RFID (Radio Frequency Identification) is an innovative technology of automatic object identification (materials, goods, packaging, equipment etc.) by means of radio tags.

Besides tags, RFID infrastructure is composed of the following: an IT solution that reads and processes data and readers that emit radio waves; the readers are composed of an antenna and a radio transmitter with a decoder. RFID connected with an ERP system gives a detailed and available in real time information on where  the tagged object is or where it is being transferred.

Inside the company and in the supply chain

RFID solutions may be used by all members of the supply chain, for manufacturers, distributors and retailers. By investing in RFID one may increase the efficiency of cooperation in the whole chain. That is why all over the world such giants as Walmart or Metro Group decide on RFID. As is common with EDI (electronic data interchange) solutions, they convince their suppliers to implement RFID, those in turn encourage theirs etc.

RFID technology opens, however, huge possibilities of innovation inside large companies of complex logistic processes. The more complicated the processes, the more can be gained by a company that decides to implement RFID.

RFID advantages in companies are increased when:

  • the range of goods is large (many indexes)
  • locations are scattered (outlets in various places or plants of large areas)
  • there are many places of storage (physical warehouses and  types of warehouses)
  • frequent warehouse movements take place (quick rotation of materials/products/packaging)
  • unit value of materials/products/packaging is high
  • there are many levels of registered packaging (eg. piece/package/pallet)
  • product quality control plays an important role
  • there are frequent material movements
  • additional information is required (eg. in food industry: expiry dates; in pharmaceuticals: strict identification of goods batches)

RFID can handle – both in the supply chain and inside the company – first of all multiple-use elements such as pallets, returnable plastic/metal containers, kegs, reels, gas bottles. These can also be vehicles, fork lift trolleys, tractors, equipment and even livestock. Hence the possibility to use RFID also in managing the company’s fixed assets.

Controlling objects through tags

The above mentioned objects may be controlled thanks to tags, miniature chips, placed in a form of labels on products, packaging or devices. Tags have many advantages over bar codes and other information carriers.

Tags include address (reference) to a database of the producer/distributor; in the IT system all data concerning the labeled objects are stored and updated. Tags help monitor as closely as possible the objects of interest, even during their whole life cycle, also further away in the supply chain. The cost of radio tags, if they are constantly used, pays off quickly, thanks to unlimited possibilities of changing data in the IT system.

Tags advantages over bar codes

Among the most important advantages of tags, which give many more possibilities than bar codes, are the following:

  • More information about products. A bar code stores limited and static information about products. Radio tags, unlike bar codes, have an address (EPC code) to a database. The amount of information on the product stored is limited only by the size of the database. Product data may be dynamic, as the company may change them in its IT system (eg. data on the current location of a product).
  • The possibility to use the same tags in the whole supply chain. With bar codes the data included are not used in further elements of the chain, because a bar code is made in a different standard. EPC (Electronic Product Code), developed by EPCglobal organization, is a commonly acknowledged standard for communication with the use of RFID, so radio tags may be used by all elements of the supply chain.
  • Quicker and easier reading. Radio tags may be read without moving goods closer to the reader, because the range of radio waves for some passive tags is up to to ten meters. Through the use of advanced anti-collision algorithms many tags can be read at the same time, eg. the tags on all the goods on one pallet.
  • Security of the product information. Bar code data can be read by anybody with a proper scanner. RFID standard allows to store product data in the IT system, the access to which can be limited to a group of users. Moreover, EPC code that identifies every single product separately is much more difficult to counterfeit  than  bar codes that identify groups of products.
  • The possibility to use in extreme conditions (temperature, humidity, pressure etc.). The tags, which are equipped with additional sensors, can be used to watch environment parameters. Own power supply allows the tags to remember the readings. Thanks to that tags can check if food is stored in proper conditions.

Advantages: from stock to customer service

The quality of tags and the possibility to integrate the RFID solution with the company’s ERP system is a starting point for improving many areas that affect  its competitive edge. Let’s focus on a few examples. Better control of current stock levels. It is not only a convenience for warehouse and supply staff, but also precision in their completion, and  consequently better order execution (sales based on actual stock levels).

Thanks to our suppliers who are using RFID we can closely follow order execution and know what, where and when left the producer’s and is on its way. We can then plan precisely the date of the quality control, for example.

The very stock control on the level of production means from 2 to 8% reduction in costs capital  frozen in stock. In a raw material warehouse the ERP system does not only provide current stock levels information, but it also can point out a particular place of storage and/or a pallet which contains the part looked for by the staff.

Where EDI is used for sending information on outgoing deliveries, RFID allows to generate EDI communications automatically at the moment of completing the dispatch to the customer. This helps save time and resources and strengthens our relation with customers.

An opportunity for RFID to show it qualities is finding a fault in the checked product. RFID allows to react in a few moments after identifying the batch, eg. by blocking it from dispatch to customers, or indicate a faulty batch of raw materials that causes damages.

Costs are reduced both through decreasing stock levels and ensuring cycle of deliveries. By monitoring current stock levels and their fluctuations we can more precisely define reorder points, without creating unnecessary buffers. The control over delivery schedules and consequently decrease of transport costs are an argument in itself. This is a great asset in the hands of purchase or transport department’s employees.

By improving communication in the chain we gain more accurate and current demand analyses which are reflected in more efficient stock policy and production planning.

When we know what is on its way and what is planned for dispatch we can react in time. If a plannist knows that a supplier has not completed all the order, he will account for a lack of a component.  Thus he can change production plan, eliminating stoppages or minimizing their effects.

