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

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

6. © Humberto Moran 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. © Humberto Moran What are the challenges posed by this integration? 1.RFID-Generated data are dispersed, fragmented, duplicated, inaccurate and lack business meaning 2.Interpretation is context- and information- dependent 3.Interpretation requires sharing inter-organisational information 4.RFID-Generated data might generate business transactions targeting different systems/modules 5.Duplicity of Information and functionality of RFID- enhanced systems and that of existing ERPs 6.Amount of new data is stunning

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

11. © Humberto Moran 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. © Humberto Moran (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. © Humberto Moran RFID-enhanced and non-RFID-enhanced systems must coexist Physical world Information world INTERNET Interface Readers Integrator Non-RFID- enhanced ERP Interface Readers Integrator RFID-enhanced ERP Interface Readers Integrator RFID-enhanced ERP Company A Company C Company B

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

17. © Humberto Moran 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. © Humberto Moran (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. © Humberto Moran RFID-generated information statically relate to many existing ERP entities RFID entities Existing ERP entities Database Present Non-RFID-enhanced information systems RFID entities Existing ERP entities Database Future RFID-enhanced information systems

20. © Humberto Moran 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. © Humberto Moran (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. © Humberto Moran Reach of data/transactions Company ACompany B Physical world

23. © Humberto Moran 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. © Humberto Moran General implications - summary Physical events require special interpretation – use of grammars, AI Information in heterogeneous systems must be combined – interoperability, multi-directionality The integration layer must consider current ERP interoperability standards The integration layer must be holistic – centralised decisions Special considerations are needed to maximise scalability/performance: –Creation of the Physical Business Language –Moving business logic In RFDI-enhanced ERP, outsourcing and use of ASP should be reconsidered

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

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

27. © Humberto Moran Remote database with information about physical objects INTERNET Inter- organisational transactions Expectation engine INTERNET Inter- organisational transactions Database with information about physical objects Expected events Alarms Industrial Control Generator BIS Transactions ERP Modules Bespoke Systems Configurable business data / events interface Physical data / status Transactio n interpreter and entity linker Expectatio n engine Aggregatio n / Location engine Location / routing interface Low-level interface with readers GIS RFID/ERP Holistic Integration Layer Detailed Architecture Business world Physical world

28. © Humberto Moran 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

29. © Humberto Moran 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

30. © Humberto Moran Integration of RFID and ERP Challenges and possibilities Questions? Humberto Moran Research Fellow Judge Institute of Management University of CambridgeJune 2004 h.moran@jims.cam.ac.uk