RFID chips have the potential to produce huge amounts of information. How will companies recognize valuable data and avoid getting buried by what they don’t need?
Within 10 years, it’s expected that billions of radio-frequency identification chips will be attached to shipping pallets, boxes, and even individual items, each generating a silent “here I am” signal at least three times per second. Those signals will be picked up by 300 million RFID readers located in warehouses, distribution centers, and other facilities worldwide. Some predict that RFID-related traffic could predominate on company networks in as little as five years, particularly in the retail and consumer packaged-goods industries.
Are we ready for this? And what are we going to do with all of the data RFID chips generate? Business-technology managers who are designing and implementing pilot RFID systems deserve kudos for taking the lead on a promising new technology, but alarmingly few of them can answer those questions. If businesses don’t start planning for which technologies they’ll use to collect and manage the data RFID chips and readers generate-or consider whether their supply-chain and warehouse-management applications can scale to handle the additional information-the result could be a chaotic data overload.
Many are taking the first critical step of acknowledging that data-management problems could result from RFID. “Yes, we’re going to have more data, and we’re going to have scalability problems in our industry,” admits Tony Scott, chief technology officer at General Motors Corp. “We have a long way to go here.”
GM uses RFID to track carriers that move auto chassis and materials around assembly plants. Eventually, assuming the price of RFID chips drops substantially and RFID data standards are forthcoming from the Automotive Industry Action Group, a consortium of car-parts manufacturers, GM may use RFID to track inventories of individual parts, Scott says. And rewritable RFID chips at some point could be built into cars to maintain vehicle-maintenance histories, he adds.
The potential for data overload may be years away, but the foundation is being laid today. Kara Romanow, an analyst at AMR Research, predicts that many of the early RFID systems that Wal-Mart Stores Inc.’s top 100 suppliers are building to comply with the retailer’s demand that they have RFID on pallet shipments by January will have to be ripped out one or two years later. Their architectures will be too limited to handle future RFID applications, she says.
Shortsightedness also creates the potential that companies won’t take advantage of what could be valuable information. Consumer packaged-goods manufacturers expect that better data generated by RFID systems in the supply chain will help them predict demand for products as never before. But before that can happen, they’ll have to make some implementation decisions about technologies, such as the middleware that manages the readers, filters the supply-chain data RFID tags generate, and passes relevant information to the supply-chain and warehouse-management applications that act on that data.
If technology advances to the point that RFID tags are coupled with sensors that record temperature, motion, light, or other data, the amount and value of the information collected will increase dramatically. That could create scalability problems for operational applications, similar to what many companies experienced in the 1990s when they implemented first-generation systems for enterprise resource planning. GM’s Scott foresees challenges in developing business-process workflows between RFID systems and business applications and with data archiving.
He isn’t the only business-technology executive thinking about the risks of data overload. “Yes, it’s possible, maybe even probable,” says Barry Sommerville, VP of IT at drugmaker Pfizer Inc. Pfizer, like other pharmaceutical manufacturers, is exploring the potential of using RFID to closely track drug shipments to combat the rising problem of counterfeit drugs.
RFID chips have the potential to produce huge amounts of information. How will companies recognize valuable data and avoid getting buried by what they don’t need?
The reason most IT executives don’t have detailed plans to tackle the data volume is that RFID technology only recently was considered feasible for widespread supply-chain use. And much of the technology for managing RFID data is in early stages of development, forcing companies to design RFID architectures on shifting sands. With the technology still evolving, it’s unclear just what end-to-end RFID networks will look like and difficult to understand how RFID-generated data can be used, says Forrester Research analyst Christine Overby. “This is literally changing week to week.”
Many technology vendors see great sales opportunities in RFID and are writing software to meet companies’ challenges. Startups such as ConnecTerra Inc. and established vendors such as Sun Microsystems are building middleware based on standard specifications for RFID, and SAP last month debuted middleware products for linking RFID readers to back-end applications and monitoring business-process exceptions. Manhattan Associates, Oracle, Provia Software, and others have fielded new versions of their supply-chain and warehouse-management applications that can work with RFID data. Still, these are all new and untested technologies, and some consultants advise businesses to delay implementation decisions until at least later this year, after companies have built and tested initial RFID pilot systems.
Perhaps more important than the technology, managers will have to set policies on how much data to collect from RFID systems: which signals to record, which to ignore, and which to forward to an operational system or person for action. Such policies could be coded into warehouse- or supply-chain-management applications or some type of business-rules engine or even be built into future generations of “smart” RFID readers, and then enforced by middleware.
“The business rules will be very important,” says Pfizer’s Sommerville. For example, if an RFID chip is coupled with a temperature sensor on a shipment of perishable goods, monitoring middleware can be programmed to ignore constant RFID signals unless the temperature rises above a predetermined level.
