Current State-Of-The-Art Benefits and Challenges of RFID Deployment in Global Supply Chains

C

Fachhochschule für Oekonomie & Management

Master of Business Adinistration (MBA)

Master Thesis

Current State-of-the-Art Benefits and Challenges of RFID Deployment

in Global Supply Chains

Supervisor : Prof. Dr. Soumit Sain

Student : Volker Girrulat

Semester Term : 5

Student ID No. : 174770

Address : 40227 Düsseldorf

Schlägelstr. 3

Essen, 12.02.2009

Executive Summary II

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h Fachochschule für Ökonomie und Management – Univerity of Applied Siences

Executive Summary

Globalization in principle is not a brand new thing at all. By the early middle ages

goods had been transported over long distances already, for instance from China to Eu-

rope, and the main incentive had ever been to trade and gaining profit.

One of the main drivers in contemporary globalization is the economic devide between

the industrialized countries and the newly industrializing countries, like China or India,

taking the labor and production costs into account, which are remarkably lower in the

emerging counties than in the industrialized ones. Therefore many firms from the de-

veloped regions of the world, such as Europe, the U.S. or Japan, are encouraged to off-

shore their production or parts of it to low-cost countries to produce at reasonable costs

on one hand and to be close to raw material sources, as well to remain competitive with

their products in the global markets. Another driver is the opportunity to capitalize on

newly emerging markets as distribution channels for their products, because the living

standard of the people in the newly industrializing countries is considerably growing

and thus, this represents a huge customer potential in the future.

Due to the aforementioned reasons vast material flows driven by demand move across

the globe. These material flows are coordinated through sophisticated supply chain

management methods aiming at delivering the right goods and products to the right

place at the right time for the right customer. On the other hand the supply with raw

materials or spare parts has to be secured. The global supply chains of today are far

away from being sequential ones, nor are they easily manageable. These supply chains

are a matter of highly complex networks where suppliers, manufacturers, service pro-

viders and also the customers are interrelated within. Due to the expansion and the large

number of players involved uncertainty is a daily evil, which can be mitigated or even

eliminated with the right information adapted to the needs. Therefore information

represents an essential corporate resource in those networks and a major competitive

advantage as well. Information throughout the global supply chains is disseminated or

interchanged with various combinations of IT solutions. One future technology which

supports the corporate IT and enables additional information flow is Radio Frequency

Executive Summary III

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Identification Device (RFID), which has to be considered as a steadily information ga-

thering Auto-ID infrastructure approach, where data related to certain physical objects

in the environment of the RFID system is permanently captured by hardware and soft-

ware components and at least transmitted via the internet to any location on the globe.

Hence the global supply chain gets increasingly visible due to enhanced information

quality, because physical objects situated within the current material flow are projected

in IT-systems as their virtual counterparts in real-time. Apart of that RFID is a coordina-

tion technology capable to integrate physical objects virtually, by showing the user

where these objects are in this moment and where they are going, and perhaps at least to

arrange these objects in the future.

Ideally all processes and material flows of a global supply chain are coordinated com-

pletely by RFID and accompanying technologies, which is a long way off however.

This thesis aims at pointing out which kind of processes take place in contemporary

supply chain management, what is RFID technology about and how RFID deployed

efficiently and effectively in today’s global supply chains. A following chapter intro-

duces the latest RFID applications combined with new sensor technologies, whereas

visibility is coupled with sensing capabilities, impeccably demonstrated by a topical

case study where RFID technology combined with sensors had been successfully dep-

loyed.

An analytical part of this thesis discusses the opportunities concerning the achievement

to deploy RFID preferably on highest possible level of diffusion in the supply chain, as

well as depicts possible future scenarios concerning completely RFID diffused global

supply chains in an extrapolation, while taking the actual discussion about the Internet

of Things into consideration as well.

Table of Contents IV

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Table of Contents

Executive Summary ....................................................................................................... II

Table of Contents .......................................................................................................... IV

List of Figures ................................................................................................................ IX

List of Tables ................................................................................................................. XI

Introduction ..................................................................................................................... 1

Background on the Topic ........................................................................................... 1

Research Questions ..................................................................................................... 3

Research Objectives .................................................................................................... 4

Research Relevance .................................................................................................... 4

Research Methodology ............................................................................................... 5

Structure of the Thesis ............................................................................................... 6

1 Supply Chain Management on a Global Scale ..................................................... 7

1.1 Introduction ..................................................................................................... 7

1.2 The Value Chain of the Company ................................................................. 9

1.3 The Global Value-Adding Supply Chain Network .................................... 13

1.4 Principles for Optimal Supply Chain Creation ......................................... 20

1.4.1 Customer Segmentation .............................................................................. 20

1.4.2 Customized Logistics Network ................................................................... 20

1.4.3 The Demand-Driven Supply Chain ............................................................ 21

1.4.4 Product Mass Customization ...................................................................... 24

1.4.5 Strategic Sourcing ....................................................................................... 25

1.4.6 Development of a Supply Chain-Wide Technology Strategy .................... 28

1.4.7 Adoption of Channel-Spanning Key Performance Indicators .................... 30

1.5 Balancing Supply Chain Efficiency and Effectiveness .............................. 32

Table of Contents V

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1.6 Sustainability ................................................................................................. 36

1.6.1 Transparency ............................................................................................... 36

1.6.2 Communication ........................................................................................... 37

1.6.3 Collaboration .............................................................................................. 38

1.7 Visibility ......................................................................................................... 40

1.8 Key Inventory Strategies .............................................................................. 42

1.8.1 Vendor Managed Inventory ........................................................................ 42

1.8.2 Merge-In-Transit ......................................................................................... 43

1.8.3 Postponement .............................................................................................. 43

1.9 Build-To-Order Manufacturing and the Agile Enterpri se ....................... 45

1.10 Supply Chain Risk Management ................................................................. 49

1.10.1 Nature of Supply Chain Risks and Occurring Problems ........................ 49

1.10.2 Emerging Tools and Services for Risk Mitigation ................................. 51

1.11 Global Supply Chain Management Trends 2010 ....................................... 52

1.12 Conclusion ..................................................................................................... 59

2 Auto-ID Systems and RFID Technology ............................................................ 61

2.1 Introduction ................................................................................................... 61

2.2 Information Management ............................................................................ 62

2.2.1 Information as a Corporate Resource ......................................................... 62

2.2.2 Information Requirements and Allocation ................................................. 64

2.2.3 Information Quality .................................................................................... 66

2.3 Basics of a Computerized Delivery Network .............................................. 67

2.3.1 Coordination Theory ................................................................................... 67

2.3.2 Integration as a Means of Coordination ...................................................... 69

2.3.3 Integration of the Real World into the Corporate IT .................................. 73

2.3.4 Real-Time Enterprises through Control Circuit-Based Automation .......... 75

2.4 Auto-ID Systems by Comparison ................................................................ 77

2.4.1 Character-Code-Based Systems .................................................................. 79

2.4.2 Chip-Based Systems ................................................................................... 80

2.4.3 Object-Recognition-Based Systems ........................................................... 80

Table of Contents VI

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2.5 Architecture of RFID Systems ..................................................................... 81

2.5.1 RFID Readers, Antennas and Tags ............................................................. 81

2.5.2 RFID Middleware ....................................................................................... 82

2.5.3 Selection Criteria for RFID Systems .......................................................... 83

2.5.4 The EPC Network as a Global Auto-ID Infrastructure Approach .............. 85

2.6 RFID-Based Ubiquitous Computing ........................................................... 88

2.7 RFID as a Machine-To-Machine Communication Enabler ...................... 89

2.8 Conclusion ..................................................................................................... 91

3 Benefits and Challenges of RFID in the Global Supply Chain ......................... 92

3.1 Introduction ................................................................................................... 92

3.2 RFID Implementation Drivers .................................................................... 93

3.3 RFID as a Technology for Coordination and Integration......................... 95

3.3.1 Development Trends of Integration ............................................................ 96

3.3.2 RFID Contribution for Integration .............................................................. 97

3.3.3 Elimination of Coordination Problems ....................................................... 99

3.4 Process Reengineering and New Business Models ................................... 102

3.4.1 Increased Flexibility ................................................................................. 102

3.4.2 Complexity Management .......................................................................... 103

3.4.3 Collaborations ........................................................................................... 104

3.4.4 Product Services by Means of Individualized Data .................................. 105

3.4.5 Information Management Infrastructure Services .................................... 106

3.5 Impact of RFID on Logistics ...................................................................... 106

3.5.1 New Spheres of Action ............................................................................. 107

3.5.2 Emerging Responsibilities in Global Supply Chain Logistics .................. 109

3.6 Security Issues ............................................................................................. 110

3.7 Privacy Concerns ........................................................................................ 112

3.8 Environmental Issues ................................................................................. 113

3.9 Cost-Benefit Evaluation When Investing in RFID .................................. 114

3.9.1 Cost-Benefit Comparative Method ........................................................... 115

Table of Contents VII

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3.9.2 Total Cost of Ownership Method (TOC) .................................................. 115

3.9.3 Process Cost Accounting .......................................................................... 116

3.9.4 Shareholder Value Tree ............................................................................ 116

3.9.5 Benefit Evaluation .................................................................................... 117

3.9.6 Cost Evaluation ......................................................................................... 118

3.9.7 Evaluation from the Supply Chain Management Perspective .................. 120

3.10 Conclusion ................................................................................................... 122

4 Current Best Practice and Case Study ............................................................. 123

4.1 Introduction ................................................................................................. 123

4.2 Application Fields of RFID Sensors .......................................................... 124

4.3 Realization of RFID Sensor Technology ................................................... 125

4.4 Sensor-Enabled Self-Control in Logistics ................................................. 126

4.5 Boundary Conditions for Sensor Systems ................................................ 127

4.5.1 Sensor Coupling ........................................................................................ 127

4.5.2 Hierarchical Systems ................................................................................ 128

4.6 Future Logistics Requirements .................................................................. 129

4.7 RFID Case Study – Gebrüder Weiss ......................................................... 130

4.8 Conclusion ................................................................................................... 132

5 Analysis and Discussion...................................................................................... 133

5.1 Introduction ................................................................................................. 133

5.2 RFID Diffusion in the Global Supply Chain ............................................ 134

5.2.1 Integration Depth ...................................................................................... 135

5.2.2 Integration Range ...................................................................................... 136

5.2.3 External Factors of Influence .................................................................... 137

5.3 Data Management ....................................................................................... 138

5.4 Strategic Subjects Worth for Discussion .................................................. 138

5.4.1 Actual Information Requirements ............................................................ 138

5.4.2 Verification of the technological Maturity ............................................... 139

5.4.3 Consideration of Standards ....................................................................... 140

Table of Contents VIII

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5.4.4 System Integration .................................................................................... 140

5.4.5 Process Organization ................................................................................ 141

5.4.6 Incremental Steps for Implementation ...................................................... 141

5.5 Extrapolation into the Future .................................................................... 142

5.5.1 The Global Supply Chain virtually projected ........................................... 142

5.5.2 Web 2.0 as an Asset Management Solution ............................................. 143

5.5.3 The Internet of Things .............................................................................. 144

5.6 Conclusion ................................................................................................... 146

6 Conclusion ........................................................................................................... 147

Annex A ....................................................................................................................... 150

Annex B ........................................................................................................................ 153

References .................................................................................................................... 154

Abbreviations .............................................................................................................. 171

ITM Checklist – 360 o Analysis .................................................................................. 175

Declaration .................................................................................................................. 180

List of Figures IX

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List of Figures

Figure 1: The World-Spanning Supply Chain Network ................................................... 8

Figure 2: Determinants of Competitiveness ................................................................... 10

Figure 3: Value Chain of a Company ............................................................................. 11

Figure 4: Representative Value Chain for an Entire Industry ........................................ 13

Figure 5: Impact of Disintegration of Supply Chains ..................................................... 15

Figure 6: Supply Chain Maturity Model: The Path toward on Demand ........................ 23

Figure 7: Material Group Cluster .................................................................................... 26

Figure 8: Core Elements of Supplier Relationship Management ................................... 27

Figure 9: Economic Value Added Tree (Lambert and Pohlen, 2001) ............................ 31

Figure 10: Trade-off between Service and Costs ............................................................ 33

Figure 11: The Three π Model from IBM ....................................................................... 34

Figure 12: Tailoring Operations to match divergent Business Needs ............................ 35

Figure 13: Global Supply Chain Technology Investment Areas .................................... 41

Figure 14 : Decoupling and Postponement ..................................................................... 44

Figure 15: Measures to support the Agile Delivery Network ......................................... 46

Figure 16: A Framework for the Development of BOSC ............................................... 48

Figure 17 : Globalized Functions 2008 and Projected Increase by 2010 ....................... 53

Figure 18 : Drivers for Globalization ............................................................................. 54

Figure 19 : Barriers to Globalization .............................................................................. 55

Figure 20 : Evolution of Supply Chain Maturity 2004-2007/8 ...................................... 56

Figure 21 : Supply Chain Maturity by Industry .............................................................. 57

Figure 22: Supply Chain Issues for 2010 European Perspective .................................... 58

Figure 23 : Supply Chain Issues for 2010 Asian Pacific Perspective ............................. 58

Figure 24 : Supply Chain Issues for 2010 American Perspective .................................. 59

Figure 25 : Information Demand and Supply ................................................................. 64

Figure 26 : Integration of IT-Systems and the Real World ............................................ 74

Figure 27: Control Circuit Model in Real-Time Management of SCM ......................... 76

Figure 28: Typical RFID System Architecture ............................................................... 81

Figure 29: Frequency Spectrum of RFID ...................................................................... 84

List of Figures X

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Figure 30: EPC Network Architecture ............................................................................ 86

Figure 31: EPC / RFID Adoption Timeline .................................................................... 87

Figure 32: Preferred RFID Application Fields ............................................................... 93

Figure 33: Meta Model for Coordination and Integration in SCM ................................. 95

Figure 34: Integration of Corporate Information Systems .............................................. 97

Figure 35: Integration Capability of RFID Systems ....................................................... 98

Figure 36: Autonomy versus Coordination Costs ......................................................... 114

Figure 37: Shareholder Value Tree of RFID Implications ........................................... 121

Figure 38: The Intelligent Container ............................................................................ 126

Figure 39: Diffusion of RFID Deployment in Global Supply Chains .......................... 134

List of Tables XI

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List of Tables

Table 1 : Media Disruptions in Corporate Information Processing ................................ 65

Table 2: Dimensions of Data Quality ............................................................................. 66

Table 3 : Dependencies according the Coordination Theory ......................................... 68

Table 4 : Coordination Processes assigned to Levels and Objects of Coordination ....... 69

Table 5 : Integration in Industrial Informatics ................................................................ 74

Table 6: Cost determining Components of RFID Systems ........................................... 120

Table 7: Possible Supply Chain Network Configurations ( Hong and Holweg) .......... 150

Table 8: Operational Assessment of Global Sourcing ( Hong and Holweg) ............... 151

Table 9: Financial Assessment of Global Sourcing (Source: Hong and Holweg) ........ 152

Table 10: RFID-Frequencies ....................................................................................... 153

Table 11: Transponder Capacity Data ......................................................................... 153

Introduction

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Fachhochschule für Ökonomie und Management – University of Applied Sciences Page 1

Introduction

Background on the Topic

The expression “Supply Chain Management (SCM)” already exists since the 1980ies

but it has gained increased popularity only in the recent years. Apart of that, the globali-

zation effect is not a new phenomenon at all. For instance the well-known tea route be-

tween China and Europe had been already established in the seventh century after Chr-

ist. Besides global procurement of raw materials also a lot of production plants had been

founded abroad since the middle of the 19th century.

