Every business strives to balance costs, compliance, inventory and service. To succeed, every step must be tracked, every penny accounted for. It means making smarter decisions, optimizing assets and fine-tuning processes. But the payback can be a sleeker operation, greater accountability, and a happier customer. How can technology help? RFID (Radio Frequency ID) may well be the answer. Learn how businesses worldwide are using Oracle technology ranging from Oracle Database 10g Enterprise Edition to Oracle Warehouse Manager and gearing up to meet the challenges of next-generation supply chain management. Says Jeff Richards of Verisign, "If you install a software solution that has been designed around emerging RFID best practices, you can save a lot of time and money."

As Published In November 2005

Tracking for Profits
By Aaron Lazenby

Wal-Mart drove RFID adoption in 2004, but small and midsize companies worldwide are cutting costs and increasing efficiencies.

If you've entered a Wal-Mart and seen doghouse-size plastic igloos stacked neatly on top of each other, you've seen at least a part of Doskocil's business. Creator of the Dogloo and cases for sporting good supplies, the Arlington, Texas-based manufacturer is a supplier to the retail giant. And although that means huge exposure for its products, it also means keeping up with Wal-Mart's supply chain technology requirements, including the introduction of radio frequency identification (RFID).

Wal-Mart set January 2005 as a deadline for its top 100 suppliers to put passive RFID tags on all products shipped to its Dallas/Fort Worth distribution centers. The pilot program was designed to help the retail giant test the technology for tracking inventory, reducing shrinkage (a reduction in inventory primarily due to shoplifting and employee theft), and streamlining its supply chain. In all, Wal-Mart expects to be shipping pallets and cases affixed with passive RFID tags to more than 500 of its stores by the end of 2005, with continued expansion of the program in 2006 and 2007. Smaller suppliers such as Doskocil were not asked to participate in the initial rollout, but Wal-Mart expects them to begin adopting RFID in the near future.

"We're not doing any RFID tagging right now," says Roy Gallagher, director of business systems at Doskocil. "We made a forward-looking purchase to be ready when Wal-Mart calls and says it's our turn. We're just looking to meet its requirements."

Meeting Wal-Mart's requirements fueled RFID adoption in 2004, but other retailers—such as Best Buy, METRO Group, and Target—are also pushing RFID. Add to that demands from the U.S. Department of Defense and the Food and Drug Administration, and RFID adoption in certain industry segments, such as consumer packaged goods, retail, defense, and pharmaceuticals, is almost a foregone conclusion.

Snapshot Doskocil www.petmate.com Location: Arlington, Texas Annual revenue: US$176 million Number of employees: 925+ Oracle products and services: Oracle E-Business Suite 11i, Oracle9i Database Partner: ClearOrbit R4 Global Solutions (a VeriSign company) www.verisign.com Number of employees: 3,500 Noel www.noel.com.co Location: Medellín, Colombia Annual revenue: US$200 million Number of employees: 1,000 Oracle products and services: Oracle Database 10g, Oracle Application Server 10g, Oracle Sensor Edge Server, Oracle E-Business Suite 11i.10, Oracle BPEL Process Manager, Oracle Process Manufacturing, Oracle Inventory, Oracle Discoverer, Oracle Business Intelligence 10g, Oracle Warehouse Management Partners: GS1 Colombia, Tyco, Paxar, Loftware Dolomiti Superski www.dolomitisuperski.com Location: Dolomite Mountains, Italy Annual revenue: €250 million Number of employees: 3,000+ Oracle products and services: Oracle9i Database Enterprise Edition, Oracle9i Application Server, Oracle Business Intelligence Discoverer Partners: CAP S.p.A., and University of Padua physics department

According to Jeff Richards, CEO of San Francisco's R4 Global Solutions (recently acquired by VeriSign), many smaller companies that need RFID just to meet the supply chain technology needs of their major customers will look at meeting those requirements as their main goal, without necessarily considering the potential gains of a broader view of RFID. This approach has characterized many of the first-generation RFID systems, but Richards—whose company has overseen more than 30 RFID implementations for major global companies—believes that a more thoughtful approach to RFID implementations is evolving from the technology's early-adoption phase. For example, many large companies are doing more of their strategic work prior to implementation to ensure return on their RFID investment. Additionally, maturing technology and a growing catalog of best practices are pushing their RFID projects to another level.

Advancing Technology

A recent META Group report found that by 2009, RFID-enabled enterprises will place RFID tags on more than 70 percent of their physical assets. Accenture, a management consulting and technology services enterprise, also found that most large companies are expecting RFID to replace bar codes as the standard way to track inventory in the supply chain (see "RFID and the Next-Generation Supply Chain"). Why, four decades after it was invented, is RFID one of the driving forces behind a supply chain revolution?

Says Richards, "The functionality, the technology, and the price have evolved to a point where it's becoming a viable technology for many areas beyond retailer compliance," such as shortening product delivery time, reducing inventory on hand, and eliminating supply chain inefficiencies. "This is what you need in order to get wider adoption."

