Learning to track ROI

In May 2007, Wagon Automotive discovered a serious compliance problem. An audit showed that the New Hudson, Mich.-based supplier of structural components to Ford Motor Company wasn't meeting one of the 35 “critical” requirements of the Materials Management Operations Guidelines and Logistics Evaluation standard that Ford insists its suppliers meet.

By Malcolm Wheatley, contributing editor September 1, 2008

In May 2007, Wagon Automotive discovered a serious compliance problem. An audit showed that the New Hudson, Mich.-based supplier of structural components to Ford Motor Company wasn’t meeting one of the 35 “critical” requirements of the Materials Management Operations Guidelines and Logistics Evaluation standard that Ford insists its suppliers meet.

For Wagon Automotive, the failure was not having an automated process for enterprisewide access to serial numbers for every component it produced. That kind of access wasn’t possible because Wagon Automotive was operating on a legacy ERP system with no connections to its data collection systems or EDI applications.

Metro Group, Europe’s third-largest retailer, tested the use of RFID at six read points stretching from a manufacturer’s distribution

This isn’t unusual. While there’s been a surge in adoption of technology for tracking the movement of materials and components across plant floors and warehouses, few manufacturers have taken steps to share that information throughout the broader supply chain. As Wagon Automotive discovered, there are benefits to this widespread data sharing that go beyond simply complying with customer or industry mandates.

After migrating to a new enterprise application suite from QAD , Wagon Automotive was able to tie the data embedded on bar codes and within EDI messages into a single data-sharing process that required little manual intervention and fulfilled all the requirements of the Ford-mandated materials management standard. This process also gave Wagon Automotive a better view of its inventory, allowing it to cut the amount kept on hand by 26 percent. And because its lot-level traceability is so precise, it can easily identify the specific lots and restrict any corrective actions to those lots if necessary.

Visionary thinkers

“Tracking and tracing used to be all about complying with company-specific mandates,” observes Andres Botero, a director with enterprise systems supplier SAP . “Those programs allowed manufacturers to maintain important trading relationships, but no real ROI.”

That’s why, says Botero, a select few “visionaries” started looking closer at their compliance programs and found they were able to identify “dwell time at bottlenecks, and point-to-point transit times,” he says.

Western Digital , a Lake Forest, Calif.-based disk drive manufacturer, enhanced its reputation for high quality after adopting an extensive track & trace program.

“We can go upwards from the individual location on the original silicon wafer all the way to the disk drive head, capturing 2,000 production item-specific parameters in the process; and from the assembled disk drive to the pallet, and out into the supply chain,” says Ross Gough, director of data warehousing and business intelligence. When that data is combined with product testing and after-sales service reports from the field, Western Digital has a clear handle on any potential quality-related issues.

Maintaining that edge requires new investments in technology, which is why Western Digital has a policy of keeping disk drive test data for one year and all traceability data for three years.

Because of the amount of detailed data it is collecting, the company recently was forced to upgrade the storage capacity in its Teradata data warehouse from 7 terabytes to 18 terabytes—an amount Gough says should last three years.

Toulouse, France-based Airbus Industrie is another manufacturer employing track & trace technology to do more than merely answer locate parts. The manufacturer attaches RFID tags to all of the tools and ground support equipment it makes available to customers for airframe modification programs, post-incident repairs, and periodic checks.

In addition to basic information that identifies each tool or piece of equipment, the RFID tags carry a wealth of useful information, such as the date a tool was made, or the time it was last calibrated. It’s all stored in Airbus’ SAP ERP system, where it can be disseminated across the enterprise via XML messages.

While Wagon Automotive, Western Digital, and Airbus are wringing ROI from track & trace programs, industry experts believe there is much greater value embedded in the bar codes, RFID tags, and other tracking technologies that manufacturers are deploying.

That because companies are still primarily sharing track & trace data within relatively controlled environments. More broadly based initiatives that would spread data into wider networks of customers and suppliers could provide even greater value. But enacting such programs requires more than new technology—it also requires strategic thinking.

“RFID and bar coding are a means to an end, and what companies need to focus on is what that end actually is,” says Jennifer Sherman, a senior director of application strategies at Oracle. “You have to start with the problem that you’re trying to solve, otherwise all you’ve got is a technology looking for a use.”

Supply chain shift

“Companies have to realize
that systems and standardization matter just as much as technologies.”

