RFID Chips - The greatest driver of change that will determine the success of a supply chain in today and tomorrow

By Scott Ferguson,2014-01-11 01:58
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RFID Chips - The greatest driver of change that will determine the success of a supply chain in today and tomorrow

     To be able to make an educated guess as to where SAP‟s SCM solution is headed, it is important to acknowledge the shift in the belief of how supply chains should handle supply and demand, as well as to examine important new technologies that will transform the supply chain along with the software that manages it. The greatest driver of change that will determine the success of a supply chain in today and tomorrow‟s marketplace is

    the increased emphasis on viewing the front-end of the supply chain as just as vital as the

    1back-end. This change in ideology from a “push” system of supplying product to customers to a “pull” system has been a recent development in how businesses will begin

    2to view the supply chain.

    The shift from supply-driven to demand-driven supply chains can largely be attributed to the accessibility of information on products and services consumers never had before. The internet and e-commerce has brought about a new awareness on the part

    3of the consumer. Consumers can now compare products based on price, peer evaluations and most importantly on the value-added services that come with the product, such as

    4service and support. Not only do customers wish to find the best value when searching for products, they also wish to find products that best suit their needs. As customers become more and more picky, supply chains will have to be able to adapt from a mass

    5production operation to a mass customization operation.

     AMR Research defines the next-generation supply chain capable of handling demand-driven markets as a demand-driven supply network or “DDSN”. The definition

    of a DDSN is “...a system of coordinated technologies and processes that senses and reacts to real-time demand signals across a network of customers, suppliers, and

    6employees”. For supply chains to transform into demand-driven supply networks all

    supply chain partners must have shared access to accurate information at all times and

    6have the ability to coordinate work among all of the partners. In addition to this, supply

    chains must adhere to the three A‟s, agility, adaptability and alignment, to be successful. Supply chains must be able to “…react speedily to sudden changes in demand or

    supply…”,” …adapt over time as market strategies evolve…” and “…align the interests of all the firms in the supply network so that companies optimize the chain‟s performance

    7when they maximize their interests…”.

    As supply chains evolve into DDSNs, the software that powers the information sharing between entities will also need to adapt. SAP lists three technological innovations that will change how their software will be able to help companies to adapt now and in

    8the future. The first is radio frequency identification (RFID).

    7RFID technology lends itself to making the DDSN and “triple-a supply chain”

    possible by increasing the visibility of assets in the supply chain, improving the accuracy of information available to supply chain partners and expediting material and information flow through the supply chain. Two major players are driving the adoption of RFID technology in the supply chain, Wal-Mart and the Department of Defense. Both entities are pushing their top suppliers to adopt RFID technology at the pallet and case level by January of 2005. SAP already offers an RFID solution and is currently working with 90

    9of Wal-Mart‟s top suppliers to integrate RFID at the pallet and case level.

    So what does the future hold for RFID in SAP‟s solution? As of right now, RFID technology is only being used at the pallet and case level. The opportunity exists for RFID to be applied to individual items and store purchase cards, which opens up entirely new possibilities in marketing, inventory management and demand management.

    Whether or not RFID is applied at the consumer level depends on how consumers feel

    10about the technology, the main concern is privacy.

    Should RFID be adopted at the consumer level, SAP‟s solution would have to adapt to the enormous amount of new data, however, the ability to do so could result in complete visibility of a product and materials through the supply chain. The sale of a digital camera at Wal-Mart could trigger the shipment of raw materials to a supplier in India where it would be partially assembled and sent to the manufacturer where it would be fully assembled, packaged and shipped. All of this information would be available in real-time and could possibly all but eliminate stock-outs, excess inventory and potentially even warehouses in the traditional sense.

    The autonomy that RFID has the possibility to provide would not be possible without the advancement in another area of technology that SAP lists as having the ability to create an adaptive supply chain network. Intelligent software agents are “…packets of simple software capable of sensing the local environment, autonomously

    executing delegated tasks, and communicating results to designated entities, which could

    8be human users, agents, applications or, business workflows…”.

     Agents also have the potential to “learn, experiment, and act independent of

    11human control”. Autonomous agents have myriad applications in the supply chain, but perhaps the most interesting is the possibility of agents having the ability to negotiate with other agents. In a competition at the Third International Joint Conference on

    Autonomous Agents & Multi-Agent Systems‟ at Columbia University, autonomous

    agents took on the role of factory managers, managing inventories, negotiating with

    11suppliers and buyers and making other various decisions.

    Proctor and Gamble, a client of SAP‟s has already made plans by 2008 to shorten

    the time from when a box of Tide is produced to when it is restocked on the shelf from four months to one day. This would be made possible by intelligent autonomous agents, making decisions based on cost, capacity, speed, climate, demand and many other factors. According to Christian Knoll, vice president of Global Supply Chain Management, SAP already has a prototype agent that can predict the probability of stock-outs, and when a

    12certain level is reached trigger a replenishment signal for the product. While

    autonomous agents are not yet ready to take on the task of automating a supply chain, it is expected that major software providers such as SAP and IBM will have agent-based

     12supply chain optimization packages available within a couple of years.

    At this point in time it would appear that the evolution of artificial intelligence is boundless, and for this reason, intelligent agents having the ability to transform a supply chain into an autonomous entity is a very real possibility. The combination of intelligent agents, real-time information gathered by RFID and application software supplied by corporations like SAP will undoubtedly have enormous and unimaginable effects on how the management of supply and demand is accomplished. But just how could autonomous agents and RFID change the SAP SCM solution? The authors of this paper have some suggestions that are shared below.

    - Increase in visibility and accuracy of information due to RFID allows

    agents to make intelligent decisions.

    - Agents would be able to know that a new product is in the works that

    could eclipse an older model. Triggering slowing production and sales

    promotions for the older product as well as planning production for the

    new product. As a result human input foe new items is reduced to a more

    observation based approach.

    - Agents can learn the surrounding climate around them and adjust for,

    natural disasters, weather, shifts in the economy, social trends, war,

    political issues and season. Human input in the forecasting process no

    longer necessary, the best choice will be made every time and agents‟

    decisions will become more and more optimal the longer they are


    - Real-time tracking by RFID allows the agents to understand where the

    product is in its lifecycle. Demand and Life Cycle planning in SAP SCM

    will no longer be necessary, however, real-time data regarding these

    processes will be available.

    - Simulations and tests in the SCM module are no longer necessary. - Learning agents place less emphasis on historical data for forecasts,

    reducing size of data warehouses in SAP (BW and infocube) as historical

    data becomes less important.


     1 (

    Watch: Seven Supply Chain Concerns for 2004) 2 ( An Ideal Paradigm: The Demand-Driven Economy , 3 (adaptive supply chain networks, white paper) 4 (Five big bold trends in Supply Chain management) 5 (

    6(The demand driven supply network, vinay asgekar) 7 (the triple-a-supply chain) 8 (Adaptive supply chain networks, sap)

    9 (Technology of the supply chain)

     10 (Analysis: The uncertain future of RFID,,39024663,39121091,00.htm) 11 (Agents of change,,10801,95672,00.html) 12 (,10801,77855,00.html)

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