In the tide of today’s globalization many supply chains are globally scattered over coun-

tries and continents. These kinds of value chains cannot be compared to sequential ones

with a national footprint, the less so as to a single company’s value chain, due to their

higher dimensionality and multi-echelon structures. Besides that, these globally rami-

fied supply chains are highly fragmented as well, including also competing networks

within.

Lowered communication costs have lead to a cutback of information asymmetries and

thus, to an improved market transparency. More suitable transportation opportunities

combined with declining trade barriers encourage firms to take globally oriented busi-

ness activities into account. An overwhelming rate of foreign direct investments (FDI’s)

in recent years is evident for this development, which can be explained also by both a

market and sales-oriented motivation of the companies and higher factor differences

provoking production relocations abroad. Besides the fields of production and sales,

reduction potentials are to exploit in the procurement sector as well. Nearly 60% of

sales revenues are already achieved by sales of imported goods from foreign countries

today, also high-value products not only procured from developed countries, but increa-

singly from low-cost counties as well1. Therefore it is urgently required to develop ade-

quate global sourcing strategies for corporate success maximization. The huge number

1 Bogaschewsky, 2004

Introduction

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of procurement, production and sales opportunities and their combinations arising from

these circumstances leads to situations requiring complex decision making. Therefore-

more and more sophisticated information technology infrastructure is necessary to cope

with the uncertainty of the world markets and to maintain the competitive position.

One technology that points the way ahead is Radio Frequency Identification Devices

(RFID) already on its way of shaping global supply chains tremendously. Although RF-

ID is not a brand new thing at all, it goes back to the years of the Second World War

where British military aircraft squadrons tried to identify hostile aircrafts via sending

out radio signals in cloudy areas or at night, it is increasingly gaining currency in SCM

since recent years.

RFID identifies and locates certain electronic data-carrying objects automatically via

utilization of radio-frequency signals. Data stored on the chip-tag attached to the item

can easily be captured by radio frequencies remotely from a reader without any contact

or line of sight is required, because the radio frequencies send out from the reader to the

tag are capable to get through materials, for instance company walls. The captured data

is transmitted to superior information systems and at least to the internet, which allows

the user to track and trace these objects from every location on the globe, including the

relevant status information. This information can be processed for further application in

the supply chain, which provides enhanced market transparency and therefore uncer-

tainty becomes lesser. This agglomeration of information systems and connected devic-

es can be considered as an information capturing, sharing and processing infrastructure

approach, which integrates physical objects from the real world with IT-systems, and

hence, represents a higher and comprehensive degree of business intelligence, leading to

the so-called “Internet of Things” one day, after having achieved its perfect maturity via

fully-fledged Ubiquitous Computing.

In present global supply chains and logistical delivery networks RFID is mature enough

that globally operating companies can harvest return on investment through enhanced

process visibility in inventory management, tracking, tracing and monitoring goods in

transit, as well as supplier-based replenishment routines, mainly on the case and pallet

level, while single-item tagging is estimated to be achieved by 2010. Meanwhile several

globally operating companies like Metro Group, DHL, Wal-Mart and Dell, only to men

Introduction

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tion a few, aiming at encouraging their suppliers to invest in RFID attempting to

achieve a higher RFID diffusion throughout their global supply chain networks.

Research Questions

1. To what extend the decisive success factors for optimal RFID deployment, as

there are:

• Active International Standardization

• Nationwide Implementation

• Enhanced Diffusion and Adoption

• Successful SME Incorporation and RFID Training in Germany

• Enhanced Collaboration between the Players in the Value Adding Network

• Integration of Hard- and Software into the Logistical Infrastructure

• Provision and Dissemination of Profit and Loss Statements

• Enhanced Process Security

• Public Acceptance

have been realized throughout the value adding supply network up until today ?

2. Which benefits had been already gained by RFID deployment, and what con-

temporary obstacles are to overcome to achieve the medium-term goals, which

had been set for the year 2010?

Introduction

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Research Objectives

The aim of this dissertation is to capture the essence of the contemporary deployment of

RFID in supply chain management by emphasizing the benefits and limitations of that

technology to provide support, especially for SME’s, in crafting a corporate strategy for

RFID implementation throughout their supply chains. The aim constitutes of three ob-

jectives:

• to better understand how RFID technology works and its perception in the academic

and practical field of global supply chain management;

• to investigate the current state-of the-art practice of RFID deployment in MNC’s,

SME’s as well as in logistics; and

• to derive the current stage of diffusion of this technology as well to emphasize the

present stage of adoption and awareness towards RFID in supply chain management

to depict actual benefit and limitations upon evaluation of the investigated practice

and expert opinions in comparison to the literature review.

Research Relevance

Globalization, also known as physical disintegration, the pressure of competition, higher

customer expectations and new legal constraints are bearing new challenges for differ-

ent industry sectors to redesign their delivery networks. Besides efficiency and reliabili-

ty the success factor flexibility is gaining increased importance, as it is expressed in the

model of an “agile network”. Reasons for higher flexibility requirements are an increas-

ing market dynamism , declining product lifetime cycles, differentiation trends and rais-

ing opportunities to gain competitive advantages through collaboration. Lean Produc-

tion and Total Quality Management approaches, at first only been deployed in pro

Introduction

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duction processes, are more and more transferred onto the entire value adding network

as well.

For several years now IT applications play a decisive role in logistics and production to

enhance efficiency. While sophisticated computerized manufacturing technologies in-

crease productivity in production processes, ICT systems contribute to enhanced effi-

ciency in Supply Cain Management. In contemporary discussions about innovations in

logistics Radio Frequency Identification (RFID) is emphasized as a technology to avoid

coordination problems throughout the delivery network.

Although RFID is mature enough for being deployed immediately, it has also an enabl-

ing character and therefore it is still under constant evolution just taking the increasing

number of RFID related patents into consideration. Even in the year 2004 a 65 % in-

crease of RFID related patents had been noticed. On the other hand the RFID market is

still in its infancy with most applications not being large-scale, as well as forecasted

economic benefits, e.g. Return on Investment, are still unclear for many companies.

Hence, it is essential to explore the extend of RFID diffusion within the global markets

from time to time, to point out the latest innovations and to inform about the newest

application opportunities as well as related benefits or shortcomings.

Research Methodology

The research methodology had been a comprehensive literature review to elaborate the

benefits of RFID in the global supply chain as well as to point out the obstacles to over-

come concerning that new technology in supply chain management. The literature

which had been chosen aims at covering the topic from strategic, technological, finan-

cial and futuristic perspectives.

Introduction

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Structure of the Thesis

This thesis consists of five parts and a final conclusion. Based on the purpose of this

thesis to elaborate potential benefits and challenges of RFID deployment in global

supply chains, the first chapter provides a comprehensive overview about global supply

chain management to point out how communication works in global supply chains,

what strategies had been crafted to face challenges and risks or to increase the competi-

tive position. Furthermore processes and techniques in supply chain management are

highlighted in this chapter as well as the current trends of development in Global

Supply Chain management.

The second chapter deals with general information about RFID technology, taking

strictly into account to point out what make RFID unique compared to other Auto-ID

applications. Due to RFID is an Auto-ID infrastructure approach this chapter considers

the coordination theory aiming to present how information management can be en-

hanced by a computerized delivery network.

The third chapter takes the benefits and challenges of RFID deployment in the global

supply chain into consideration, while also the financial point of view is regarded to

provide a guideline of possible assessment methods to determine financial advantages

arising from RFID investments in the supply chain.

While the fourth chapter deals with the current state-of-the-art of RFID technology and

a corresponding case study, the fifth chapter analyses and discusses possible ways to

support RFID diffusion in the global supply chain by bridging the present situation and

the future development towards the background of what had been mentioned in the pre-

vious chapters. Every chapter has its own introduction and conclusion that each can be

read also stand-alone.

1 Supply Chain Management on a Global Scale

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1.1 Introduction

The expression “Supply Chain Management (SCM)” originally comes from the field of

consultancy and had been taken up later also by the economic sciences. In literature are

existing different views on and various concepts of SCM. In some cases it is seen as the

same as logistics, or at least related to logistical operations2, others prefer to describe

SCM as a permanently inter-organizational alignment3, while the opinion that SCM is

only limited to controlling and coordination tasks is also prevalent. This thesis is written

under a process-oriented point4 of view, because throughout an end-to-end supply chain

a huge variety of tasks and processes, like unloading and uploading, directing and redi-

recting goods through the pipeline, as well as negotiations and collaboration, stock

keeping and just-in time manufacturing processes, just to mention a few, have to be tak-

en into account and have to be coordinated and organized accordingly. Instead of taking

only particular operation fields into account, the process-oriented view in SCM consid-

ers whole entire value-adding networks which are outwardly integrated into the value

chains of their suppliers, distribution channels and customers, having also competition

within. Value chains described by their processes do not question the functional struc-

tures of enterprises, but based on these structures they integrate the functional subsys-

tems like logistical procurement, distribution and production. SCM from the business

perspective can not be compared with SCM in military operations, because the latter

aim at winning the battle at any cost and not to create value.

SCM in business begins at the lowest microeconomic enterprise level with company

operations like procurement, production and delivery, up to vast world-spanning, multi-

dimensional supply chain networks operating everywhere on the globe, practicing glob-

al supply chain management. Figure 1 below shows such a globally aligned value chain.

2 Cooper, 1997 3 Stöltzle, 1999; Waters, 1999 4 Klaus, 1998


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Figure 1: The World-Spanning Supply Chain Network

Global Supply Chain Management (GSCM) stands for planning beyond enterprise

boundaries, steering and to control globally linked and integrated procurement, produc-

tion and logistical operations. GSCM supports the transformation of sequential and de-

centralized processes into a globally integrated supply chain. GSCM realizes the exploi-

tation of cost reduction and flexibility potentials concerning materials, inventory and

processes by employing the capabilities of modern IT solutions, e.g. RFID, for process

integration, incorporating customers and suppliers, and utilizes the advantages related to

global sourcing, production and logistical activities.

Purchasing Production Logistics

Controlling

Information Technology

SupplierSecond Tier

SupllierFirst Tier

Own Company in the Global Supply Chain NetworkCustomerFirst Tier

CustomerSecond Tier

Source: Own Creation


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1.2 The Value Chain of the Company

The microeconomic level, strictly spoken, is the wealth creator in an economy. By utili-

zation of efficient methods firms and provide valuable goods and services. Therefore,

societal institutions or governments unlikely are responsible for wealth creation, only

domestic companies acting in the economy.

Microeconomic foundations of productivity are based on three interrelated pillars5:

• Sophistication and capabilities domestic companies and foreign subsidiaries are

competing on

• Quality of the microeconomic business environment they are operating in

• State of cluster development providing benefits through the proximity of related

companies and institutions

Figure 2 below depicts how prosperity is created by exploitation of microeconomic

conditions which provide macroeconomic, political, legal and social opportunities in

combination with the endowments of natural resources and geographic location.

5 Porter, Ketels, Delgado, 2007


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Macroeconomic, political, legal and social context

Endowments (natural resources, location)

Sophisticationof companyoperations and

strategy

Quality of the microeconomic

businessenvironment

State of clusterdevelopment

Derived from Porter, Delgado, Ketels 2007

Figure 2: Determinants of Competitiveness

Taking the aforementioned aspects into account, productivity arises from the degree of

competitive sophistication a company is capable for. The basic concept for the analysis

of company operations and strategy is represented by its value chain. The evolution of a

company’s particular business and internal activities, as well as its strategy and the un-

derlying economics, are reflected by the value chain and the way in which a company is

performing each activity. If a company is able for steady improvement of its operational

effectiveness concerning its activities and therefore adapts global practices, more and

more productivity will increase also. If an adequate strategy prepares the ground for

differentiated positioning, innovative production methods or sophisticated service deli-

very, productivity is further enhanced. By contrast competition merely based on low

factor input costs and thus, low productivity will unlikely be a contribution to sustaina-

ble prosperity.6

6 Porter, Ketels, Delgado, 2007


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The value chain of a company is individually designed and is related to its own objec-

tives. The value chain aims at value creation for potential customers in terms of pro-

curement, production, sales, delivery and support, while it provides the basis for the

company’s competitiveness in domestic and global markets. Figure 3 below shows a

typical value chain of a company with its two main types of activities. The primary ac-

tivities are responsible to create value for the customer, while the supporting activities

facilitate and enhance the primary activities.7

VALUEWhat buyersare willing to

pay

MARGIN

PrimaryActivities

SupportActivities

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

InboundLogistics

Operations OutboundLogistics

Marketingand

Sales

After-SalesService

Derived from Porter, 1985

Figure 3: Value Chain of a Company

The triangle at the end of the value chain, from left to right, which is the so-called mar-

gin has to be seen as the company’s sting drilled into the landscape of the business envi-

ronment, providing a significantly competitive edge for the firm towards its rivals in

any market, because this is the end user’s reward for the company, this kind of newly

created value he is willing to pay a price premium for.

7 Thomson and Strickland and Gamble, 2007


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The listing of primary and supporting activities outlined in Figure 3 should be inter-

preted as illustrative rather than definitive, because they are depending individually on

the specific nature of a company’s business, as well as it has to be taken into account

that each activity in the value chain gives rise to costs and ties up assets. The internal

cost structure of a company is determined by the combined costs arising from all the

different activities conducted in its value chain. Furthermore, the cost position of a

company towards its competitors derives from also from each single costs produced by

the activities. Costs arising from supplier activities or those by distribution channel

allies striving for pulling the product through the pipeline of the supply chain might

responsible for cost and price differences among competing companies as well. As a

consequence the cost-competitiveness of a company is not only related to costs arising

from internal activities but moreover depend on costs caused by the value chains of its

suppliers and distribution cannel allies.8

A typical industry value chain that incorporates the value chains of suppliers and for-

ward channel allies is pointed out in Figure 4 below.

Activities,costs and margins of suppliers

Internallyperformedactivities,costs andmargins

Activities,costs and margins

of forwardchannel allies andstrategic partners

Buyer, orend user

value chains

Derived from Porter, 1985

8 Thomson and Strickland and Gamble, 2007


______________________________________________________________________


Figure 4: Representative Value Chain for an Entire Industry

Two reasons stand for the relevance of forward channel partner’s value chains for the

company, as well as the customer himself to whom the company sells9:

• Distribution and retail costs and margins are directly influencing the ultimate

price the customer has to pay

• Customer satisfaction is also interrelated with the performance of distribution

allies

1.3 The Global Value-Adding Supply Chain Network

A drastic shift how business is done around the world had been taken place over the last

few decades. Firms have shifted to fragmented and highly complex supply chain net-

works in favor of strategic alliances with external entities instead of former hierarchical,

one-dimensional supply chain entities. Going away from the serialized form of interac-

tions between the buyers, suppliers and logistic players represents a current trend of

disintegration and fragmentation in contemporary global supply chains. Replacing these

pre-determined, static roles and relationships by much more dynamic and malleable

ones, enables the synchronization of goods, information and capital. The transformation

of supply chains into value networks is premised on the capacity of each player to ac-

quire process and distribute information to all participants in the network to collectively

maximize productivity and efficiency of the network. Hence, these relationships be 9 Thomson and Strickland and Gamble, 2007


______________________________________________________________________


tween the players in the supply chain network have to be more collaborative rather than

adversarial.10

Just-in-Time, Total Quality Management or Customer Relationship Management are

only some strategies among others for freeing up working capital and increasing liquidi-

ty. Today’s companies are confronted with a much more complicated set of challenges.

