-Generated business transactions may target many different systems/modules • RFID is very versatile and allows for many business applications, hereby affecting many IS and ERP modules • RFID infrastructure can be shared among applications • A single physical transaction may generate multiple business transactions – even inter-organisational ones

16. RFID transactions target many different systems/modules • Sales and mktng: • online product information • product returns • self checkout • SC design: • mass customisation • Financial: • payment conciliation • item-level costing • Item-level taxing • Stock recount • Material management: • supplier upstream tracking Business Intelligence • Automation: • mass customisation • Order entry: • build to order • Inventory: • shrinkage control • stock failures • product recalls • perishables mgmt • Shipment: • loses • damaged products • anti-counterfeit • Control: • tracking • locating • sensing • Security: • theft prevention Physical world – RFID-transactions Manufacturing systems ERP systems SCM systems Other systems

17. Implications – multiplicity of targets • RFID devices cannot be directly integrated into existing ERPs • The integration RFID/ERP must be multipoint and generate consistent transactions • The inter-organisational layer must convey not only information about products, but also about business transactions • There is a need for interoperability between ERPs from different vendors (again!)

18. (5) Duplicity of Information and functionality of RFID-enhanced systems and that of existing ERPs • Most existing ERP already include information on physical entities • Product description at SKU level • Product location and stock levels • Inter-organisational transactions • Functionality also overlaps • Use of barcodes • Human-fed transactions

19. RFID-generated information statically relate to many existing ERP entities Present Non-RFID-enhanced information systems Future RFID-enhanced information systems Database Database Existing ERP entities Existing ERP entities RFID entities RFID entities

20. Implications – data and functionality overlap • Need for a separate storage for the new physical information • Need for logical links with existing ERP entities • Need for combined functionality • Need for bidirectional transactions to keep both worlds “synchronised”

21. (6) The new amount of data is stunning • Tracking mass-produced goods such as cans of soda will generate millions of transactions every second • Most of these transactions are redundant; others have meaning only to specific modules, whole ERP or other IS; whilst others should be shared beyond the organisation • Transactions will come not only from relevant objects, but also from many other tagged objects scanned by chance

22. Reach of data/transactions Company A Company B Physical world

23. Implications – amount of data • This requires many filtering and interpretation layers: RFID-Generated data and their related business transactions should be transmitted to the lowest meaningful possible level only • The integration should be flexible to adapt to different configurations • All data • Exceptions only • Expectations (cache) • Different levels of trust among SC partners • The integration layer should then allow not only for data transmission, but also for mobile business logic • This requires the creation of a new entity: the “Physical Business Language” (PBL), providing business knowledge with physical cognition and scope

24. Holistic integration layer Information world Business meaning Integration layer BI + AID functionality INTERNET Sales and marketing Information Systems Financial Logistics and distribution Logistics and Ds + AID functionality Low-level interface Inventory X Manufacturing + AID functionality Readers Physical meaning Physical world

25. Standard-based Multidirectional Flexible and interoperable Independent from ERP Allow anticipation of events Centralised decisions INTERNET Inter-organisational transactions INTERNET Inter-organisational transactions RFID/ERP Integration layer – characteristics and general architecture • Intelligent • Comprehensive • Automatic, reliable, transparent Mobile business logic • Programmable and configurable • Distributed processing ERP Modules Bespoke Systems Business world Transaction interpreter / generator and entity linker Low-level interface with readers Database with information about physical objects Physical world

26. BIS Transactions Generator ERP Modules Bespoke Systems Remote database with information about physical objects INTERNET Inter-organisational transactions INTERNET Inter-organisational transactions Industrial Control Configurable business data / events interface Alarms Expectation engine Expectation engine Expected events Location / routing interface GIS Transaction interpreter and entity linker Physical data / status Aggregation / Location engine Database with information about physical objects Low-level interface with readers RFID/ERP Holistic Integration LayerDetailed Architecture Business world Physical world

27. Summary – advantages of a holistic model • Clearly separates layer functions and relationships • Enhances interoperability at many different levels • Allows for incremental implementations • Makes possible reusing existing infrastructure • Maximises strategic value from expansion possibilities • Accounts for both dynamic and static integration • Has clear-cut interfaces and functions per layer • Completely strips out business logic from the lower levels • Provides business value by complementing the RFID infrastructure • Maximises scalability

28. Conclusions • The RFID revolution is incomplete and cannot take place without the evolution of existing business software, particularly the middleware • The integration of RFID and ERP is unique in nature and different from other integration approaches • Integrating RFID and ERP requires an independent and autonomous integration layer with very specific characteristics • ERP systems need to undergo a major transformation to make the most of RFID

29. Integration of RFID and ERPChallenges and possibilities Questions? Humberto Moran Research Fellow Judge Institute of Management University of Cambridge June 2004 h.moran@jims.cam.ac.uk