A new standard put forth by EPCglobal—the organization driving the creation and adoption of RFID standards—called Class One, Generation Two (Gen 2) is making hardware interoperability a reality, by setting a single, global standard protocol for data transfer and enabling the use of tags storing both simple and complex collections of data in regulatory environments worldwide.

This means that high-powered Gen 2 readers in China would be able to read RFID tags attached to items sent from a Gen 2-enabled enterprise in France without extra integration effort. The data stored in the Chinese IT system could be passed back to the French enterprise, providing an extended view of the supply chain for both parties. In theory, Gen 2 makes global RFID-powered supply chains a plug-and-play effort.

Additionally, the decrease in the cost of RFID tags is helping advance RFID's adoption. The ARC Advisory Group found that in 2003 the price range of passive tags (common tags that have no power source and no transmitter) was US$0.57 to US$0.91. But current price quotes from five of the industry's leading tag manufacturers show the prices of passive RFID tags hovering between US$0.17 and US$0.21, depending on volume discounts. Although the next generation of RFID tags will be more expensive, the trend is for tags to cost less over time. Cheaper tags mean that fewer enterprises will balk at the investment in an RFID system, because it should reduce the time needed for companies to see a return on that investment. It will also allow enterprises to tag more items and get a better view of their supply chain.

Also, investments made by enterprise-class software providers are delivering industrial-strength RFID software solutions that connect with existing ERP systems. Smaller vendors that created one-off solutions to meet compliance deadlines are being marginalized. "The software to accompany the implementation of RFID has obviously gotten much better, and Oracle has become part of the equation," says Richards. "Two years ago, it was primarily small startup companies that were providing RFID software. Now we've got enterprise-class software providers that can drive interoperability with legacy systems, which has been a big boost for enterprise customers."

Putting RFID to the Test

Technology is helping one company tackle compliance head-on. Colombia-based bakery Noel, a Wal-Mart supplier, launched a pilot program in mid-2005 to test an RFID system. As one of the largest consumer packaged goods enterprises in the Andean region, it understood that it would be no small task.

"We know that RFID has the potential to totally transform our operations," says Director of Supply Chain and Logistics Pedro Blanco. "But Noel has always been a company that embraces technology, even though our business is more than a century old. We wanted to embrace RFID on our own terms and be ready to comply with our customers' requirements."

Blanco led a test of RFID. Working with the technology consulting firm GS1 Colombia, Noel selected Oracle Warehouse Management as the backbone of the pilot program to connect the printers that generate the RFID tags, the readers that collect the RFID information, and an ERP system that will manage the data. Blanco chose one of the company's most popular products—Ducales cookies—to track through the supply chain process. At various points, passive RFID tags on the pallets were read to capture critical information such as lot number and expiration date. With this information, Noel could track its shipments of Ducales from the production room floor to any of the company's distribution centers.

As the pallets were prepared for final customer delivery, the information was read again and associated with a sales order in the Oracle ERP system. Now Noel knew not only where the products were but also who had bought them and when they were shipped to the customer. And after one month of testing, Blanco can clearly see the benefits a full-blown RFID system will bring to his organization.

"This kind of information tracking is critical," says Blanco, "in terms not only of compliance but also of reducing the complexity of our product fulfillment. Today if we have a product recall, we have to sort through physical sales orders to find out where our products were sent. With the RFID system, all that information will be captured automatically."

Creative, Large-Scale Use

In the Alps of northern Italy, the largest ski organization in the world is operating a sprawling RFID system to improve business processes and create a better experience for customers. Dolomiti Superski, a ski resort consortium created in 1974, includes 460 facilities throughout 12 valleys in the Dolomite Mountains. With 1,220 kilometers of ski runs and 138 supporting businesses in the region, the consortium technologists had to plan for a massive system. And they did—installing more than 1,500 RFID readers. The new technology allows skiers to keep their tickets in their jackets instead of removing them and putting them through a reader.

"In 2001 we started looking for a new technology to give customers more-comfortable access to the lifts," says Gianni Rasom, CIO of Dolomiti Superski. "At the time, it was not easy to find the best technology, because there were no clear standards. By 2003 the standards and technology used for access control had matured and were widely adopted."

Consulting with the physics department of the University of Padua and implementation partner CAP S.p.A., Dolomiti Superski chose Oracle9i Database Enterprise Edition, Oracle9i Application Server, and Oracle Business Intelligence Discoverer as the backbone of its RFID system. By 2004, Dolomiti Superski was distributing RFID-enabled ski passes, allowing its customers to access the slopes by walking through gates at the base of the ski lifts. This simplified access to the lifts and also helped staff prevent fraudulent use of season passes by comparing a digital photo of the pass owner—encoded on the pass—to the skier as that person boarded a lift.

Dolomiti Superski collects information at the lift gates and at more than 300 sales points. Information from individual RFID scans is recorded at each point of sale and sent to the data center. That information is sorted by type and associated with a consortium member company. Not only does this help with inventory control but it's also necessary to support the income-sharing model on which the consortium is based.

"We are not just one company; we are 138 different companies. Therefore, all of the income that comes into the data center from the points of sale has to be assigned back to the companies," Rasom points out. "This is not easy. But with the right technology and standards supporting our applications, we were able to test those transmissions into the database, and the system worked really well."