Due to disintegration, inventory challenges are no longer confined to warehouses, but

are now scattered across a complex matrix of supply chain management issues on the

entire inbound side of the business, producing thousands of spare parts and dealing with

hundreds of suppliers across several continents.

With integration of the world’s economies and the cessation of geographical bounda-

ries, it is not surprising that massive changes in conducting business can be observed

around the globe. In an attempt to capitalize on the effects of globalization, these

changes across many industries come mostly in the form of fragmentation of supply

chains. A good example of supply network fragmentation is the automotive industry,

which divests significant portions of the automotive supply chain, including the cost and

labor intensive manufacturing portions, as semi-independent or wholly independent

units11. There is also a more fundamental re-organization of the automotive industry at

the lower tiers of the supply chain, with outsourcing and off-shoring of the production

function being accompanied by changes in system management methodologies and

practices, just as lean manufacturing, just-in-time among others 12. These trends are not

limited to the North American region, but are also observed and have been documented

for the Japanese, and the EU regions, both traditionally leading automotive manufactur-

ers13. Another example are the Original Equipment Manufacturers (OEMs) in the con-

sumer electronics market, who divest themselves of their expensive and cost-intensive

manufacturing and back-end facilities to specialty manufactures and service provid-

ers]14. The industry sector of the apparel and textile industry has witnessed far-reaching

changes as well. Meanwhile the global apparel and textile industry is spanning the en

10 Bitran and Gurumurthi and Sam, 200 11 Balakrishnan, 2004, Biesebroeck, 2004, Veloso, 2002, Hufbauer, 2004 12 Holmes, Anderson, 1995, Mercer, Monier, Satpathy, 2004 13 Veloso, 2002, Komori, 2000 14 Barnes et al., 2000, Ferry, 2004


______________________________________________________________________


tire textile and apparel supply chain, from the processing of raw materials to the produc-

tion of the finished goods. Increased and intense competition forces this industry to off-

shore significant portions of the manufacturing process from developed countries into

the developing so-called emerging markets, especially Asia, causing a decline of the

textile and apparel sector in developed countries15.

Disintegration and fragmentation of the contemporary global supply chains dramatically

change the former network structure and rules of acting, requiring increased coordina-

tion as well as prior pre-determined roles become more and more ambiguous. Figure 5

illustrates the process of disintegration.

Figure 5: Disintegration Impact within Global Supply Chains

Before the disintegration and fragmentation throughout the entire global supply chain

network began, it was up to the firm itself to be responsible for taking a greater stake in

15 Johns, 1987, Gereffi, Memedovic, 2003, Jones, 2003

Supply Chain Disintegration

C

C

C

C

C

C

C

S

S

S

S

S

S

S

C

C

C

C

F

F

F

F

S

S

F = Finished ProductS = Sub SystemC = Component

Source: Bitran, Gurumurthi, Sam, 2006


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the coordination of the fulfillment value chain and to ensure proper alignment of the

incentives of the supply chain agents operating within the organizational boundaries to

support the strategic objectives of the supply chain. Due to the fact that many supply

chains become vertically disintegrated these aforementioned responsibilities are increa-

singly decentralized and it is more than questionable who, or which of the independent

or semi-independent agents within the supply chain now will take over the responsibili-

ty for coordination activities and to set the appropriate incentives for the supply chain

agents16. In this much more complicated network configuration and a highly fragmented

supply chain, the level of interaction and coordination increases dramatically, although

the number of layers in the chain, from spare part to the readily assembled product, of-

ten remains the same. In addition, the ownership and control of assets and functions in

these supply chains have also re-distributed among the various players within the supply

chain, often leading to a significant sub-division concerning the responsibilities of han-

dling, material transformation, and end-product-to-customer delivery.

The disintegration challenges the firms to manage a large number of supplier and dis-

tributor relationships to optimally allocate the resources among many different entities.

Fragmentation on the other hand leads to increased complexity costs of coordination

and makes it more difficult for the companies to keep control and influence on their

supply chains at the same level as usual17.

The management of internal business functions and relationships with external players

in the supply chain network requires a sophisticated approach. Especially the smaller

entities in lower tiers of the supply chain have to face the negative effects of disintegra-

tion because their smaller size and distance from the end customer forces them to in-

creased variability and flexibility, which is often hard to realize due to their lack of au-

thority and control within the supply chain. Therefore the smaller players in the network

are loosing ground in the middle of the disintegration process.

16 Raman, 2003, Narayanan, Raman, 2004, Whitford, Zeitlin, 2003 17 Gereffi, Humphrey, Sturgeon, 2003


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Reasons of Fragmentation

At this point, it is worthwhile to specify the reasons and incentives for many large verti-

cally integrated firms to outsource or offshore even complete parts of their supply

chains from time to time 18. It has to be taken into consideration that capital and invest-

ments are now provided by many players within the entire supply chain network and

thus they are micro-managed and that keeping non-core assets in-house is being more

and more questioned by outsourcing companies. As main reasons for supply chain

fragmentation the following list has to be mentioned:

• Cost and Quality related factors

• Product Proliferation and Mass Customization

• Emergence of Retail Powerhouses

• Emergence and Proliferation of Information Technology

As a result of a newly formed global business environment, characterized by steadily

relaxing trade barriers, the existence of advanced information technology, the appear-

ance of emerging new markets equipped with skilled, cheap labor and last not least suit-

able supply routes, especially from Asia, reliable to move goods and products through

the global supply chain, the incentives for large and small firms worldwide and across

all industry sectors have never been greater to fragment their supply chains through sig-

nificant transfer of production technology and product-critical designs to the key suppli-

ers allover the world19. Due to improved stable manufacturing technology, as well as

commoditized manufacturing processes, many of these processes are increasingly con-

sidered merely as a cost factor, rather than a core competency or strategic know-how –

so these processes could easily change hands.

18 Harley, 1998, Holmes, Anderson, 1995, Barnes et al., 2000 19 Ferry, 2004, Sherman, 2002


______________________________________________________________________


Ironically, it is a greater effort towards supplier consolidation and cost reduction that

has led to the greater levels of partnership and subsequently, the greater levels of out-

sourcing to supply partners20.

Partnerships between supply bases and off-shoring companies combined with increasing

local and international demand generates higher revenue streams which can be invested

in improved processes and technologies, which in turn bears higher quality products and

low-cost manufacturing capabilities at higher margins. Such a steadily repeating posi-

tive feedback cycle strengthens the supply bases in less developed countries for mutual

benefit and might be an explanation for the outsourcing and off-shoring phenomena that

can be observed worldwide.

Product Proliferation and Mass Customization

With the increased risks and the costs associated with product proliferation and mass

customization, the larger OEMs, especially in the automotive and in the electronics

manufacturing sectors, have seen incentives to co-design and develop products with

their key manufacturing suppliers. The Microsoft X-box product had been co-developed

with such a key manufacturing supplier holding the sole manufacturing responsibility

for the end-product. This trend has to be noticed also in the mass-market computer

products segment, where companies in Asia and in the US are providing design as well

as manufacturing services to the larger OEMs that brand the end-product21.

Emergence and Proliferation of Information Technology The adoption of information technology in professionally run businesses, even if it is an

independent environmental factor, has changed the supply chain behavior and further on

20 Holmes, Anderson, 1995 21 Barnes, Deng, Down, 2000


______________________________________________________________________


the corporate governance structures as well22. The drastic changes in information tech-

nology applications, especially in business communication, over the last two decades,

associated with the emerging new opportunities, fueled the internationally operating

companies to establish worldwide communication networks enabling firms and supply

chains to trade on a global scale23. Without IT being the enabler, the disintegrated

supply network cannot be managed effectively.

The following major trends enabling global supply chain networking had been observed

over the past two decades24:

• With declining data storage costs the volume of data able to be processed in

business analysis applications has increased significantly.

• Business transaction costs as well as costs related to general networking and

communication within supply chains have been remarkably reduced. On the oth-

er hand, communication capabilities including the whole content which is in-

volved, as well as the number and relevance of IT enabled business transactions

have also increased.

• The demand for greater product variety has caused the steady improvement of

analytical capabilities, design technologies and new product introductions lead-

ing to shrinking product life-cycles in many industry sectors.

22 Stroecken, 2001, Gao, Hitt, 2004, Clark, 2004 23 Paul, 2004 24 Stroecken, 2001, Gao,Hitt, 2004


______________________________________________________________________


1.4 Principles for Optimal Supply Chain Creation

1.4.1 Customer Segmentation

The traditional way of customer segmentation conducted by many companies is to

group them by industry sector, preferred products or trade channel and serving them

then in a so-called one-size-fits-all approach by averaging costs and profitability within

and across those segments, causing that the relative value a customer places on the ser-

vice offerings of a certain company are not fully understood.

A much better way for a firm to determine the relative value of its customers in the de-

livery network is to develop a portfolio oriented towards the customer’s particular needs

by creating tailored services to various segments by deployment of traditional tools like

surveys, interviews and industry research to determine the key segmentation criteria.

Research can also be useful to find out that certain degree of segmentation and variation

to maximize profitability, in other words, to elaborate those customers who are most

profitable to serve, who will generate the highest long-term profit and who are worth to

retain further on. This essential knowledge is prerequisite for the correct matching of

service packages to key accounts resulting in higher revenues, enhanced through some

combination of increases in volume and/or price. This strategy ensures reasonable re-

turn on investment as well most profitable resource allocation. For that purpose a com-

pany should apply a disciplined, cross-functional process to develop a menu of supply

chain programs by creating segment specific service packages consisting of basic ser-

vices and services from the menu attracting especially particular segments the most25.

1.4.2 Customized Logistics Network

Inventory management, warehousing and transportation activities are often realized by

monolithic approaches designed as a single standard to meet the average service re 25 Anderson, Britt, Favre, 2007


______________________________________________________________________


quirements of all customers in the logistics network, rather than to satisfy even the

toughest requirements of a single customer segment. Superior asset utilization and ac-

commodation to specific logistic customer needs can be achieved through a customized

logistics network, which becomes increasingly important for excellent supply chain

management execution of today. Gaining higher customer satisfaction by meeting indi-

vidual logistics requirements often represents a greater source of differentiation, and

thus a major competitive advantage, than the own actual products of a company, which

might be largely undifferentiated. On the other hand a customized logistics network is

much more complex due to the fact that alliances with third-party logistic service pro-

viders have to be inevitably involved, as well as it requires fundamental changes in the

mission, number, location and ownership structure of warehouses, but a higher degree

of flexibility can be achieved through robust logistics planning enabled by real-time

decision support tools to manage flow-through distribution and more time-sensitive

transportation activities26.

1.4.3 The Demand-Driven Supply Chain

SCM is subject to a steadily ongoing evolutionary process aiming also at on-demand

maturity. Therefore static and non-integrated demand fulfillment models have to be

transformed into those ones which are automated, functionally optimized and integrat-

ing processes horizontally, as well as they include collaborating partners in an incre-

mental manner. The end-to-end fully integrated demand-driven supply chain all across

the business concerning partners, suppliers and customers, is the vision which has to be

realized.

While forecasting had been historically conducted silo by silo, with multiple depart-

ments independently creating forecasts for the same products, all using their own as-

sumptions, measures, and level of detail, demand planning in today’s supply chain man-

agement includes all the processes associated with forecasting, planning and inventory

management required to meet customer demand. Due to the complexity arising from the

management of supply and demand volatilities companies have to develop certain strat

26 Anderson, Britt, Favre, 2007


______________________________________________________________________


egies to synchronize their supply chains accordingly. Forecasting conducted inaccurate-

ly can result in high inventory costs and product obsolesces on one hand while shortag-

es in supply provoke customer dissatisfaction. Cross-functional planning processes

based on final operational decisions related to overall profit potential have to be facili-

tated by sophisticated forecasting and replenishment IT-systems to tackle uncertainty

the right way. To realize this real-time information is prerequisite. Successfully imple-

mented analytical and evaluation tools integrate demand-planning functionality with

inventory replenishment systems by collecting steadily evaluated data to adjust existing

stocks and replenishment.27

Company transcending sales and operations planning (S&OP) encompassing every link

of the supply chain, e.g. suppliers, customers and their following tiers, is one solution

for holding the required capacity across operations via collaborative forecast develop-

ment. Alerting signals can be detected by supply chain channel-wide S&OP, like hidden

demand in customer promotions, ordering patterns or restocking algorithms while tak-

ing vendor and carrier capabilities as well as related constraints into account. An excel-

lent demand planning system is capable to optimize the material flow for every item in

every location.28

27 Kenney 28 Anderson and Britt and Favre, 2007


______________________________________________________________________


Traditional On Demand

Static SupplyChain

FunctionalOptimization

HorizontalProcess

Integrationand

Automation

ExternalCollaboration,Optimization,Flexiblization

Demand-DrivenSupplyChain

Source: IBM Institute for Business Value, 2004

Figure 6: Supply Chain Maturity Model: The Path toward on Demand

A typical demand-driven supply chain is characterized by the following attributes29:

• Focused

Concentrating on core competencies within the supply chain while assigning

non-core and non-strategic tasks to supply chain partners

• Responsive

Flexible responding supply chain towards demand, opportunities an threats dis-

regarding their frequency or suddenness

29 IBM, 2004


______________________________________________________________________


• Variable

Creation of variable cost structures aligned to production and capital efficiency

and predictability of performance indicators and controlling

• Resilient

Immediately react on threats, disruptions or changes with mitigation strategies

1.4.4 Product Mass Customization

The expression “Product Mass Customization” seems to be a contradiction in itself. On

one hand a company intends to exploit cost reduction through economies of scale while

it manufactures identical and faceless mass products, and on the other hand the same

company asserts to produce the same product individually and custom-made for each

consumer. The potential which remains in the strategy of mass customization is to meet

individual customer needs through delaying of product differentiation to the last possi-

ble moment, also described as postponement, which will be discussed more detailed in a

later section of this chapter.

Against the conventional opinion that supply chain lead times are fixed, mass customi-

zation practitioners are strengthening their ability to react to market signals by com-

pressing lead times along the supply chain, speeding the conversion from raw materials

to finished products tailored to customer requirements. Through this approach the flex-

ibility to make product configuration decisions is much closer to the moment when cus-

tomer demand occurs30.

30 Anderson, Britt, Favre, 2007


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1.4.5 Strategic Sourcing

Globalization has encouraged many industry sectors to realign their manufacturing and

supply chain strategies. While the pace of industrialization in countries like China and

India is accelerating, companies of the industrialized world experience increased pres-

sure to off-shore manufacturing and service operations, as well sourcing activities to

low-cost countries to achieve cost advantages in their home and foreign market, entail-

ing a significant impact on strategic alignment of manufacturing networks, for instance

the decision about the suitable location of production plants and to find the right suppli-

ers delivering materials and components.

Six distinct network configurations of sourcing types regarding locus of manufacturer,

supplier, and the market are outlined more detailed in table 7 in the annex A. These six

strategies are local manufacturing, export, international sourcing, global sourcing, off-

shoring, and global manufacturing.