—Ronald Teijken, manufacturing industry executive,
Sterling Commerce

Ronald Teijken, manufacturing industry executive with Sterling Commerce, says companies need to be thorough in selecting systems to transmit data throughout a supply chain.

“In terms of creating supply chain visibility, RFID and other serialization technologies are certainly important,” he says, “but companies have to realize that systems and standardization matter just as much.”

Julien Bourdiniere, a senior manager with global supply chain consultancy Kurt Salmon Associates, says recent projects executed in Europe point the right way to go in gaining ROI from track & trace technology.

Bourdiniere points specifically to a pilot program spearheaded by Metro Group , Europe’s third-largest retailer. The project, which included such large consumer goods manufacturers as Kimberly-Clark, Procter & Gamble, and Unilever—sought to test the use of RFID at six read points located along the supply chain, stretching from the manufacturer’s distribution center to the retailer’s warehouse or distribution, and out into the retail outlet itself.

Project outcome: Both retailers and manufacturers could benefit from RFID data sharing in the form of improved supply chain efficiency and greater on-shelf availability. The caveat: Process changes were required to make the most of these benefits.

Standards for improvement

Specifically, says Bourdiniere, the trial showed the importance of an emerging RFID data-sharing standard from GS1, a global not-for-profit standards body.

The standard—known as EPC Information Services, or EPCIS, published in April 2007—governs the sharing of electronic product code-related information between trading partners.

“Open standards make an enormous difference to the meaningful exchange of electronic product code data,” stresses Bourdiniere. “By defining which data is to be shared, and how, EPCIS becomes a common language for communication.”

At its simplest, EPCIS can be viewed as a repository of event-based data, says David Lyon, a London-based EPCglobal business manager for GS1.

“We already have GS1 standards that define how electronic product codes and RFID technology interacts. EPCIS now describes the flow of those products through the supply chain, as captured by RFID readers,” Lyon explains.

Despite clear supply chain benefits says SAP’s Botero, live implementations of EPCIS are a relative rarity. “The roadblock used to be the technology, and the lack of standards, but that’s not the case any more,” he observes. “EPCIS communication is taking place, albeit at the conference room demonstration level.”

Yet the real benefit of EPCIS isn’t that it defines how data is to be shared. Instead, it’s what that definition implies for process improvement, with an EPCIS-compliant process automatically constituting recognized and agreed best practices, promulgated through an open standard.

“EPCIS will help to enormously in extending the visibility of track and trace data along the supply chain—even through multiple links—because at a stroke it’s delivering consistency of definition and consistency of process,” says Greg Edds, an RFID program lead with Hewlett-Packard , which is studying the role that EPCIS can play in its own operations.

RFID tags in use by Airbus Industrie carry a wealth of useful information about specialist tools and support equipment that also is stored in Airbus’ SAP ERP system, where it can be disseminated across the enterprise via XML messages.

But to companies that don’t yet exchange much item-level traceability information, the culture shock of an EPCIS world may be considerable. For instance, ON Semiconductor , an 11,000-employee company based in Phoenix, is hardly a technological backwater. It actively exchanges order information electronically with customers. Some 80 percent of the company’s revenues arrive as orders through the company’s Inovis-powered B2B EDI network, notes CIO Dave Wagner. Yet sharing bar code-based data or RFID data outside the enterprise doesn’t happen.

“It’s not something we’ve spent much time looking at, simply because no one is asking for it,” says Wagner.

Wagner does acknowledge that companies in other industries appear to be keenly interested in exchanging item-level data, citing a recent Inovis user conference where the topic was very much on attendees’ minds.

“I was talking to fellow Inovis customers from the world of retail, and the language was very much one of common processes, common definitions, and common item masters,” he says. “I thought: ‘Wow, that doesn’t sound anything like our business.’”

“EPCIS now describes the flow of products through the supply chain, as captured by RFID readers.”

—David Lyon, business manager, GS1

It appears that EPCIS—or whatever becomes the eventual common language for exchanging track & trace data—will start off as very much a binary phenomenon. Companies, and their supply chains partners, will either do it, or they won’t.

And the irony here is that the wheel has come full circle. RFID spent years as a solution looking for a problem. With the problem now defined as data exchange, will it be years before companies are ready to adopt the technology and standards that allow them to solve that problem?