Companies need to study how they will summarize and aggregate data generated by RFID chips and readers and move it to middleware and enterprise applications, says analyst Gene Alvarez, technology research services VP at Meta Group. The research firm also recommends that companies create teams of business and technology managers and staff responsible for understanding RFID’s capabilities and limitations as well as for planning how the technology will fit into their business processes.
DHL Worldwide Express Inc. has assembled a group of business and technical managers who work in offices around the world that’s examining how RFID and the data it generates can be used to augment the company’s business, says Michael Bolles, DHL’s industry and customer-innovation manager. The shipping-services company also has a steering committee that’s looking at IT-infrastructure issues associated with RFID, he says. DHL has a number of pilot projects under way and is mulling ways to use collected RFID data to make vendor-managed inventory, warehouse-management, and other services more efficient.
Companies that successfully manage the voluminous data that RFID systems generate may find unexpected value in the data they gather.
Scottish & Newcastle plc began using RFID several years ago to track nearly 2 million beer kegs shipped to distributors, retailers, bars, and restaurants in order to reduce the number lost in transit or not returned by customers. The plan worked, and the U.K. brewer is saving $25 million a year out of what it previously spent to replace lost kegs. The company also came up with new ways to use the information collected from the read-write RFID tags, which record when the kegs are filled, delivered, returned, and washed. Now they’re depending on RFID tags to track product freshness and calculate how much unconsumed beer is returned by customers in exported kegs. This information could result in even greater financial savings: Scottish & Newcastle has asked the U.K. customs department for a refund of export taxes paid on that unconsumed beer. It’s still waiting for a response from the government.
Glover Ferguson, a chief scientist at Accenture, says the consulting firm is working with a railroad company that has outfitted its railcars with RFID chips, global-positioning-system devices, and other sensors. The railroad analyzes the collected data to determine if railcars stand idle for a long time, an indication that they’re being used for storage. The railroad now collects storage fees from customers based on that data.
United Parcel Service Inc. is among the newcomers to RFID trying to anticipate uses for the technology. UPS has several pilot projects under way to track vehicles and equipment. When the technology matures and individual packages can be tagged, UPS will consider adding collected RFID data to its data-warehouse system that’s used to study information about problematic shipments, says John Nallin, an IT VP who oversees the shipping company’s global networks.
There are those who believe a simple answer exists to preventing data overload: the delete key-or at least a policy for deleting unnecessary data or not collecting excess data. Wal-Mart CIO Linda Dillman said last year that the retailer expects to derive value from RFID’s greater efficiency in collecting the same kind of data it does now, rather than collecting more information.
Retail Forward, a retail-strategy research and consulting firm, determined in an often-cited report last year that if Wal-Mart put RFID tags on every item in every one of its stores, then collected every signal emitted by those chips, the recorded data would total 7.7 million terabytes a day. What company, skeptics ask, would even come close to wanting all that data? “I don’t think there are going to be all these massive databases out there with RFID data,” says Joseph Tobolski, director of Accenture’s silent commerce center, which provides RFID consulting services. “There’s a lot of difference between what’s generated and what you keep.”
Currently available technologies can handle the data load, says Higday, VP of E-commerce at Owens & Minor.
Just what and how often data is collected and passed on to operational systems will depend on the specific application. Medical-supplies distributor Owens & Minor Inc. tracks 20,000 orders per day at 32 order-status points in its distribution channels, using bar-code systems and other technology, says Paul Higday, VP of E-commerce. With RFID, Owens & Minor might double the number of those status-point checks, helping the company spot bottlenecks in its distribution systems. While the company’s transactional database is already a half-terabyte in size, Higday believes the system can handle the additional data that an RFID network would generate. “It’s definitely not beyond the state of today’s technology,” he says.
Video-game maker Electronic Arts Inc. has a pilot project to track pallet-level shipments of its products to Wal-Mart and other retailers and distributors. RFID will yield just 10% to 15% more supply-chain-transaction data than the EDI technology the company uses today, CIO Marc West predicts. The pallet tagging will help him get a clearer picture of logistics issues, West says. He has no plans to use RFID to tag individual products.
Even if companies aren’t planning to tag individual items, RFID systems will increase the need for data-synchronization and transformation tools as more data is exchanged between trading partners, says Brian Higgins, global RFID solutions director at IT-services company BearingPoint. And data-quality-management software also will become more crucial. “RFID just moves dirty data more quickly,” he says.
RFID also might create new issues related to data access. Data may have to be segmented based on who needs to see it, such as a shipper who has to view shipping schedules but shouldn’t have access to data about a shipment’s contents, says Jon Chorley, senior development director of Oracle’s inventory and warehouse-management applications.
Businesses may be focused on this year’s RFID pilot project, but if they’re not thinking about what those systems may look like two, three, or even five years out, they may be missing an opportunity. Too many companies, GM’s Scott says, are making the mistake of viewing RFID as if it were only the next generation of bar coding. “They’re still thinking in the old model,” he says. It’s time to think about new models.
— with Tony Kontzer
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