Philosophically strategic sourcing is aiming at the integration of handpicked suppliers

into the buying firm’s sphere of activity according to the components they supply31.

Therefore strategic sourcing has to be seen as striving for close relationships with sup-

pliers from the manufacturer’s perspective to gain competitive advantage32. Especially

for sourcing abroad top management commitment, international language capabilities,

knowledge about global sourcing structures and processes and global sourcing business

capabilities are crucial key factors of success33.

This passage provides the implementation of a possible global sourcing strategy as a

guideline.

Faulty data sets in different information system often lead to shortcomings such as miss-

ing material and supplier classifications, less overview on total volumes of different

material groups and material flows are not mapped sufficiently. Thus, it is necessary to

provide adequate transparency within the data base related to corporate procurement,

material and supplier data. Raw materials and suppliers have to be prioritized and clas

31 Zenz, 1994 32 Hines, 1994 33 Petersen et al., 2000


______________________________________________________________________

Fachhochschule für Ökonomie und Management

sified. Volumes and sales revenues have to be analyzed according the different material

groups, suppliers, locations and countries. Material flows have to be mapped ac

to their volume and value. Also possible occurring risks concerning foreign currencies

should be taken into account as well as the updating of the aforementioned data sets and

their synchronization with the other corporate systems.

A second step is the management of the different material groups like it is demonstrated

in figure 7 below.

Figure 7: Material Group Cluster

Group-wise harmonizing of the different material groups is achieved via elaborating a

company-wide scheme to determine the material consumption within a group, disti

guished between locations, countries etc. The material clusters have to be defined a

terwards, going along with the creation of basic strategies adequate for the different

material group clusters. When the strategies are clear, the objectives for active treatment

of the procurement markets can be formulated, such as sourcing globally or locally,

Supply Chain Management on a Global Scale

______________________________________________________________________

Fachhochschule für Ökonomie und Management – University of Applied Sciences


groups, suppliers, locations and countries. Material flows have to be mapped ac



their synchronization with the other corporate systems.

s the management of the different material groups like it is demonstrated

: Material Group Cluster

wise harmonizing of the different material groups is achieved via elaborating a

scheme to determine the material consumption within a group, disti

guished between locations, countries etc. The material clusters have to be defined a


usters. When the strategies are clear, the objectives for active treatment


______________________________________________________________________

University of Applied Sciences Page 26


groups, suppliers, locations and countries. Material flows have to be mapped according



s the management of the different material groups like it is demonstrated

wise harmonizing of the different material groups is achieved via elaborating a

scheme to determine the material consumption within a group, distin-

guished between locations, countries etc. The material clusters have to be defined af-


usters. When the strategies are clear, the objectives for active treatment



______________________________________________________________________


single or dual or low-cost versus innovation leadership. So

petency teams for each material group can be determined now.

A group-wise staggered supplier relationship management (SRM) can be implemented

which encompasses a setting of standards and guidelines for elements of the supplier

management. An appropriate procuremen

pliers under consideration of the materials are coming from strategic alliances or do

they belong to the management of competitive sourcing, should deliver the basis for

standardized outline agreements taking

tions into account. Within the framework SRM a company

ance (SQA) is to realize, while performance indicators are to determine for systematic

supplier assessment. Figure

Figure 8: Core Elements of Supplier Relationship Management

Only companies with an adequate information background concerning the nature of the

different procurement markets, footing on excellent analysis, and sufficient language

skills are capable to exploit the potentials of global sourcing effectively and effici

After the identification of appropriate suppliers with the help of a special setting of cr

teria for new suppliers from Asia, Europe or the NAFTA region the offerings have to be


______________________________________________________________________


cost versus innovation leadership. So-called lead

eams for each material group can be determined now.

wise staggered supplier relationship management (SRM) can be implemented


management. An appropriate procurement strategy, distinguishing the clusters and su



standardized outline agreements taking logistical, national, legal and fiscal specific

tions into account. Within the framework SRM a company-wide supplier quality assu


supplier assessment. Figure 8 below exhibits the core elements of SRM.

: Core Elements of Supplier Relationship Management



skills are capable to exploit the potentials of global sourcing effectively and effici

After the identification of appropriate suppliers with the help of a special setting of cr


______________________________________________________________________


called lead-buyers and com-

wise staggered supplier relationship management (SRM) can be implemented


t strategy, distinguishing the clusters and sup-



logistical, national, legal and fiscal specifica-

wide supplier quality assur-


ibits the core elements of SRM.



skills are capable to exploit the potentials of global sourcing effectively and efficiently.

After the identification of appropriate suppliers with the help of a special setting of cri-



______________________________________________________________________


obtained, going along with a price benchmarking. After the selection of the appropriate

suppliers a strategic migration process should be elaborated to include new suppliers.

The decentralized organization of traditional purchasing is adverse to globally coordi-

nated procurement and the efficient exploitation of procurement synergies. Additionally

the efficiency will be reduced by the location specific character of the procurement

processes. Another point is that the qualifications of the purchasing agents often are not

sufficient. Therefore the implementation of a central function, strategic sourcing, inclu-

sively a regionally aligned procurement competency center is to recommend. A sensi-

tive concern might arise from that, because in this department the different tasks and

responsibilities are distributed among the employees and job profiles are defined accor-

dingly, like lead-buyer function, member of a competency team, strategic purchasing

agent or purchasing agent for strategic and global sourcing.

At least appropriate purchasing information systems continuously analyzing procure-

ment data, as well as SRM tools have to be implemented and evaluated34.

In table 8 in the annex A, a set of key issues and variables that need to be considered

when assessing global sourcing strategies from operational efficiency perspective, as

well as their classification into operational, tactical and strategic dimensions.

1.4.6 Development of a Supply Chain-Wide Technology Strategy

A possible deployment of supply chain technology prerequisites the initial consideration

about what such technologies are capable for or, the other way round, not suitable and

above all, what benefit a company might gain through its successful implementation,

even due to the typically high costs of these systems. Also a clearly defined need of the

company concerning the application of such a technology should go along with the

34 Helbing Management Consulting


______________________________________________________________________


firm’s individual supply chain strategy to avoid failures in leveraging for competitive

advantage.

Disregarding any detailed company-individual SCM strategy, three essential capabilities

should be commonly integrated in a supply chain-wide technology system35.

• For the short term

The system must be capable for the supply and demand alignment by providing

information sharing opportunities concerning incoming orders and the fulfill-

ment, as well as scheduling daily transactions and e-commerce throughout the

supply chain.

• Mid-term perspective

The system has to support decision making and planning as well as the demand

forecasting and planning of the shipments. Apart of that it should be capable to

efficient resource allocation to master the production scheduling

• For adding value in the long run

The system should provide an integrated network model which is capable for

strategic analysis and that enables high-level data synthesis for “what-if” scena-

rio planning, supporting the supplier management and evaluating other plants,

distribution centers or service providers.

35Anderson, Britt, Favre, 2007


______________________________________________________________________


1.4.7 Adoption of Channel-Spanning Key Performance Indicators

Therefore new metrics of performance measurement are crucial for an evaluation going

beyond the boundaries of a single company. This requires ratios both for the perfor-

mance measurement of the entire delivery network, e.g. reliable deliveries, order

processing, cash-to-cash cycles, and the benchmarking of processes, such as inventory

management, capacity utilization and delivery punctuality36. The utilization of tradition-

al metrics involves the certain risk of optimizing only partial ambits, if these fields are

not adequately aligned with strategic performance indicator37s. Besides the utilization of

balanced scorecards a so-called value-oriented inspection of the delivery network is

recommended38. One reason is that the average inventory turn does not have enough

validity, because stocks of preceding stages in the supply chain are of lower value than

the final stage. Apart from that, the risk of supply shortages associated with low inven-

tories in subordinate stages of the supply chain is significantly higher. By integrating

the performance measurement of the value chain conceptually into management

processes the evaluation gap might be closed. While the relation of cause and effect is

taken into account, a connection of SCM metrics with the economic value added (EVA)

can be established, as it is demonstrated in Figure 9 below39.

36 Becker, 2004 37 Atkinson et al., 1994 38 Kaplan and Norton, 1996; Weber, 2002; Lambert and Pohlen, 2001 39 Lambert and Pohlen, 2001


______________________________________________________________________


EconomicValueAdded

NetMargin

CapitalCosts(%)

NetYield

NetSales

GrossMargin

TotalExpenditure

Turnover

Production Costs

TotalAssets

CurrentAssets

FixedAssets

Inventory

OtherCurrentAssets

More Repetition Purchases

Increased Product Distribution

Increased Market Share

EnhancedCustomer Retention

Increased Complete Deliveries

Less Product Damages

Less Service for „bad“ Customers

Less Handling Efforts

Less Overhead Costs

Less Transportation Costs

Delivery Network Optimization

Less Failures / Less Customer Complaints

Shortened Lead-Times

Lower Resource Allocation

Increased Stock Turns

Lower Inventory of Finished Goods

Lower Safety Stocks

Enhanced Invoice Management

Enhanced Resource Utilization

+

+

+

x

-

-

Figure 9: Economic Value Added Tree (Lambert and Pohlen, 2001)

The target ratio which is to maximize here is the aggregated yield increase40. In this way

the appreciation potentials of SCM processes, and their implications usually measured

by operative metrics, are made visible also on the strategic level, to deploy them as a

means to steer these processes becomes possible. Additionally this model supports the

SCM when it comes to the identification of key performance indicators (KPI’s) relevant

for SCM planning41.

40 Stern and Steward, 1995 41 Horváth, 2001


______________________________________________________________________


1.5 Balancing Supply Chain Efficiency and Effectiveness

This section examines the interrelatedness of supply chain costing which is essentially

expressed through the efficiency concerning financial aspects and supply chain effec-

tiveness in terms of sophistication and promptness relating productive supply chain ex-

ecution efforts. Both parameters, when put them in a ratio, determine the profitability

and at least the whole performance of the supply chain. Regarding the extremes of both

parameters, there would be a supply chain which is merely cost-driven but not effective

enough to meet all the related expectations, agreements and demands on one hand,

while a highly effective supply chain, not taking the rising costs into consideration,

would satisfy every customer, supplier or service provider throughout the chain, but

ruins the company which carries it out. Therefore it is crucial to find the right balance

between effectiveness and efficiency to achieve a maximum profitability.

Due to increased globalization of the markets, highly volatile customer demands, as

well as higher customer expectations and shorter product lifetime cycles, today’s SCM

processes are challenged to provide excellent, lean, efficient and rapid delivery of prod-

ucts and services globally. Figure 10 depicts impressively the exponentially rising costs

resulting from an increased service level.


______________________________________________________________________


Figure 10: Trade-off between

Therefore companies have to reduce their fixed costs and also the requirement for cap

tal concerning supply chain

ble better to manage and to control, as well as to meet

higher profits the focus of the firms is now directed on the customer

chain activities, including product development.

ferings and therefore more demanding, customers expect above

and responsiveness combined with higher degrees of product and service customization.

On-time delivery, self-ser

and optimally priced product/service are highly desired as well. New technologies and

increased geographical expansion encourage companies to implement new customer

and service channels, while

realignment is essential to retain market position through efficient order management

and fulfillment, which is prerequisite for continuing sales growth, customer satisfaction

and retention. This provokes firms to develop value chain network strategies pursuing

customer-facing business models. On account of that these service efforts can not be

taken for granted, but inevitably producing additional costs pressing

severely, companies are forced to reduce their fixed costs and capital requirements of

supply chain operations and adapt a more variable cost structure focused on direct rela


______________________________________________________________________


between Service and Costs

Therefore companies have to reduce their fixed costs and also the requirement for cap

tal concerning supply chain operations in favor of a cost structure which is more vari

ble better to manage and to control, as well as to meet customer demand. To achieve

higher profits the focus of the firms is now directed on the customers needs

uding product development. Empowered by a huge number of o

ings and therefore more demanding, customers expect above-average service levels


service with real-time order configuration and status information



and service channels, while existing channels become under pressure. Hence, a steady



vokes firms to develop value chain network strategies pursuing

facing business models. On account of that these service efforts can not be

taken for granted, but inevitably producing additional costs pressing

are forced to reduce their fixed costs and capital requirements of


______________________________________________________________________


Therefore companies have to reduce their fixed costs and also the requirement for capi-

operations in favor of a cost structure which is more varia-

customer demand. To achieve

s needs in all supply

Empowered by a huge number of of-

average service levels


time order configuration and status information



existing channels become under pressure. Hence, a steady



vokes firms to develop value chain network strategies pursuing

facing business models. On account of that these service efforts can not be

taken for granted, but inevitably producing additional costs pressing on profit margins

are forced to reduce their fixed costs and capital requirements of



______________________________________________________________________


tionship to customer demand. IBM’s three

that supply chain performance, profitability

The second aforementioned parameter in the performance equation “effectiveness” is

related to supporting tools like a

and trust in collaborative and win

which can make a supply chain highly effective

tion as well as through cost savings

common product development

Some companies, like the fashion retailer

sophisticated methods to pull two different kinds of pr

pipeline while keeping the different lifetime cycles of the products in mind to realize

optimized on-to-market delivery and thus, avoiding product obsolesce on their shelves.

42 IBM 2004

Figure 11: The Three


______________________________________________________________________


to customer demand. IBM’s three π model in Figure 11 below demonstrates

performance, profitability and partnership are always interwoven.


related to supporting tools like advanced technology and human factors like “good will”

and trust in collaborative and win-win- oriented strategic supply chain

which can make a supply chain highly effective by enhanced visibility,

cost savings by outsourced activities proactively conducted

common product development at the same time42.

the fashion retailer Victoria’s Secret for instance, have developed

phisticated methods to pull two different kinds of products through a multi


market delivery and thus, avoiding product obsolesce on their shelves.

: The Three π Model from IBM

______________________________________________________________________


below demonstrates

and partnership are always interwoven.


dvanced technology and human factors like “good will”

strategic supply chain partnerships

enhanced visibility, viable informa-

proactively conducted and

for instance, have developed

oducts through a multi-channel


market delivery and thus, avoiding product obsolesce on their shelves.


______________________________________________________________________


Figure 12: Tailoring Operations to match divergent Business Needs

Figure 12 above illustrates the two products, one is

other is a low-cost one,

highest customer demand

growth in sales revenues at the point of market entry, therefore the product lead

have to be much shorter. Longer lead

product, because its lifeti

well as the maximum revenues are expected later.

tomer groups and adapt them to fluctuations in demand requires a high grade of flexibi

ity, due to increased complex

inadequate43.

43 IBM, 2006


______________________________________________________________________


Operations to match divergent Business Needs

above illustrates the two products, one is short-lived, high

cost one, over their different lifetime cycles. The valuable product has its

highest customer demand at the beginning of its lifetime cycle and generates its highest

growth in sales revenues at the point of market entry, therefore the product lead

have to be much shorter. Longer lead-times can be accepted concerning the low

product, because its lifetime cycle is longer and the maximum customer demand, as

well as the maximum revenues are expected later. To segment products to different cu

tomer groups and adapt them to fluctuations in demand requires a high grade of flexibi

complexity, which makes a one-size-fits-all supply chain approach

______________________________________________________________________


Operations to match divergent Business Needs

lived, high-margin and the

over their different lifetime cycles. The valuable product has its

and generates its highest

growth in sales revenues at the point of market entry, therefore the product lead-times

times can be accepted concerning the low-cost

me cycle is longer and the maximum customer demand, as

To segment products to different cus-

tomer groups and adapt them to fluctuations in demand requires a high grade of flexibil-

all supply chain approach


______________________________________________________________________


1.6 Sustainability

A sustainable supply chain requires an alignment of sustainable value generation for all

participants throughout the value chain, such as suppliers, manufacturers, logistic ser-

vice providers and customers. Value has to be created over the whole lifetime cycle of a

product, which leads to long-lasting commercial success and increases the satisfaction

of all partners in the SCM network. For sustainable supply chain creation transparency

of the network and the willingness to communicate and collaborate are prerequisite for

all partners in the supply chain. The sustainable supply chain secures a competitive ad-

vantage for the collaborating firm alliances, because in widely ramified and worldwide

trading networks also competitors are engaged besides the supply chain partners.