The information Dolomiti Superski collects also allows it to optimize the use of physical assets at the resorts. For example, if the system reports that most of the consortium resort visitors are starting their day at a particular lift, the company can provide additional parking, staff, and products to handle that increase in traffic.

"With the information we receive from the tags, we know if staff—or anything else—is needed to provide better service to skiers. This is our final goal," says Rasom.

The Next Level

Building a flexible RFID system that helps you fine-tune your business practices is essential to implementing a long-term strategy. Isolated, small-scale solutions that do not connect all business data in a central ERP system will be limited as a company grows or as it looks for real business intelligence from RFID.

"Using RFID is one way to connect the physical world and the IT world," says Allyson Fryhoff, vice president of business development for Oracle's voice and wireless products. "To realize the value from your investment on the physical side of an RFID implementation—tags, antennae, readers—you need to think about how you will utilize the information you are collecting. You need to consider your IT infrastructure from the start. If your project is for compliance only, you may want to think about the additional value you would be able to obtain from the project by having access to the identity, location, and movement of asset information within your organization."

For More Information LEARN more about Oracle's RFID solutions

That mind-set is not lost on Doskocil's Gallagher. Although the company is focused largely on the day Wal-Mart comes calling, it is also thinking about how to get some return on its compliance investment.

"We knew that the Wal-Mart requirements were coming and were doing an applications upgrade from Oracle E-Business Suite 11.0.3 to Oracle E-Business Suite 11i, so we laid the foundation for our RFID future," says Gallagher. "We're importing more and more-complicated pet products from China. There may be a time when we push RFID into China to get some information back from the Chinese manufacturers when we receive finished goods from overseas. As the technology matures, there are going to be more advantages to expanding the RFID system."

Six Tips for RFID Success If wide-scale RFID adoption is around the corner, how do you take the next step? Here are six tips for exploring the future of RFID: 1. Take your time, and formulate a strategy. "The challenge most organizations are facing is choosing a short-term or long-term plan," says Jeff Richards, of VeriSign. Using RFID data has the potential to replace use of bar codes as the standard method for identifying and tracking items in a supply chain. If you don't consider those implications, you may find yourself replacing or significantly upgrading your RFID sooner than you expect. 2. If meeting a customer's RFID requirements is the only thing driving your use of the technology, consider using a third party to apply RFID tags after your products leave your warehouse. This will allow you to comply without having to make a partial, isolated investment in an RFID system; will buy you time to fully consider your approach to the technology; and will ultimately save you time and money. 3. Find an off-the-shelf solution. If you install a software solution that has been designed around emerging RFID best practices, you can save a lot of time and money compared to designing something from scratch . . . 4. . . . but make sure it connects with your existing ERP system. If you create an isolated RFID infrastructure to address a specific business demand such as customer compliance, you won't be getting the added value of business intelligence that comes from combining data from different parts of your organization. 5. Get creative with tag purchases. RFID tag prices have fallen in recent years, but they're still pricey. Consider buying tags in volume to negotiate a better price. If your RFID infrastructure is evolving, consider teaming up with other companies in your supply chain to buy together in volume. 6. Keep it simple. An RFID system will require you to collect more information about your enterprise, but don't get carried away. Don't feel like you have to read a tag 10 times per second, just because you can. Your reporting systems are going to eliminate duplicate data anyway. Look for efficient ways to get what you need in order to limit the new demands on your technology.

RFID and the Next-Generation Supply Chain Accenture associate partner Mike Tompros on supply chain mastery RFID is becoming a mainstream tool for capturing information about products and assets as they move through the supply chain. "As that happens, new levels of visibility, security, accountability, flexibility, and operating performance are sure to follow," explains Mike Tompros, an associate partner and part of Accenture's supply chain management practice. "It is also likely that many supply chain competencies and relationships will soon take dramatic, unexpected turns. RFID, after all, goes where no bar code has gone before." For some time, says Tompros, RFID's progress has been hindered by high costs (particularly in categories in which the cost of tags is high relative to the product cost) and by a lack of technology standards. However, both are ceasing to be major impediments. On the one hand, more commercial applications and simple economies of scale (driven by retailers such as Wal-Mart, METRO Group, and Best Buy) have spearheaded a reduction in RFID costs. And on the standardization front, EPCglobal (a consortium of RFID leaders and large companies) recently finalized a second-generation electronic product code (EPC) that should become the global standard for RFID product classification. When this happens, RFID will quickly gather momentum and eventually replace bar codes as the primary means of product identification. Survey Says The next big question therefore is, How—and how well—are companies positioned to leverage the vast benefits RFID has to offer? To find out, Accenture conducted a survey of 80 of the largest suppliers affected by the big retailers' decisions to require RFID tags on most incoming cases and pallets by 2005. According to Tompros, most survey respondents indicated that they still consider RFID a technology to replace bar codes. This puts RFID in what Stanford University Professor of Management Science and Engineering Hau Lee refers to as the "substitution phase," when the general focus is on short-term benefits and trying to comply with mandates of giant retailers.