We obtain better efficiency in customer relations. More stable delivery timetable results in better relationships with customers, which in turn leads in better preparation for possible changes in demand.

A supplier that has stable timetables invests in improving internal processes and not in emergency procedures. Thanks to this he is able to decrease prices for us because he does not have to maintain excess stocks. Lower costs mean for us higher profitability and/or the possibility to increase sales thanks to decreasing prices for customers.

We significantly improve the time of reacting to sudden changes in demand or supply. Lacking awareness of the soon-to-happen shock is already a stage when we can try to protect ourselves only from its consequences. RFID will help us foresee the shock, and consequently reduce related losses.

We manage our assets better. Knowing how we use our resources in time, we can better manager them, minimizing stoppage and maintenance costs. Tags can monitor the use of machines and equipment and other things like containers. When we know that we are not using containers at the moment, we can use them in another process, or clean or repair them.

SAP AII: natural choice

In order to obtain the above-mentioned advantages, we need not only tags, label printers and readers, but also an IT solution that will combine it all in our ERP system, because RFID technology is the so-called middleware, i.e. it requires a connection with an IT system in which we process and handle all data.

For companies using SAP solutions (mySAP Business Suite, mySAP ERP/SAP R/3) a natural choice will be SAP Auto-ID Infrastructure (SAP AII), a component of SAP NetWeaver.

SAP AII ensures integrating SAP solutions with readers and tag printers of the leading manufacturers, based on EPCglobal standards (the above-mentioned EPC code) and PML (Product Markup Language – a XML-based language with which we can create advanced descriptions of products).

Using SAP AII ensures that RFID solution will be:

  • complete – RFID technology provides us with data which we manage in our SAP system, we do not need “alien” additions
  • easy to integrate with IT solutions in supply chain management, warehouse management, plant maintenance, and even personnel management (like passes or time registers)
  • possible to scale – covering new areas with RFID  resembles copy/paste functions: we copy the solution used so far and paste in a new functional area quick – reading a hundred and more tags per second. Which system of bar codes may do better?

As many advantages to gain from RFID concern warehouse management, starting SAP AII most often requires using SAP WM (Warehouse Management) module.

Business processes supported bySAP AII    

AII supports 3 types of basic logistic processes: outbound deliveries (packing materials, loading with external movement), inbound deliveries (unloading with internal movement, unpacking materials) and material movements.

An example of a dispatch process with the use of EPC codes based on a customer’s order may look like presented below (figure on the next page):

  • on the basis of an order in SAP system (mySAP ERP, former SAP R/3) an outbound delivery is created
  • a message with EPC codes that are to be packed for the customer is sent from SAP system to SAP AII
  • SAP AII sends feedback, on the basis of which SAP may connect EPC codes with numbers of HU  (Handling Units)
  • SAP sends confirmation of completing the delivery
  • After the materials have gone out of the gate SAP AII sends information to mySAP ERP, which posts external delivery

Reports

SAP AII offers many SAP Business Warehouse reports which do not require a separate installation of SAP BW warehouse data. Reports of object search help list radio tags and assigned products according to various search criteria.

An EPC code can also be viewed from many perspectives, not only its location, but also using historical data (eg. which stages of dispatch or receipt the product has gone through).

Another group of reports concerns successful transactions of EPC codes recording and reading. Thanks to those reports processes handled with RFID technology may be quickly improved, e.g. by shifting the reader or modifying other settings so that readings and records are as precise as possible.

Structure of communication with SAP AII

SAP AII connects with mySAP ERP through a component of SAP NetWeaver platform, namely SAP Exchange Infrastructure (SAP XI).

Deliveries created in the ERP system are passed as an IDOC message to SAP XI sub-system, and from there in XML format they are sent to SAP AII. AII communicates directly with printers.

In the case of a process initiated by a tag reader, the process is reversed: first messages to SAP AII are generated, then they are filtered and collectively sent to SAP XI. SAP XI makes an IDOC message passed on to SAP system.

There is also another possibility, when SAP AII component is independent. This is useful when a company plans first to replicate delivery data, without adjusting its ERP system to integration with SAP AII yet (the so-called Slap&Chip scenario); or for development purposes. Such way of testing RFID technology helps to prepare well for the future implementation.

Installation of SAP AII as an independent solution enables replication of master data, such as materials, business partners etc., in order to enable simple management of replicating delivery data from ERP system.

When and how to implement RFID?

Where large chain stores, like Walmart, decided to use RFID, their suppliers have been obliged to use that technology in their logistic processes too.

Some of them had started to work on a concept of using radio identification long before they knew about Walmart’s ambitious plans. Thanks to that they knew how to take advantage of its assets. Others had to get to know RFID quickly and implement all the solution. So far in our country there is no such pressure from chains on suppliers. Deciding on RFID implementation is thus an independent company’sdecision.

The innovativeness of the technology is undoubtedly a challenge, but this is also the reason why companies that decide to take it up and thanks to this improve their internal processes, work out a significant edge on less innovative competitors.

Certainly an easier task is faced by companies that use bar codes on a large scale in their internal logistic processes. The structure of master data is already created, only information carrier must be changed, SAP data base expanded by additional information on products, radio infrastructure developed (printers and readers).

It is worth mentioning that creating RFID solutions integrated with SAP requires not only experience with SAP AII component and business knowledge on improving logistic processes with RFID, but also the knowledge on SAP integration technologies such as SAP XI, IDOC, ALE.

As with every innovation, with RFID one can risk to say that ‘first come, first served’. The prize is really tempting: competitive edge resulting from more effective logistic processes.