1.6.1 Transparency

The transparency of a supply chain is not only limited to the so-called glass pipeline

which is highly desired by those who are trading throughout the SCM network, but also

is important towards other stakeholders in the business environment like governments

and their regulations, the mass media, environmental activist or socially responsible

investors. More than ever companies of today have to bear in mind the public opinion of

the international community in their supply chains towards the products pulled through

the network are sustainably and reliably useable, as well as in which way they had been

manufactured. Aspects of environmentally compatible manufacturing and also human

rights concerning child labor take their effects here. A company which is capable to

make its supply chain transparent towards society and by communicating these

attributes outwardly can gain a significant competitive edge towards its rivals.

Transparency, of course, is also important for all supply chain partners. Besides en-

hanced efficiency and productivity through allover visibility, which is still wishful

thinking, transparency also strengthens the trust among each other as the SCM practice

and processes of a certain firm become understandable for all participants. The common


______________________________________________________________________


reputation of a company is concerned here which is crucial for both gaining and retain-

ing customers as well as to be approved as a reliable cooperation partner towards sup-

pliers and service providers, which facilitates the execution of business activities

enormously. A good firm reputation facilitates also the collaboration with governmental

bodies and surpasses national frontiers as well. The willingness for communication is

essential for all partners to create transparency throughout the entire supply chain net-

work44.

1.6.2 Communication

Because of transparency in the supply chain generates confidence, the willingness to

communicate among the participants will be enhanced for mutual interest.

Very often communication, understanding and above all information quality are lacking

among the supply chain partners, which is not always related to a lack of trust but also

to missing standards in information exchange in terms of technology or cultural and

language barriers. Many failures in the management of suppliers, customers and service

providers can be explained by inadequate, missing or even false information. While

communication worldwide is enabled sufficiently today via information technology like

the internet, ERP-systems or RFID, poor communication is mainly rooted in human

behavior. A comprehensive information infrastructure is often missing and not suffi-

ciently provided by the players within the supply chain, because suppliers do not see the

right incentives to communicate with their customers in an adequate way, or companies

have ignored to reserve certain financial resources to invest in suitable information

technology, which enables the connection to a globalized supply chain network per se.

Another reason is that third-parties, such as service providers of all kind are not well

integrated into SCM network. Fragmented and inconsistent information occurs when

data is collected decentralized by many separate parties, like business units, external

44 BSR, 2007


______________________________________________________________________


entities or consultants, which are not compared with each other because a central func-

tion for data aggregation is missing throughout the supply chain network.

All these shortcomings due to poor communication lead to longer lead-times, hampered

decision making processes, serious compliance infringements and therefore to a in-

creased risk concerning failed operations or the impairment of the company’s reputation

or brand.

Communication adapted to the needs in the right place and at the right time guaranties a

common knowledge base for all players in the network, which also contributes to the

elimination, mitigation or common shouldering of certain risks in a collaborative way.

The willingness to commonly estimate and shoulder the occurring SCM risks is prere-

quisite for the third cornerstone, the collaboration, which leads to sustainability and ro-

bustness of a supply chain45.

1.6.3 Collaboration

The participating firms within a supply chain network can collaborate in many different

ways. Collaboration, as a whole, is always aligned to mutual benefits and bears strategic

alliances between companies. Firms are sharing information, shoulder and eliminate the

common risks and, above all, they commonly develop new products and effective and

efficient processes. It is wrong to consider collaboration merely as outsourcing, because

collaboration is always related to innovation as well, by contrast to producing and repli-

cation of something in low-cost countries having the lower production costs in mind.

The following constraints enforce firm collaboration:

• Increased product complexity

• Cheap and skilled labor as stimulation for product innovation abroad

45 BSR, 2007


______________________________________________________________________


• Different regional specializations worldwide provide attractive opportunities and

capabilities

• Enhanced technology as an innovation enabler

Just in the field of R&D an increased change takes place from centralized, vertically

integrated and company-owned R&D departments to partners providing better capabili-

ties in development and adequate resources. A change in innovation management can be

observed which urges companies to improve their performance via collaboration efforts.

Rather than aiming at mere wage arbitrage the capabilities and the knowledge of colla-

boration partners are required by collaborative companies to realize innovation in their

top lines. To make these efforts efficient requires a reorganization of the companies.

Collaboration may not considered merely as cost reduction but it plays a strategic role.

Collaboration partners have to be turned into functions and have to be managed accor-

dingly, e.g. a supplier gets a procurement function. Long-term investments in collabora-

tive capabilities of external partners will often pay off sooner than to rely solely on the

abilities of the own employees to manage the complexity of the supply chain network.

External partners are often nearer to what is going on and have more specific informa-

tion. Access to the capabilities and knowledge of collaboration partners can lead to a

significant competitive advantage and increased product differentiation. Through com-

mon product development the R&D costs are lowered either.

The challenge of partnering finds its expression in the deviation from a conventional

transaction model, which regards collaboration merely as outsourcing working on rou-

tines in favor of cost savings, to a collaborative model where issues like team design,

contract structure and intellectual property management play a significant role.

Collaborative capabilities can be created by taking four major pillars into account:

• People

• Process


______________________________________________________________________


• Platform

• Program

An alliance always consists of several partners. These partners have to be found, ma-

naged and, if necessary, trained and educated accordingly. Processes have to be adapted

to the collaborative model by the achievement of a certain balance between top-down

and bottom-up relationships turning collaborative capabilities into business opportuni-

ties. Therefore the collaboration partners have to be treated as equal companions in the

network. An adequate technology platform has to be allocated which enables the al-

liance partners to conduct SCM activities effectively and efficiently and to communi-

cate in a collaborative manner. The transition of a company to a more collaborative

model merely should not be understood as one project, but rather as a coherent program,

which requires the responsibility of a specially intended person within a company – the

Chief Collaboration Manager (CCO), who builds up the alliance with international part-

ners properly and develops collaborative strategies hardly to imitate for competitors46.

1.7 Visibility

The logistics literature employs the expression “visibility” to describe the availability of

information about the conditions of logistical systems, which means when visibility

increases, uncertainty becomes lesser. Information demand depends on the situation at

time, referring to objects like order state, inventory, production capacities, product qual-

ity, processes, collaboration relationships and cost structure47. A central notion in logis-

tic management is that the whole performance of the delivery network can be enhanced

by increasing the visibility. Information sharing between companies is prerequisite for

visibility in logistical networks48. New information technologies, like RFID for instance,

46 Forbath and Brooks and Kalaher and MacCormack, 2007 47 Straube, 2004 48 Alshavi, 2001; Balasubramanian et al., 2002


______________________________________________________________________


contribute to increased visibility; visibility is limited by the apathy of companies to di

close their processes. In the context of GSCM visibility is imperative to ensure the

availability of information based on real

Actionable information delivering current and detailed operational data is highly impo

tant to assess actual state of demand or supply, as well to recognize possible gaps and

misalignments. Due to the circumstance, that perfect dema

exist in global supply chains the maximum level of visibility is desired providing the

most exact image of reality as possible which enables the company to see continuously

how its proposed actions impact the corporate objecti

According to a survey conducted by the Aberdeen Group between May and June 2006

among 150 U.S. companies, the results shown in Figure

an investment in increased visibility throughout the gl

month timeframe, is prioritized by 72 % of the surveyed companies.

Figure 13: Global Supply Chain Technology Investment Areas

ply Chain Management on a Global Scale

______________________________________________________________________


contribute to increased visibility; visibility is limited by the apathy of companies to di


availability of information based on real-time operational and not on historical data.

Actionable information delivering current and detailed operational data is highly impo


misalignments. Due to the circumstance, that perfect demand or supply plans yet do not



how its proposed actions impact the corporate objectives, before they commit to action.


among 150 U.S. companies, the results shown in Figure 13 below clearly point out that

an investment in increased visibility throughout the global supply chain, within a 24

month timeframe, is prioritized by 72 % of the surveyed companies.

: Global Supply Chain Technology Investment Areas

______________________________________________________________________


contribute to increased visibility; visibility is limited by the apathy of companies to dis-


not on historical data.

Actionable information delivering current and detailed operational data is highly impor-


nd or supply plans yet do not



ves, before they commit to action.


below clearly point out that

obal supply chain, within a 24


______________________________________________________________________


1.8 Key Inventory Strategies

1.8.1 Vendor Managed Inventory

Manufactured goods hold out in an inventory is tied-up working capital and therefore

these goods have to be considered as one of the most valuable assets of a company. Due

to volatile customer demand and thus, steady changing supply chains of today, the in-

ventory has to be managed effectively to generate maximum sales revenues.

One key strategy pursued in stock keeping is the vendor managed inventory (VMI),

where a distribution or manufacturing-intensive company consigns the responsibility of

monitoring and replenishing their stocks to one or even more of its suppliers. This can

happen in two ways: supplier push-based, which is disadvantageous for the supplier, or

supplier pull-based. In the traditional push-based system the supplier holds up the goods

manufactured in an in-bound VMI hub or another location, according to customer’s

forecast. Up to the date when the customer pulls the products down the supplier remains

still the owner and has to shoulder the inventory carrying costs. A higher inventory risk

occurs for the supplier as well as the consequences of holding up an additional bucket of

inventory further on. As a result that the customer wants always to have surplus goods

at the ready, excess inventory will arise when the customer’s forecast fails, which be-

longs to the suppliers liability. By contrast a pull-based replenishment system, where

the supplier manufactures according customer demand pulls, like in Lean systems, re-

duces that liability drastically. Due to sophisticated supplier collaboration information

systems it is possible to charge the supplier to ensure the inventory maintenance within

a pre-defined min/max range49.

49 Aberdeen Group, 2004


______________________________________________________________________


1.8.2 Merge-In-Transit

For lowering safety stock levels the merge-in-transit strategy can be employed to reduce

total delivery costs and for maximizing revenue opportunities. In-transit inventory is

still on the move and therefore not stored at a fixed location. Moreover the transit route

is utilized as so-called virtual bin where inventory, while in transit, is relocated and re-

directed by new allocating orders or assigning new shipment instructions to direct the

inventory to higher-demand destinations or to consign unallocated inventory to a re-

sponsible person until a true demand pull occurs. In multi-stage manufacturing or also

in finished goods inventory distribution processes virtual bins are common means of

inventory management. If lead-times are low and transit times are long, it might be ad-

visable for replenishing enterprises pursuing the merge-in-transit strategy, to negotiate a

replenishment contract in such manner that goods in transit have to be considered as

inventory which is already available.

By deployment of excellent merge-in-transit strategies, provided that sound in-transit

visibility and reliable shipment to the customer are ensured, fewer days of supply at the

hub and lower total inventory costs can be achieved50.

1.8.3 Postponement

Postponement strategies are directly related to product mass customization. The strategy

aims at delaying the final assembly state of a standard product as long as possible, so

that a final configuration of the finished product can be realized customer specifically

on the basis of the underlying standard product. It is prerequisite that companies pur-

suing a postponement strategy have to be capable of light assembly, kitting or custo-

mized packaging before order fulfillment.



______________________________________________________________________


Figure 14 below helps to explain how a postponement strategy can work within the val-

ue chain. The first step is to focus on the so-called cross-over point (COP) in the figure.

Pull-Call-off-to-order

Pull-Call-off-to-order (Component Level)

Pull-Assemble-to-order

Pull-Customize-to-order

Push/Pull-Make-to-Stock

Push-Make and Ship-to-Stock COP 1

COP 2

COP 4

COP 5

COP 6

COP 3 Postponement

Local Stock

Component Warehouse

Tier Ones

Finished Products

Stock Abroad

Source : Booz Allen Hamilton, 2008COP = Cross-over Point

Figure 14 : Decoupling and Postponement

The cross-over point is that certain point where a standard product, taking its way

through different stages in the assembly line of the value chain, is customer specifically

altered. To push this point as far as possible back to the beginning of the value chain is

the most suitable situation, because this diminishes the inventory carrying cost for all

the other following partners in the value chain, due to the inventory which is already

customized, can be stored far back while pulling it directly through the pipeline to the

customer, outgoing from the first tier. As far back as the COP is located in the supply

chain a switch from pushing to forecast toward pulling to real demand is implicated.

Having a COP at the beginning of the chain is an ideal case towards steadily changing

customer demand and the risk of early product obsolescence, so late-stage customiza-

tion is the lever of postponement, which gives the supply chain a higher degree of flex-

ibility. Regarding the aforementioned real market situation, several immediate benefits

of postponement are at hand. First, the supply chain gets more responsive with an im


______________________________________________________________________


proved customer service and shorter lead-times to the customer. Second, finished prod-

ucts via late-customization can be shipped in a bulk, which reduces the transportation

costs massively in contrast to boxed shipments. Third, the risk of stock-outs is lower

due to shorter practical lead times. Fourth, the inventory level can be held lower, be-

cause safety stock pools are implemented. Fifth, the supply chain gets a stabilized up-

stream character caused by mellow configuration efforts to meet customization. Sixth,

the time to customer even in the “last mile” can be remarkably reduced due to pre-

installed independent vendor managed inventories in the responsibility of first or

second-tier suppliers. At least uncomfortable stock keeping units (SKU’s) which are

difficult to manage can be transformed into mellow items due to reduced practical lead-

times enabled by postponement51.

1.9 Build-To-Order Manufacturing and the Agile Enterpr ise

Besides positioning, integration and measurement, seen as core competencies of first-in-

class logistics, the expression “agility” has to be mentioned as well52. Due to increased

market dynamism and customer orientation lead to higher demand uncertainty, compa-

nies have to face new challenges in their value chain networks. Reasons for these cir-

cumstances are global competition, cyclical fluctuations and ephemeral trends. The ca-

pability to adapt to environmental issues through flexibility, e.g. via new forms of coop-

eration, scalability of the production output and the service alignment to the customer’s

needs, becomes a competitive advantage more and more53. Several designing activities

in the fields of production and logistics, such as postponement and rapid replenishment,

have an influence on achieving the principles of the agile delivery network. Figure 15

below identifies programs (Step 2), such as Lean Production, organizational agility and

51 Bliss and Haddock, 2008 52 Bowersox et al., 1995 53 Christopher, 2000


______________________________________________________________________


Quick Response, as well as the belonging designing activities (Step 3) which support

the agile delivery network.

Figure 15: Measures to support the Agile Delivery Network

Besides flexibility, quality and efficiency are also strategic success factors in SCM.

