Architecting an RFID Industry

Brian Subirana (MIT & IESE)Sanjay Sarma (MIT)Richard Lee (Gillette)Jamshed Dubash (Gillette)

Presenter: Brian SubiranaAssociate Professor of Information Systems at IESE Business SchoolVisiting Associate Professor of Information Technologies at CCS (MIT Sloan)Visiting Associate Professor at the MIT Auto-ID Labs (MIT Mechanical Engineering Department)

History

1999: Auto-ID Center founded at MIT2000: Auto-ID Field Trial2001: First standards presented2002: Gillette orders 500,000,000 tags from Alien 2003: Wal-Mart, DoD Mandates

EPCglobal launched, Center retired2004: More mandates

RFID

The hypothesis or bet

context-aware router context-aware

router

context-aware router

context-aware router

sensor

context-aware router

context-aware routercontext-aware

routercontext-aware router

context-aware router

context-aware router

context-aware router

sensor sensor sensor

01. 203D2A. 916E8B. 8719BAE03C

Manufacturer 24 bits

Product 24 bits

Serial Number 40 bitsHeader 8 bits

Place unique number on tagElectronic Product Code, EPC64 bit, 96 bit, and upwards

Develop manufacturing technology for small chips and tags

Move data on the networkNetwork service for resolving EPCNetwork architecture for gathering and routing data

The Commercialization of EPCLandmark Event: EPCglobal is formedMany companies have significant tests and pilots underwayMandates:

DoDMarks & SpencerTescoWal-MartMetro GroupTargetAlbertsonsBest Buy

Other major retailers are continuing to announce their strategies

RFID Status3 protocols

Class 0 UHFClass I UHFClass I HF

Tens of manufacturersTags: Alien, Matrics, Philips, ST Micro, Rafsec, ….Readers: Alien, Matrics, AWID, ThingMagic, Tyco, Symbol, Samsys,…

New versions being designedGen 2 taking off

Retailer ROI is Here and Now

Retailer business case is solidAutomated receiptBackroom visibilityOut-of-stocksShrinkage

Wal-Mart ROI: $8 billionMomentum is building

Target, Wal-Mart expansionEMEA: Tesco, MetroConsumer electronics

Magnitude of ChallengesInventory Management:

Inventory uncertainty:65 % of 370,000 records inaccurate (HBS study of one major retailer)Transportation uncertainty: Perfect delivery is dismal

Stock-outs:Average 9% out of stock in retailers world-wideLost sales due to stock-outs: 4%

Overstock: Huge channel inventoriesCPG average 11 weeks inventoryRetailers average 7 weeks inventoryLocked up capital, industry-wide

Brand Management:Counterfeit:

$500B pharmaceuticals business, $50B counterfeitDiversion:

Market size difficult to estimate

The problems are everywhereOverall OOS Extent (Averages)

7.9

8.68.2

8.3

0.0 2.0 4.0 6.0 8.0 10.0

USA

Europe

Other Regions

Worldw ide

Percent OOS

Across geographies

OOS Averages by Category

9.8

7.7

7.0

6.8

6.6

5.3

8.3

0.0 2.0 4.0 6.0 8.0 10.0

Hair Care

Laundry

Diapers

Fem Hygiene

Toilet Tissue

Salty Snacks

World Avg (18 categories)

Percent

12.0

Across product lines

OOS by Day of Week(Average of 13 studies)

10.9

7.3

8.7

9.1

9.8

10.0

10.9

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Sun

Sat

Fri

Thur

Wed

Tues

Mon

Percent

Across time

Store Forecasting13%

Store Ordering34%

Store Shelving25%

Distribution Center10%

Retail HQ or Manufacturer

14%

Other Cause4%

Across the supply chain

RFID Industry Barriers

ITProcessLegal

RFID and IT Systems

IT Systems today are a patchwork

Transaction Systems

Planning Systems

Forecasting

WMS#1

WMS#2

HomegrownSystem

ERP Systems

Planning Systems

Fore-casting

WMS#1

WMS#2

HomegrownSystem

A Better Way

ReadersTags

Middleware

EPC-IS Server

An independent stack

What the software Needs to Do

Device Management

DataManagement

Edge EPC-IS Server

Device Management

DataManagement

Extracting contextual information

from data

Actionable information:pallet built, pallet manifest

complete.

Edge EPC-IS Server

RFID Framework

RFID Framework

Sample Workflow: Pallet building through discovery

Wait

ForRetr

yPrin

t

The pallet has been builtIt has the right contentsA label has been printedThe attributeshave been set

Here are thecase EPC’sin thispallet EPCwith prescribedSales Order

RFID Framework

Why not Slap & Ship?

Manual, costly and short-termThrowaway solution (by definition)The value lies in the data

Trading partners will want it (and some will require it)Develop internal business caseLong-term competitive advantage

Will be hard to catch up

Why not add-on to EES (WMS…) systems?

Edge systems aren’t in a position to deliver a framework for enterprise-wide deployment

Multiple points of integration……from multiple points of capture

Not architected to handle serialized dataRequire upgrade

Often different systems across an enterpriseCostly and time-consuming

Initial RFID-Centric Applications are Simple Analytics

Reconciliation of shipment/receiptIntra-enterpriseBetween trading partners

Service-Level Agreement (SLA) auditing and management3PLsContract manufacturersShipping/transportationCustomersSuppliers

Medium-term ROI has been well-documentedOut-of-stocksCounterfeitDiversions

Tropicana Ad

Peapod Mobile-phone ad

TYPEWRITERS

AUTOMOBILE

Milestones2004

Customer Pilots

2005 Customer

Implementations

4-Walls –All Cases / Inners (US)

4 Walls –All Cases / Inners (EU)

Auto-Tagging 100% B&R

at PC

Major milestones

2004 Customer Pilots2005 Customer ImplementationsAutomated Tagging of 100% Blades & Razors Cases at Pack Centers4-Walls, All-Cases/Inners (US)4-Walls, All-Cases/Inners (EU)

The Peloton Team Cycling Analogy

/ pel´ə ton /: A densely packed group of riders, sheltering in each others’ draft.

