RFID to Enable Outside-In Supply Chain Management

AMR Research analyst John Fontanella argues in this guest column that RFID will enable enterprises to orient processes around the objects which they produce. This will result in more accommodating, flexible processes, and a departure from the current practice of doggedly striving for fixed, standardized processes.
Published: April 30, 2007

This article was originally published by RFID Update.

April 30, 2007—If not for friends in high places, Galileo would have been burned at the stake for asserting that the sun, not the earth, was the center of what we now call the solar system. While I hope the penalty won’t be as severe in my case, let me advance my own bit of heretical thinking.

Standard business processes are not the center of the enterprise solar system, nor should they be made to be. In most cases the term is an oxymoron. Too many exceptions and workarounds exist to enable true standardization of processes, ones that we could hardcode to software and execute the same way in every instance with no deviations.

We’d be a lot better off if we focused on creating unique workflows clustered around meeting a common goal, such as delivering products according to what, how, and when an individual customer wants it. Call it the Outside-In approach to Supply Chain Management, where processes influenced by external change can be constantly adjusted to maintain very high rates of performance regardless of the rate of that change or its severity. In the past, technology limitations and the belief that flexibility equaled greater expense and loss of control led us to the false hope that business processes could be standardized. It does not have to be the case today. Service Oriented Architecture (SOA) allows for much improved integration and process transparency. Business Process Management (BPM) technology gives us the flexibility to accommodate differences in how we execute in our operations. Finally, the ability to serialize an object and assign it a unique identity through technologies like RFID revolutionizes the way we think about business processes.

As I write this I am attending SAP’s SAPPHIRE ’07. In my conversation with Krish Mantripragada, head of Solution Management for RFID and the Supply Chain, he told me that SAP’s current and future development initiatives of its supply chain applications and underlying technology will concentrate on managing, controlling, and adjusting process flows to accommodate the requirements of individual objects. This, he believes, is now the core capability around which all development will revolve. Sound too abstract? Let’s look at a concrete example.

California requires that by January 1, 2009, changes in ownership of prescription drugs be tracked using a unique serial number as they move through the supply chain, from manufacturer through wholesaler and on to the pharmacy or healthcare organization. The spirit (if not the letter) of the law says that tracking must be done at the saleable level, and movement must be visible to the entire supply chain. Once enacted, it is likely that e-pedigree will be introduced in phases extending out several years, and that processes will be built around the requirements of specific drugs and the conditions under which they are sold. With the use of RFID and barcoding, we will see unique workflows be put in place to accommodate varying security levels and ultimately inventory management across the entire supply chain.

Krish and I also discussed the Object Event Repository (OER) that the company announced several weeks ago. SAP’s introduction of its OER and the new processes it enables, such as product tracking and authentication services aimed at industries like pharmaceutical, aerospace and defense, automotive, and high value CPG represents a significant step in the evolution of RFID for the company’s users. Companies have been waiting for their enterprise software vendors to build applications and analytical tools that can take advantage of the unique value RFID provides. SAP is taking that one step further by providing a technical infrastructure that leverages the existing technology of its customers. In addition to tackling regulatory compliance issues, it will also open up a wealth of information to help companies validate product sources, better respond to supply chain events, or even offer value-added services to customers.

This is just the beginning of a phase of application and platform development where objects — not the dogged insistence to follow a standard process — will result in new and innovative ways to take advantage of the unique capabilities RFID enables. For companies looking to differentiate through RFID, the development of data repositories, data management tools, and applications oriented around the object is the area to watch over the next year.