Correspondingly the concept of the agile delivery network supplements concepts like

Lean Management and TQM54. However a trade-off has to be made between flexibility

and efficiency, because increased flexibility is often interrelated with rising costs. By

contrast to Lean Management, with efficiency as the determining success factor, the

agile supply chain gains success through its service level55. The demand of flexibility is

depending on the certain kind of service which is provided56. Taking raw materials or

54 Aitken et al., 2002 55 Mason-Jones et al., 2000

56 Fisher, 1997

Post-ponement Agile Delivery

Network

RapidReplenishment

VendorManaged Inventory

DemandChain

Agile Supply

OrganizationalAgility

DemandVisibility

Cross-FunctionalTeams

ProcessMnagement

SynchronizedActivities

SteadySupply

QuickResponse

FlexibleManufacturing

LeanProduction

ShortenedLead-Times

ShortenedMake-Ready

Times

Effects ofScale

Standardization

UnefficientActivity

Avoidanc

Implicationsof the

Agile Production

Implicationsof the

Agile Logistics

Step 1Principles

Step 2Programs

Step 3Measures

Source: Christopher, 2001, p.243


______________________________________________________________________


generic spare parts into account the flexibility demand is rather low; however it is high

considering fashion articles or build-to-order manufactured goods. These facts have

their implications on the design of the delivery network, e.g. the extend of security buf-

fers, the structure of costs to earnings, the forms of cooperation and information supply.

A good example for the successful implementation of a build-to-order strategy is Dell

Computers Inc., and its realization of an operation paradigm. The competitive perfor-

mance objectives of a build-to-order (BTO) manufacturing company are quality, price,

responsiveness, flexibility and reliability. Due to increased customer orientation of the

companies, mass customization has become a major objective to supply the consumer

with products according to his needs immediately. The BTO system enables an enter-

prise to end the working day with empty tables, as well as zero inventories containing

no finished goods, because the BTO products already had been dispatched via just-in-

time delivery57. Dell, for instance, gained market share by offering customized comput-

ers and utilization of the Internet to fulfill the orders. Therefore a BTO system has to be

considered always as global, due to the implications of Internet ordering worldwide,

while a traditional SCM can be conducted locally as well. There are several other dif-

ferences between traditional SCM and a BTO supply chain. Traditionally the marketing

has a “push” character, which means that the products are sold from stock, while BTO

SCM is “pull-driven” by production to customer order. The traditional production is

focused on level and stable schedules, as well as fixed order lineups, where the BTO

SCM has a much higher degree of flexibility to meet individual customer demand. Lo-

gistics in traditional SCM is a mass-approach and non-differentiated, while BOT SCM

deals with a fast, reliable and customized approach. While the customer relationships in

traditional SCM mainly are dealer-owned, BOT SCM shares then across the extended

enterprise. Uncertainty is managed by holding finished goods inventory buffers in the

traditional way, while BOT SCM utilizes information management and strategic part

buffers. The suppliers normally have long lead-times in traditional SCM and by contrast

the BOT SCM is aligned to collaborate with its suppliers and to be responsive.

To operate with nearly no work-in-process inventory, like Dell does, a constant real-

time information flow and responsiveness among partners, especially close relationships

to suppliers, are crucial to optimize the whole system. In a build-to-order supply chain

(BOSC) certain parts delivered by suppliers are pulled through the pipeline just accord

57 Wagner et al., 2003


______________________________________________________________________


ing to the needs for production. What really remains from a BOT enterprise is merely a

virtual company instructing an original equipment manufacturer (OEM) to perform the

assembly operations only, while all the other operations had been outsourced to partner-

ing firms or suppliers.

Therefore a build-to-order supply chain has to be knowledge-driven and centered on

customer service, which enables it to ensure excellent competitive performance. Figure

16 below depicts a framework to develop BOSC58.

BOSC andOrganizational Competitiveness

BOSC and InformationTechnology

Operations of BOSC

Developing and ImplementingBOSC

BOSC

Economic, Market and competitive Factors, Management Participation,Global Market and Competitivenes, Agility and Cost, Global Outsourcing, E-Business, New Products/Services, New Market Creation

Partnership based on Core Competencies,Collaborative Firm Networks, Virtual Manufacturing, Virtual Logistics,Planning and MonitoringImplementation Process,Performance Measures and Metrics

Advanced Planning Systems,Aggregate Planning, Material Forcasting, Availability of all ResourcesEnhanced Material Flow Visibility throughoutthe Supply Chain, Pull Schedulimg

Enterprise Intergation via:

•Internet•ERP-Systems•Web Services•RFID

Source: Gunasekaran, Ngai, 2004, p. 444

Figure 16: A Framework for the Development of BOSC

58 Gunasekaran and Ngai, 2004


______________________________________________________________________


1.10 Supply Chain Risk Management

Claiming that uncertainty and occurring risks in global supply chains can be effectively

tackled by mere schedule execution as a result of supply chain planning is just a myth,

because global supply chain networks of today encompass complex interactions and

flows even between thousands of companies and facilities geographically distributed

allover the world, which leads inevitably to an increase of uncertainty and risk groun-

ding, for instance, in the mere focus on efficiency, the globalization itself, centralized

distribution, outsourcing, reduced supplier bases, demand volatility and the lack of visi-

bility. These facts make supply chains unpredictable and chaotic which requires for

safety mechanisms protecting a company against unforeseen events. How the loss

which results from the variation of supply chain outcomes, their probability and their

subjective value is distributed can be described as the supply chain risk. The considera-

tion of basic constructs like the sources of risk, the consequences, the risk drivers as

well as strategies to mitigate the risks enables better preparedness for handling and pre-

venting possible supply chain risks through adequate risk management.

1.10.1 Nature of Supply Chain Risks and Occurring Problems

Occurring supply chain risks can threat a company in several fields:

• Process level

Faulty processes like hampered delivery


______________________________________________________________________


• Organizational level

Employee strikes, communicable diseases, quality problems, machine related

failures, raw material shortages, spare part unavailability, delayed product intro-

duction, opportunistic management behavior

• Collaborative relationships

Violation of intellectual property rights of the company by a collaborating spe-

cialist

• Interaction with network partners

Possible attacks on company-owned assets, assets of suppliers, customers, trans-

portation providers, possible attacks on communication lines, irregular behavior

of network partners

• Within the industry as a whole

Price, quality or quantity fluctuations, new entrant to the market with disruptive

technology

• The business environment

Economic slow downs, foreign exchange fluctuations, war, policy changes like

price controls, free trade zones, financial barriers, terrorist attacks, natural ca-

lamities

Supply chain risks can be classified into three broad forms: deviation, disruption and

disaster. A deviation is characterized through irregular scattering of one or more para-

meters, like cost-demand or duration of lead-times, around their empirical mean value


______________________________________________________________________


without affecting the underlying supply chain. A radical transformation of the supply

chain is a disruption, like disruptions in production due to earth quakes, disruptions in

supply due diseases, logistical disruptions like port shut downs. A disaster can be de-

scribed as temporary shut-down of the entire supply chain network as a consequence of

unforeseen catastrophes which can not recovered at the moment.59

1.10.2 Emerging Tools and Services for Risk Mitigation

This section provides a selection of current new tools and services offered in the market

designed for supply chain risk mitigation. One tool had been created as a symbiosis be-

tween business consultancy and technology providers to help companies assessing their

individual supply chain risks and to identify their vulnerabilities concerning the product

lines and also the preparedness of their collaborating partners towards occurring risks.

The management of upstream continuity threats threatening their components supply,

spare parts as well as the merchandise on their shelves will be enhanced. Embedding

risk mitigation steps into current enterprise processes becomes easier by deployment of

trade compliance technology in connection with web services to create seamless auto-

matically triggering restricted party screenings and licensing checks at all appropriate

points within a sales transaction. What-if analysis is possible with supply chain network

design tools, software which optimizes the inventory, quantifies the supply chain risks

and creates a contingency plan about what to do in case of disruptions and disasters. In

addition the creation of crisis-response plans is possible as well. In extremely ramified

supply chains cargo security systems equipped with RFID in combination with GPS is a

useful new tool to track containers in the pipeline and identify possible intrusions and

monitor for smuggled goods. Managed service providers and BPO vendors are offering

their services to support a company in identifying and mitigating risks, as well the im

59 Gaonkar and Visvanadham, 2004


______________________________________________________________________


provement of the supply chain reliability by providing a sound knowledge about

strengths and weaknesses of global and local supplier and logistics networks.60

1.11 Global Supply Chain Management Trends 2010

According to a survey among 300 globally acting companies which had been conducted

by Cohen, Geissbauer, Bhandari and D’heur on behalf of PRTM Management Consul-

tants between December 2007 and February 2008, several major trends had been crys-

tallized concerning the development of global supply chain management in the near

future. The survey had been conducted among companies worldwide and in several in-

dustry sectors. The major geographic regions, which had been chosen to conduct the

survey, are the Americas, Asia Pacific and Europe.

A steady accelerating globalization encourages globally acting supply chain organiza-

tions to realign their supply chain for successful supply chain performance. The respon-

dents of the survey consistently intend to increase their off-shoring activities in the near

future, disregarding the industry where they are settled in or the supply chain maturity.

Figure 17 below illustrates, that the two major function manufacturing and final assem-

bly have already been off-shored to low-cost countries like India, China and Eastern

Europe.



______________________________________________________________________


Figure 17 : Globalized Functions 2008 and Projected Increase by 2010

A remarkable trend is the willingness of the companies to off

product development, which had been al

therefore kept in-house. The reason is that companies are increasingly planning to enter

foreign markets thus, thy have to adapt their products to the local customer’s needs. A

second reason is that the qualified R&

firms, but available in off

shoring activities in product development will more than double up to 2010.

below shows the main drivers for glob

It is evident, that cost savings in material, direct and indirect labor, as well as gaining

access to local markets are belonging to the top three drivers. The reason is that cost

discipline and efficiency are

to a strict focus on cost control and rationalization to streamline excess resources within

the supply chain and to improve the performance of the working capital.


______________________________________________________________________


: Globalized Functions 2008 and Projected Increase by 2010

A remarkable trend is the willingness of the companies to off-shore

product development, which had been always core competencies of the firms and

house. The reason is that companies are increasingly planning to enter


second reason is that the qualified R&D staff is lacking in the home counties of the

firms, but available in off-shoring regions at low costs. According figure

shoring activities in product development will more than double up to 2010.

below shows the main drivers for globalization mentioned by the surveyed companies.



discipline and efficiency are main topics on the agenda of the surveyed companies due

cost control and rationalization to streamline excess resources within


______________________________________________________________________


: Globalized Functions 2008 and Projected Increase by 2010

shore their R&D and

competencies of the firms and

house. The reason is that companies are increasingly planning to enter


D staff is lacking in the home counties of the

shoring regions at low costs. According figure 13 the off-

shoring activities in product development will more than double up to 2010. Figure 18

alization mentioned by the surveyed companies.



main topics on the agenda of the surveyed companies due

cost control and rationalization to streamline excess resources within



______________________________________________________________________


Figure 18 : Drivers for Globalization

Another trend which had been experienced by the surveyed companies is, that despite

17% average cost reduction per globalization initiative had been achieved

ment and overhead cost are stagn

coordination efforts concerning the international and local markets. The anticipated

payback is often lower than expected due to inefficient processes and supply chain

coordination. May be the expect

following phase of learning might follow which encourages the firms to rethink their

business strategies with reference to a more realistic business case to benefit from gl

balization.

Estimating the nearer future investment trends the intentions of the surveyed companies

are clear. China is and will remain the most attractive FDI region also in the future b

cause of its strong, low

countries by receiving one third of all FDI

are increasingly gaining momentum because of their excellent labor skills at low costs,

which is important for R&D as well as

proximity of Eastern Europe to key markets in Western Europe providing skilled pe

sonnel, infrastructure resources and supply chain coordination capabilities.

Globalization initiatives are not without risks. The main risks which had been observed

by the surveyed companies were related to product quality and safety. They try to tackle

gement on a Global Scale

______________________________________________________________________


: Drivers for Globalization


17% average cost reduction per globalization initiative had been achieved

ment and overhead cost are stagnating or even slightly increasing, because of increased



May be the expectations of the companies had been still to high and a


with reference to a more realistic business case to benefit from gl

arer future investment trends the intentions of the surveyed companies

are clear. China is and will remain the most attractive FDI region also in the future b

cause of its strong, low-cost manufacturing base. China outstrips all other off

by receiving one third of all FDI’s at the moment. India and Eastern Europe


which is important for R&D as well as for product development, and additionally the

ty of Eastern Europe to key markets in Western Europe providing skilled pe

l, infrastructure resources and supply chain coordination capabilities.


companies were related to product quality and safety. They try to tackle

______________________________________________________________________



17% average cost reduction per globalization initiative had been achieved the manage-

ating or even slightly increasing, because of increased



ations of the companies had been still to high and a


with reference to a more realistic business case to benefit from glo-

arer future investment trends the intentions of the surveyed companies

are clear. China is and will remain the most attractive FDI region also in the future be-

cost manufacturing base. China outstrips all other off-shoring

at the moment. India and Eastern Europe


product development, and additionally the

ty of Eastern Europe to key markets in Western Europe providing skilled per-

l, infrastructure resources and supply chain coordination capabilities.


companies were related to product quality and safety. They try to tackle


______________________________________________________________________


theses risks by conducting supplier audits and trainings and by employing certain risk

mitigation strategies, such as consistent dual sourcing, early integration of product d

velopment and supply chain management

market facilities. Another challenge which is obviously pointed out in Figure

is lack of supply chain flexibility in emerging markets. This circumstance makes it hard

to realize just-in-time deliveries. Additionally many surveyed companies mentioned the

lacking internal competencies to manage their external partners

urgently required. A lot of collaboration partners had been selected too fast ov

time with the consequence that these partners are not reliable enough. Hence it will be a

prerequisite to find and choose diligent business partners in the years to come

successful in global markets.

The attitude of the surveyed companies towards supply chain sustainability in terms of

so-called “green” supply chain creation is obviously and clear as well. Not many firms

are interested in differentiation from

ing environmental initiatives concerning supply chain sustainability from that point of

view – however this varies depending on the industry sector. Most firms are merely

interested to meet regulatory complia

disturbances by authorities

Figure 19 : Barriers to Globalization


______________________________________________________________________



mitigation strategies, such as consistent dual sourcing, early integration of product d

ment and supply chain management, as well as late product customization in home

Another challenge which is obviously pointed out in Figure


time deliveries. Additionally many surveyed companies mentioned the

lacking internal competencies to manage their external partners, thus, staff training is

A lot of collaboration partners had been selected too fast ov


prerequisite to find and choose diligent business partners in the years to come

successful in global markets.


called “green” supply chain creation is obviously and clear as well. Not many firms

fferentiation from competitors and revamping their image by practi


wever this varies depending on the industry sector. Most firms are merely

interested to meet regulatory compliances to run their businesses smoothly

disturbances by authorities. On the other hand it would be unfair after all

: Barriers to Globalization

______________________________________________________________________



mitigation strategies, such as consistent dual sourcing, early integration of product de-

customization in home

Another challenge which is obviously pointed out in Figure 19 below


time deliveries. Additionally many surveyed companies mentioned the

, thus, staff training is

A lot of collaboration partners had been selected too fast over the last


prerequisite to find and choose diligent business partners in the years to come for being


called “green” supply chain creation is obviously and clear as well. Not many firms

competitors and revamping their image by practic-


wever this varies depending on the industry sector. Most firms are merely

nces to run their businesses smoothly without any

after all to leave the


______________________________________________________________________


estimation of more than a half of the

crease in importance for tha

A very interesting trend which had been noticed is that the maturity in global supply

chains of today seems to stagnate. Figure

chain leader remained nearly the same over the last few years

lowers increases.

