Integration of RFID and ERP Challenges and possibilities Humberto Moran Research Fellow Judge Institute of Management University of Cambridge June 2004.

Integration of RFID and ERPChallenges and possibilities

Humberto MoranResearch FellowJudge Institute of ManagementUniversity of Cambridge June [email protected]

© Humberto Moran

© Humberto Moran

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

© Humberto Moran

What is RFID? – an innovation

Degree of coupling with environment

Low/ Passive

High/ Active

Dep

th o

f the

impa

ct

Support of operational processesLow

High

Support of business processes

Generation of new business models

Restructuring of the supply chain

Reshape the consumer experience

Transformation of society (lifestyle)

Barcode substituteTool for

automation

Mass customizatio

n enabler

Data gathering

deviceProductivity tool

Extension of information

systems

Building block of a modern supply

network

Physical extension of the Internet

Supply chain productivity

tool

Intelligent interoperable

products

Labo

r su

bstit

utio

n to

olT

echn

olog

y as

pr

oduc

tion

netw

ork

Way of increasing

product quality

Manufacturing tool

Way of developing

new products

Information processing tool

Productivity tool

Technology as perception

Tec

hnol

ogy

as

embe

dded

sys

tem

© 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 ??

© 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

ER

P an

d related

Sales and marketing

Business intelligence

?

Physical meaning

Business meaning

Information about

physical objects

© 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

© 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

© 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

© 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.)

© 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

ReadersThe 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 EPC EPC EPC EPC EPC ? EPCReader 1

EPC EPC ? EPC EPC EPC EPC EPCReader 2

o

o

o

o o o o

Data comes fragmented and dispersed

There is a need for location and aggregation information

Some transactions are duplicated

© 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

© 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

© Humberto Moran

RFID-enhanced and non-RFID-enhanced systems must coexist

Physical world

Information world

INTERNETINTERNET

Interface

Readers

Integrator

Non-RFID-enhanced ERP

Interface

Readers

Integrator

RFID-enhanced ERP

Interface

Readers

Integrator

RFID-enhanced ERP

Company A Company CCompany B

© 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

© 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

© 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 systems SCM 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

© 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!)

© 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

© Humberto Moran

RFID-generated information statically relate to many existing ERP entities

RFID entitiesExisting ERP

entities

Database

Present

Non-RFID-enhanced information systems

RFID entitiesExisting ERP

entities

Database

Future

RFID-enhanced information systems

© 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”

© 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

© Humberto Moran

Reach of data/transactions

Company A Company B

Physical world

© 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

© Humberto Moran

Integrationlayer

Holistic integration layer

Physical world

Information world

Low-level interface

Readers

Inventory

Logistics and distribution

Financial

Information S

ystems

Sales and marketing

INTERNET

Physical meaning

Business meaning

BI + AID functionality

Manufacturing + AID functionality

X

Logistics and Ds + AID functionality

© 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 ModulesBespoke Systems

  Intelligent  Comprehensive  Automatic, reliable, transparent

Mobile business logic  Programmable and configurable  Distributed processing

© Humberto Moran

Remote database with information about physical

objectsINTERNET

Inter-organisational transactions

Expectation engine

INTERNET

Inter-organisational transactions

Database with information about physical objects

Expected events

Alarms

Industrial Control Generator

BIS Transactions

ERP ModulesBespoke Systems

Configurable business

data / events interface

Physical data / status

Transaction

interpreter and entity

linker

Expectation engine

Aggregation /

Location engine

Location / routing

interface

Low-level interface with readers

GIS

RFID/ERP Holistic Integration LayerDetailed Architecture

Business world

Physical world

© 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

© 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

© Humberto Moran

Integration of RFID and ERPChallenges and possibilities

Questions?

Humberto MoranResearch FellowJudge Institute of ManagementUniversity of Cambridge June

[email protected]