/ pel´ə ton /: A densely packed group of riders, sheltering in each others’ draft.

• In team cycling, cyclists travel as a squad toward a goal, at varying paces.

• Working collectively and collaboratively, the group can travel faster and more efficiently than a cyclist could individually.

• The same is true in the rapidly emerging RFID industry. By collaborating, retailers and manufacturers can build a business case for accelerated adoption.

• Companies can only be successful if the entire industry is successful.

There is a need for leaders (both retailers and suppliers) to step forward and provide guidance and direction to the rest of the industry.

There is a need for leaders (both retailers and suppliers) to step forward and provide guidance and direction to the rest of the industry.

Assume each Auto-ID variable is represented by a single race carRacing Analogy

For each car (or vector) we estimate when certain events will occur and map them along a timeline

In the appliance/machinery example below, we estimate reader-equipped put away truck to be financially viable (FV) mid-2006.

The racer travels at his own pace; however, within a peloton, he could travel faster in collaboration with other cars.

The racer travels at his own pace; however, within a peloton, he could travel faster in collaboration with other cars.

2004 2005 2006 2007 2008

Reader-Equipped Put away (FV)

Appliances / Machinery

The Peloton ConceptCollaboration is critical to success

Vectors, on their own, cannot meet certain milestonesTethered by farthest common eventExample; Despite reader-equipped put away, unless all product is tagged, business benefits from receiving cannot be fully achieved.

Mapping events and dependencies must be done for each vector and milestone

Mapping events and dependencies must be done for each vector and milestone

Auto-Tagging@ PC (FV)

2004 2005 20082006 2007

2004 2005 2006 20082007

Reader-Equipped Put away (FV)

Appliances / Machinery

Operations

RFID Has Many PlayersTechnology Providers

EPC Standards bodiesRF Hardware vendorsSoftware VendorsSystems IntegratorsONS managerMachine providers

Drivers and Regulators

Regulatory AuthoritiesRetailersConsumers3PL service providersManufacturers

All the players are evolvingAdoption stage

Pilot?DC’s?Manufacturing?Items?

Where and how much?Slap and Ship: tagging at the shipping dockTag@pick: tagging a case when it is picked.Tag@entry: tagging a case when it is received in the DCTag@source: tagging the case at the manufacturing site itself.

System VariablesFunctionality of readers available in the marketFunctionality of Tags available in the market Attaching Methodology being used for attaching TagsAvailability of appliances such as turntables, wi-fi shelf etc.Availability of Machinery such as forklifts with readers.Installed Wireless infrastructure within the facility (Distribution Center)

Extent of impact of RFID on business operations Impact on Selling, General & Administration (SG&A)Legal requirementsPrivacy concernsExtent of visibility achieved over the value chainLevel of Physical Markup Language (PML) requiredExtent of integration required.

Categories of variablesProduct Tagging: The variables in this category are reader functionality, tag functionality and tag attachment methods.Physical Plant: This category includes availability machinery like forklifts, development of appliances like wi-fi shelf and improvements in infrastructure, Business Processes: Changes in Business processes like warehouse operations and SG&A come under this category. Regulation: Changes in regulatory environment with respect to privacy and legal issues are fall in this category. Systems: System architecture issues like availability of advanced PML, integration with enterprise systems and coordination with channel partners for enhanced visibility belong to this category.

There are a number of system variables

And they evolve over timeSee White Paper

A graphical representation

© Sarma and Subirana

System variable evolution

© Sarma and Subirana

Initial Pilot

© Sarma and Subirana

Slap & Ship

© Sarma and Subirana

RFID enabled DC

© Sarma and Subirana

Adoption cash flow

ROI

Figure 5EPC Event, Vectors and Groups Example

4 Walls – All Cases / Inners (EU)

CPG Retailer Adoption Drives Strategic Planning

20062004 2005 2007© Sarma and Subirana

4-Walls –All Cases / Inners (US)

Auto-Tagging of 100% B&R

at PC

2005 Customer

Implementations

2004 Customer

Pilots

TES/METPilots

(inners)Retailers

Tags

Attachment

Readers

Appliances / Machinery

Infrastructure

Operations

Other Customer

Pilots (cases)

WMT/ DOD(cases)

Top 10 EU30% inners

WMT Pilot(cases)

Top 10 US30% cases

Top 10 US50% cases

WMT/TGT(cases)

Pilot (units)Top 10 EU50% inners

Retailer adoption will drive Auto-ID industry for the foreseeable futureStrongest growth occurs after 2006Retailers will begin to pilot unit tagging in 200x; however, cases/inners will still be primary focus

Retailer adoption will drive Auto-ID industry for the foreseeable futureStrongest growth occurs after 2006Retailers will begin to pilot unit tagging in 200x; however, cases/inners will still be primary focus

ProcessImplementation

Legal

Privacy

Visibility / Coordination

PML

Enterprise Systems

2008

Questions?