Figure 20 : Evolution of Supply Chain Maturity 2004

The number of challenger had been fallen as well, which indicates that the innovative

processes to improve supply chain interact

global scale. This has to do with the increased complexity and the efforts which are n

cessary to stem global supply chain challenges today.

gained ground in performance due to improved

tion to compete as equal participants in the global markets.

count, which mirrors the supply chain maturity development

the results are nearly the same. However, worthwhile to mention in this case is that the

automotive and industrial sector has the most followers, while the electronic industry

records the most leaders.

ply Chain Management on a Global Scale

______________________________________________________________________


estimation of more than a half of the participants unmentioned, that they expect

crease in importance for that issue by 2010.


chains of today seems to stagnate. Figure 20 shows that the number of global supply

chain leader remained nearly the same over the last few years, while the number of fo

: Evolution of Supply Chain Maturity 2004-2007/8


processes to improve supply chain interactions have reached a certain plateau on this

global scale. This has to do with the increased complexity and the efforts which are n

cessary to stem global supply chain challenges today. Except Asian supply chains

gained ground in performance due to improved managerial capabilities and the resol

tion to compete as equal participants in the global markets. Taking figure

count, which mirrors the supply chain maturity development by several industry sectors



records the most leaders.

______________________________________________________________________


, that they expect an in-


shows that the number of global supply

while the number of fol-


ions have reached a certain plateau on this

global scale. This has to do with the increased complexity and the efforts which are ne-

Except Asian supply chains

managerial capabilities and the resolu-

Taking figure 21 into ac-

by several industry sectors,




______________________________________________________________________


Supply chain flexibility

near future, currently having the third position the in supply chain driver ranking, b

sides product quality and customer service

supply chain flexibility concerning its future strategic importance is obvious and it

estimated to rise by 61% from now on. This can be explained by the assumption that

global supply chain flexibility might represent the

future global supply chains, and it requires the hardest efforts, especially when

dering certain issues like

very performance and improved customer service

The following three figures

supply chain management issues are prioritized by the different global regions. The r

sult is that they look really similar.

Figure 21 : Supply Chain Maturity by Industry


______________________________________________________________________


Supply chain flexibility has crystallized as the main strategic supply chain driver in the

near future, currently having the third position the in supply chain driver ranking, b

sides product quality and customer service, according to the survey.

supply chain flexibility concerning its future strategic importance is obvious and it

by 61% from now on. This can be explained by the assumption that

global supply chain flexibility might represent the ultimate competitive advantage in

global supply chains, and it requires the hardest efforts, especially when

like advanced supplier relationships, enhanced just

very performance and improved customer service, respectively, relationships

The following three figures 22 to24 deliver an overview about what kind of global

supply chain management issues are prioritized by the different global regions. The r

sult is that they look really similar.

Chain Maturity by Industry

______________________________________________________________________


supply chain driver in the

near future, currently having the third position the in supply chain driver ranking, be-

ding to the survey. The focus on

supply chain flexibility concerning its future strategic importance is obvious and it is

by 61% from now on. This can be explained by the assumption that

ultimate competitive advantage in

global supply chains, and it requires the hardest efforts, especially when consi-

advanced supplier relationships, enhanced just-in-time deli-

respectively, relationships.

deliver an overview about what kind of global

supply chain management issues are prioritized by the different global regions. The re-


______________________________________________________________________


Figure 22: Supply Chain Issues for 2010 European Perspective

All three regions of the world have the improvement of the supply chain flexibility and

the delivery performance, as well as accelerated globalization of their companies

top three issues on their agenda. This indicates that the attitudes seem to converge

across the globe.

Figure 23 : Supply Chain Issues for 2010 Asian Pacific Perspective

Another emerging trend seems to be that supply chain

gaining importance to prevent further inefficiencies caused by inventory and supply

demand imbalances along the supply chain by advanced planning.


______________________________________________________________________


: Supply Chain Issues for 2010 European Perspective


the delivery performance, as well as accelerated globalization of their companies


: Supply Chain Issues for 2010 Asian Pacific Perspective

Another emerging trend seems to be that supply chain effectiveness is increasingly

ing importance to prevent further inefficiencies caused by inventory and supply

demand imbalances along the supply chain by advanced planning.

______________________________________________________________________



the delivery performance, as well as accelerated globalization of their companies as the


: Supply Chain Issues for 2010 Asian Pacific Perspective

effectiveness is increasingly

ing importance to prevent further inefficiencies caused by inventory and supply-


______________________________________________________________________


Figure 24 : Supply Chain Issues for 2010 America

Due to the gained results above it is obvious to see that all surveyed companies around

the globe have to face the same challenges, which might predict that the pursued strat

gies will be similar as well. Towards this development an incre

between well-matched rivals has to be expected.

1.12 Conclusion

The following conclusions have to be drawn after the previous pa

of the 21st century will align

creasing ramification of these large value chain networks will also bring new risks

certainties and above all more information gaps

cope with, compared to

concerning customer orientation

supply chain footprint have to struggle a lot more than their locally aligned counterparts

to gain competitive advantage.

sults in internal metrics like cost

SCM costs due to enhanced opportunities to source abroad

costs in low-cost countries


______________________________________________________________________


: Supply Chain Issues for 2010 American Perspective


the globe have to face the same challenges, which might predict that the pursued strat

gies will be similar as well. Towards this development an increased global competition

matched rivals has to be expected.

The following conclusions have to be drawn after the previous passages

century will align more and more globally. More complexity due to the i

creasing ramification of these large value chain networks will also bring new risks

and above all more information gaps globally-oriented companies have to

compared to companies with a regional supply chain footprint. Especially

oncerning customer orientation and perfect order performance enterprises with a global


to gain competitive advantage. On the other hand this is to compensate with be

sults in internal metrics like cost-of-goods sold as a percentage of revenues, or total

SCM costs due to enhanced opportunities to source abroad, as well as

cost countries in mind. A clear trend in GSCM is significantly

______________________________________________________________________


n Perspective


the globe have to face the same challenges, which might predict that the pursued strate-

ased global competition

sages. Supply chains

globally. More complexity due to the in-

creasing ramification of these large value chain networks will also bring new risks, un-

oriented companies have to

companies with a regional supply chain footprint. Especially

and perfect order performance enterprises with a global


On the other hand this is to compensate with better re-

goods sold as a percentage of revenues, or total

as well as having the labor

is significantly evolving


______________________________________________________________________


directing the pace to increased flexibility, realized by enhanced visibility, and the so-

called demand-driven supply chain, also under the aspect to enter and exploit the poten-

tials of newly emerging markets. The key of competitive success today is to deal with

unexpected and therefore unplanned situations, in that way, that adequate corrections

and trade-offs have to be chosen to keep the right course ahead. Considering heightened

customer expectations and declining brand loyalty customers have a lot more globally

available options and more purchasing alternatives to choose from. Hence, companies

have to realize that they can not plan the customer; the new demand-driven business

landscape requires a customer responsive pull supply chain model instead of the increa-

singly becoming obsolete push model which had been suitable in times of greater con-

trol opportunities over supply management, capacity and production to streamline ex-

ecution.

If these newly arising pressures are not adequately taken into account, the top and bot-

tom line performance of a firm can be significantly affected. Strategic supply chain

management and demand management capabilities are urgently required in the years to

come.

Another technological contribution to make a supply chain more flexible, visible and

therefore more responsive is Radio Frequency Identification (RFID). The following

chapters highlight the nature and the impacts of RFID in the global supply chain

2 Auto-ID Systems and RFID Technology

______________________________________________________________________



2.1 Introduction

Radio Frequency Identification (RFID) has to be seen as an IT-infrastructure approach

consisting of hardware and software. This technology is mature and responsible for a

paradigm shift represented by a transformation of business processes and the capability

to create collaborative relationships with partners all along the supply chain network61.

The utilization of electromagnetic energy enables this technology to identify items in a

certain environment by attached RFID tags on the product which is to identify, able to

transmit product relevant information to an interrogating reader device conveying this

information to superior corporate information systems. Through this, appropriate views

of the reality throughout the extended enterprise are provided for employees, trading

partners and customers. At present RFID is not widely spread and is limited to several

closed loop applications due to the high costs and small sizes. Also the RFID diffusion

differs from industry sector to industry sector. The most remarkable applications are to

find in the retail sector and logistics, where Wal-Mart and DHL stand for good exam-

ples. Due to EPC Global standardized RFID data exchange for end-to-end supply chain

applications, it is expected that RFID will increasingly gain currency in upstream supply

chain operations like inventory management or distribution on the case and pallet level.

Following improved technologies might encompass the whole supply chain in the fu-

ture, just like barcodes did before62.

While RFID has a major contribution for widening the application field of automated

identification, it enables a first step in the direction of Ubiquitous Computing and its

vision of seamless business process integration in corporate IT-systems63. The following

passages illustrate the features of RFID systems in comparison to other Auto-ID sys-

61 BEA, 2006 62 HP invent, 2005 63 Want,1999


______________________________________________________________________


tems, its system architecture, as well as the relevance of Ubiquitous Computing for

SCM and the RFID contribution to put it into practice.

2.2 Information Management

2.2.1 Information as a Corporate Resource

According to the formal information theory information can be described contra intui-

tively as a measure of uncertainty if the transmission of a message is interfered, which

means the number of alternatives the recipient has to reconstruct the message64.

For companies information has a certain value on equal footing with all the other re-

sources deployed in corporate processes. Therefore information plays a specific role

among all the corporate resources which have to be coordinated throughout a firm. Un-

like to material goods, it is divisible in any way, easy to transfer and is not subject to

wear65. Thus, information has to be evaluated on a different scale which leads to a defi-

nition of a separate notion for information quality66. Information management enables

companies to utilize information as a competitive advantage, especially through the

deployment of the adequate IT like automatic data processing systems, communication

technologies or manufacturing machines67. Asymmetric distribution of information, on

the other hand, is a basic coordination problem of economical activities68.

Resources lasted untouched as a security buffer, without any need for the daily corpo-

rate activities is a problem which is described as organizational slack, which means that

less information is counterbalanced with security buffers to tackle uncertainty some-

64 Shannon and Weaver, 1972 65 Wild, 1971 66 Fleisch and Österle, 2004 67 Porter and Millar, 1985 68 Steele, 1993


______________________________________________________________________


how. However this will have a negative effect on the efficiency of the value chain69.

According to several authors, a company’s competitiveness depends on a certain optim-

al amount of organizational slack. While an excess might lead to ruthless waste of re-

sources, a far too little can diminish innovation and flexibility and thus, the company

might be hampered to react on uncertain events immediately70.

The decision to hold out the right amount of a resource is related to its critical consis-

tency within the company’s performance which requires for excellent information man-

agement.

The correct evaluation of information according its critical consistency gives hints to a

firm how to design the corporate IT, so that these systems treat the company’s demand

for critical information preferentially. From the individual’s perspective uncertainty lays

the foundation for their subjective demand of information. Within the economical in-

formation theory uncertainty is the subjective assessment about the probability based on

an individual’s ability to determine a certain condition in the real world71.

Therefore the right additional information reduces uncertainty in a broader sense.

69 Galbraith, 1977 70 Nohria and Gulat, 1996 71 Laffont, 1989


______________________________________________________________________


2.2.2 Information Requirements and Allocation

While there is plenty of unimportant information available, the resource of important

information remains short72. Therefore the balance between information requirements

and information demand is a crucial task in information management as it is demon-

strated in figure 25 below.

Information available

Current Information

Information demand

Subjective Information Reqirements

ObjectiveInformation Reqirements

Source: Picot et al. , 1998, p.82

Figure 25 : Information Demand and Supply

Beyond this, an adjustment of the information amount to the processing capacity has to

be taken into account.

The information economy provides several evaluation models for information concern-

ing its related purpose, which is subjective, as well as its mobility and divisibility. How-

ever so-called media disruptions hamper the mobility of information in practice. Media

disruptions appear in the corporate IT while information is transferred from one media

onto another kind of media. A good example is the multiple capturing of data of income

72 Blohm, 1988


______________________________________________________________________


ing orders on different IT platforms. Another example is the capturing of data concern-

ing conditions of the real world, such as conducting stocktaking. Possible implications

of media disruptions are delays, information loss as well as failures. Delays might oc-

cur, when goods or commodities enter the warehouse and the entrance or quality control

is conducted manually. Information loss means, that the destination media’s capacity of

storing data is smaller than that of the source media. Another example for information

loss is the translation of information into another language with less articulatory powers

might be another example for information loss. Failures occur when information is

transferred from one IT system into another and during the data capturing process ex-

ecuted by human operators themselves73.

Thus, the motivation for the integration of IT systems into business processes is nur-

tured by the quest for media disruption avoidance. Table 1 provides a good overview

over different kinds of media disruptions which might occur in corporate data

processing and the adequate IT to avoid them.

Table 1 : Media Disruptions in Corporate Information Processing

73 Zerdick, 2001

Media Disruptions IT-Systems avoiding Media DisruptionsWithin corporate functions like finance and productionplanning

Function-oriented standard software

Inbound processes (company-wide)ERP-systems

Outbound processes (beyond the company walls)Comprehensive systems like e-procurement and SCM-

systems

IT-systems connected with events from the real worldIntegrated interfaces for data capturing or machine

steering, e.g. RFID, sensors or MEMS Source: Fleisch, Dierkes, 2003


______________________________________________________________________


2.2.3 Information Quality

Not every information is suitable to improve the ability to make the right decision. False

information due to media disruptions might be a possible reason for wrong decisions.

Especially media disruptions are potential error sources, because they lead to false data

or devaluate information which is time critical due to delays. Operative implications are

poor customer service or unwelcome rework. Strategic implications affect process plan-

ning as well as the definition of business goals74.

Therefore an adequate evaluation model for data quality is prerequisite for data im-

provement measuring. Different investigations utilize data accuracy as a means of data

evaluation. A certain data set can be considered as error-free if its content is complete

and correct according to the requirements of the data model. Comprehensive approaches

formulate user-oriented criteria catalogues evaluating items like the purpose orientation

of the data model, reliability and topicality. User-oriented data models have to measure

data in terms of their beneficial contribution to cover the current or future information

requirements. Hence, the data quality of IT systems supports the corporate information

quality75. Table 2 below points out the dimensions of data quality.

Table 2: Dimensions of Data Quality

74 Redman, 1998 75 Eppler, 2003

Category DimensionsIntrinsic Value Correctness, Objectivity, CredibilityAvailability Access opportunities, Security

Context Purpose, Value-Added, Punctuality, CompletenessRepresentation Interpretation, Intelligibility, Precision

Source: Wang, Strong, 1996, p.20


______________________________________________________________________


Several concepts originated in production management like avoidance of preliminary

data saving, in analogy to just-in-time processes, decreased lead-times, utilization of

smaller batch sizes, individualization and Total Quality Management have already been

recommended to improve information quality76.

2.3 Basics of a Computerized Delivery Network

2.3.1 Coordination Theory

The coordination theory examines coordination problems from the perspective of the

system theory and identifies methods to mitigate or eliminate these problems77. The ap-

proach according to Malone and Crowston, 1991 derives the coordination theory from

concrete organization models. It describes the theory of coordination as “a body of prin-

ciples about how activities can be coordinated, that is, about how actors can work to-

gether”. The examined coordination mechanisms have to be applied equally to social

organizations, economic systems as well as IT systems and hybrid systems78.

The theory makes a distinction between three fields of applications79. First the organiza-

tional design between the particular organization units (coordination mechanisms), se-

condly the design of adequate IT systems supporting these mechanisms (coordination

technology), and thirdly the infrastructure of distributed and parallel IT systems. Coor-

dination problems mainly occur among actors who are sharing concerted resources

while they pursue personal goals.

Coordination is defined as a process to manage the dependencies between several ac-

tivities80. As possible actors have to be taken into consideration: every corporate re-

source, both human beings and machines. Therefore the coordination theory distin

76 Wang, 1998 77 Mesarovic et al., 1970 78 Malone, 1988 79 Malone and Crowston, 1994 80 Malone and Crowston, 1991


______________________________________________________________________


guishes between human-to-human, human-to-machine and machine-to-machine depen-

dencies accordingly. Possible dependencies can be classified into thee types81:

• “Flow”

Occurs if one activity produces a resource required

by another activity (Sequential dependence)

• “Sharing”

Occurs if several activities utilize a common resource (Availability dependence)

• “Fit”

Occurs if several activities produce the same resource (Synchronicity dependence)

In table 3 below the three types of dependencies are pointed out more detailed.

81 Malone et al., 1999

Dependence Representation Examples

Flow

• part supply for the assemblage• Sequential assemblage

• Necessary informationrequirements

Sharing

• Machine occupation• Haulage management

• Central data base access

Fit

• Distributed order processing• Cooperative production

• Central data base writing

Ac = Activity, R = Resource Source: Malone et al.,1999, pp.430

Ac1 Ac2Re A

Ac1

Ac2

Re B

Ac1

Ac2

Re C

Table 3 : Dependencies according the Coordination Theory


______________________________________________________________________


Generic coordination processes are identified by the coordination theory as well. Many

corporate shortcomings, such as waste of resources, delays and missed opportunities are

related to poor coordination. Table 4 assigns different generic coordination processes to

the levels and objects of coordination.

2.3.2 Integration as a Means of Coordination

While coordination in general deals with the interaction of different systems regarding a

common goal, integration aims at to combine several systems to a superior entire sys-

tem in a sustainable way. The integration process can be considered as a fusion into an

integral whole, and the identities of the integrated systems become less important in

favor of the higher system’s identity82.

In business administration integration happens on the organizational level related to

business units, processes and corporate resources. When companies, for example in a

supply chain network, are considered as integration units, integration can have several

dimensions.

82 Jackson,2003; Luhmann, 2004

Process level Coordination objects Coordination process

CoordinationGoals, activities, actors, resources,

dependencies

Identifying goals, arrange activities,assign activities to actors, activitysynchronization, reserve resources

Group decisionsActors, alternatives, evaluations,

selectionSupposing alternatives, evaluationof alternatives, decision making

CommunicationTransmitter, receiver, messages,

languages

Reconciliation of languages,selection of receiver, message

transmission

Perception of common objects Actors, objectsPerception of common objects,

access to common data base Source: Malone, Crowston, 1991, p.18

Table 4 : Generic Coordination Processes assigned to Levels and Objects of

Coordination


______________________________________________________________________


• Horizontal

Companies of the same level in the value chain but from different industrial sectors

• Vertical

Companies all along the value chain

• Lateral

Companies from different levels of the value chain and different industrial sectors

Processes are integrated sequentially (processes steps in ahead followed by others), ho-

rizontally (parallel processes of the same kind) and vertically (complemented

processes)83.

Integration models provide a design setting to develop tailor-made application infra-

structures. This is not an end in itself but the models support strategic corporate goals,

such as cooperation with partners throughout the value adding network as well as cus-

tomer orientation. The business engineering model for instance specifies three levels,

strategy, process and information system, to depict the relationships of integration84.

• Strategy

The strategic level determines the long-term development of the company with

the ability to match the company with market shifts in the right manner at the

same time. It is responsible for collaborative relationships with other firms, cor-

porate structure and business units as well as the design of processes and sys-

tems

83 Klaus, 1998 84 Österle and Blessing, 2000


______________________________________________________________________


• Process

This level outlines business processes as a sequence of tasks aligned to the add-

ed value. Besides the horizontal and vertical integration of processes and the

alignment to the corporate strategy, a model-like description aims to support the

modification of organizational activities in sense of the Business Process Reen-

gineering (BPR)

• System

This level covers the complete world of corporate application systems, in terms

of transaction and data base systems, ERP, e-business, workflow and documen-

tation systems as well as the whole IT system’s infrastructure

Besides the lay-out of integration on the particular levels the model takes also their mu-

tual relationships into account, which means that all related activities have to be aligned

adequately to the superior objectives of the corporate strategy.

Industrial informatics on the other hand turns its attention to the integration of corporate

IT systems85. Possible objects of integration here are employees, tasks and technology86.

The main objective is to avoid media disruptions within the infrastructure of IT systems

to achieve a higher level of automation, whereas it is important that the automation

makes sense, instead of full automation whatever happens. Corporate IT systems can be

integrated horizontally or vertically, depending on the processes they are supporting.

Horizontally integrated systems support not only the incoming orders but also the com-

plete order processing and the delivery to the customer. Vertically integrated systems

connect application systems which support complemented processes, such as control-

ling systems combined with operative production planning control systems87.

85 Heilmann, 1989 86 Mertens, 2001 87 Scheer, 1994


______________________________________________________________________


The integration of corporate IT systems is to realize through the integration of their

components, such as data, functions, processes, software and hardware88. For example in

data integration several different users are sharing a common data base which requires

uniform conventions concerning syntax and semantics of data. One example is the inte-

gration of catalogue and order systems by a product data base89. The hardware integra-

tion encompasses both, technical connection of the devices and common utilization.

How IT systems can support coordination is well illustrated through the existence of

computer-aided collaborative working systems, as there are groupware, portals,

workflow management systems and web services90. According to Malone and Crowston,

1991, the implications of these technologies are classified into three types, derived from

microeconomic rules:

• First Order Effects (Substitution)

Traditional coordination mechanisms are substituted by new technologies

• Second Order Effects (Networking)

Increased application of the technology by the users effectuates an increased

deployment of these technologies in various applications throughout the value

chain

• Third Order Effects (Reorganization)

These effects promote the creation of new coordination intensive applications,

such as new organizational manifestations

88 Mertens, 2001 89 Scheer, 1990 90 Cordeiro and Filipe, 2004


______________________________________________________________________


The development in recent years has shown that organizational changes often happened

in coherence with technological innovations, e.g. the allover availability of the internet

enabled several new forms of collaboration91. The internet is considered as a driver for

ad-hoc networks, so-called “adhocracies”, while companies often went into short-dated

dynamic cooperations depending on the market situation.

2.3.3 Integration of the Real World into the Corporate IT

So that interaction between IT-systems and the real world can work efficiently, the IT

system must be matched according the user’s capacity to process the gathered informa-

tion, and respectively to the entire organization92. Inadequate data models are the reason

for low capacity of information processing. During executed operational processes the

corporate IT must be capable to capture the information from reality in compliance with

the application purpose and, if necessary, to utilize this information for process control.

This realized with the help of human-to-machine interfaces, like input devices and com-

puter screens, and with machine-to-machine interfaces, such as sensors and actuators.

Figure 26 depicts the increase of interaction efficiency between IT-systems and the real

world through the utilization of Automatic Data Capturing (ADC).

91 Mintzberg and Quinn, 1991 92 Galbraith, 1977; Tushman and Nadler, 1978


______________________________________________________________________


Marginal Costs for Data Capturing

Dat

a ca

ptur

ed

man

u ally

Te

xt R

eco

gniti

on

Ba r

code

S can

ning

RF

I D

I nte

g rat

e dIT

Sys

tem

s

Manual Tasks necessairy Fully automated IT Landscape

Degree of Integation

Digital World

•Internal and collaborative Application Systems (ERP, E-Business Systems)

•IT-Infrasructure e.g. Internet

Real World

•Human Beings•Products•Production Infrastructure

Source: Fleisch, 2001

Figure 26 : Integration of IT-Systems and the Real World

Table 5 below provides an overview of IT integration in comparison with IT real world

integration.

Integration of IT-Systems IT-Real World Integration

Object

• Application systems• Subsystem (Infrastructure)

IT-systems with:• Processes (Workflow

integration)• Things, human beings

Direction• Horizontal (Range)• Vertical (Depth)

• Vertical (Depth, Specification)

Expedient

• Integration of data, functions,processes, software andhardware

• Infrastructure integration

• Embedding of IT devices intoprocesses or things

• Data modeling, mapping rules,steering rules

Objectives

• Elimination of mediadisruptions throughout IT-systems

• Redundancy Avoidance• Automation of information

processing

• Elimination of mediadisruptions between IT-systems (digital world) and thephysical world

• Automation of data processing• Automation of process control

within the real world

Example• Integration of order processing

systems and inventory systems• Automatic stock registration

and transmission to theinventory management system

See Weston et al., 1998, pp.774, Fleisch, 2001, Mertens, 2001, pp.1

Table 5 : Integration in Industrial Informatics


______________________________________________________________________


“Connected smart appliances”, equipped with IT components like microchips and sen-

sors, designed as devices fastened to physical objects are facilitating the integration of

any physical object from the real world with IT systems93. Thus RFID can be considered

as an integrator between IT-systems and the real world94.

2.3.4 Real-Time Enterprises through Control Circuit-Based Automation

The real-time-enterprise utilizes the velocity of information dissemination throughout a

company or an enterprise network as a competitive advantage95. The concept of a real-

time enterprise broadens existing approaches to accelerate business processes and aligns

these processes to the customer’s needs96. Therefore real-time management has o be

focused on the integration of information technology, resulting in real-time systems

executing data capturing, computing and the presentation of results within the time-

frame according the application’s setting97.

Core concepts like integration, automation and individualization are prerequisite for the

real-time availability of necessary information at the location of demand98.

Automation can be seen as the mechanical execution of process tasks. In contrast to

partially automated systems, full automated systems support all process tasks mechani-

cally. An automated high-rise warehouse, for instance, is able to store properly tagged

receptacles without any human help. Merely the attachment of the tag is conducted ma-

nually, thus this process is partially automated. Full automation is supported by the real-

world integration of IT-systems equipped with sensors and actuators.

Individualization enables an information supply adapted to the needs. A real-time sys-

tem is providing exactly this information to its users which supports their decision mak-

ing. Concerning customer relationships individualization finds its expression in product 93 Fleisch et al., 2002b 94 Want et al., 1999 95 Porter, 2001; Scheer, 2003 96 Stalk and Hout, 1990 97 Gartner, 2004b 98 Fleisch and Österle, 2004; Senger, 2004


______________________________________________________________________


customization and differentiation during the production process on the basis of customer

related order data.

A closed informational control circuit, as it is demonstrated in Figure 27, is prerequisite

for automation in real-time management.

Real-Time-System

Value Chain

Disturbance Variables

Reference Magnitudes

Controlled Variables Control Variables

POC POASupplier Manufact. Retailer Customer

SelectionRules

DecisionRules

Sensors Actuators

e.g.•Inventory•Output•Sales

e.g.•Delivery Service•Lead-Time•Profitability

e.g.•Procured Quantity•Production Quantity•Sales Quantity

e.g.•Uncertainty in Demand•Machine Failures•Shrinkage

(actual) (debit)POC:

POA: Point of action

Control Point

Information Fow

Flow of Materials

Source: Strassner, 2005

Figure 27: Control Circuit Model in Real-Time Management of SCM

Control circuits may concern different organizational units like the value chain, particu-

lar enterprises or processes and tasks. Control ratios define the requirements for each

organizational unit, e.g. the performance indicators, lead-times and the extend of deli-

very service in a delivery chain.

The performance of a delivery chain can be affected by matching of control ratios, such

as the procured quantity, in terms of attaining the goals which had been set. A certain

decision maker is incumbent to change the control variables by means of controlled

variables like inventory and sales numbers. Disturbance variables, which have a nega-

tive effect on the delivery chain, e.g. machinery failures or shifts in demand require a

steady need for action. In an ideal real-time enterprise all kind of control circuits are


______________________________________________________________________


digitalized, which means that ADC technologies, like sensors and RFID, provide infor-

mation to the real-time system about its current state. By application of selection rules

the real-time system determines this kind of information which is relevant for decision

making and picks out the right options for action in accordance with decision rules. The

realization is carried out by means of machine-to-machine interfaces99.

2.4 Auto-ID Systems by Comparison

Auto-ID systems serve as the interface between corporate IT-systems and the real

world. They capture features of certain attributes related to physical objects, e.g. im-

printed signs, and assign these features to a predefined meaning of this special characte-

ristic attribute, for example to an item number. While the identification takes place in an

automated way, manually conducted tasks are usually necessary before the identifica-

tion process, e.g. the positioning of the objects to identify. Typical Auto-ID systems

utilized in logistics are bar-code, Optical-Character-Recognition (OCR) and 2D-

Systems100. Apart of that RFID-systems are increasingly gaining currency in logistics

enabling, in contrast to usual character-code-based capturing methods, an automatic

identification without any line of sight between the identified object and the capturing

device101.

Different specifications of Auto-ID systems arise from their various application oppor-

tunities. Especially in Supply Chain Networks, as material flow systems, combined with

adequate logistics require cost-effective and efficient proceedings. The following crite-

ria had been derived from possible specifications102:

99 Strassner, 2005 100 AIM, 2004a 101 Kärkkinen and Holdström, 2002 102 Strassner, 2005


______________________________________________________________________


• Need for an additional identifier

Most of the Auto-ID systems deployed in logistics utilize tags as data carrier

• Data processing capacity

Besides the identification Auto-Id systems process additional data, e.g. place of

origin, production date and place of destination

• Readability for persons

Some Auto-ID systems use optical character for manual identification to avoid

process disruptions caused by Auto-ID system failures

• Bulk recognition

Increases the throughput in the material flow through simultaneous capturing of

all object in a bunch

• Object positioning

Most Auto-ID systems presuppose a more or less exact positioning of the object

to identify

• Environmental influences

Heat, humidity, metal or dust can negatively affect the reliability of an Auto-ID

system

• Counterfeit threat avoidance

Some Auto-ID systems provide protection against copying or counterfeiting of

the identifier

• Standardization

The deployment of automatic identification in open logistic systems prerequi-

sites certain standards

• Data carrier costs

Considerable distinctions of Auto-ID systems can be observed concerning the

costs of capturing devices and identifiers


______________________________________________________________________


2.4.1 Character-Code-Based Systems

Character codes consist of a predefined number of symbols functioning as identifiers.

The utilized symbolism might concern letters, numbers, lines, rectangles or other sym-

bols. These symbols can be printed easily and cost-efficiently on paper tags, packaging

or any object which is to identify afterwards.

Optical-Character-Recognition-Systems (OCR) are using optical capturing devices and

textual recognition methods to read tags with imprinted characters. Special letter types

are deployed to improve the readability by machines. A major advantage of OCR me-

thods is that the information can be read by human beings as well. On the other hand the

system is prone to soiling and damage of the tag.

Barcodes are the most widely applied character codes in logistics. There are various

barcode symbols which are able to encode 252 alphanumeric signs by a sequence of

bars having a different breadth, e.g. the standardized Code 128, which is equivalent to

the standard ISO/IEC 15417, and provides the basis for several customary standards in

trade.

In opposite to the traditional barcodes, so-called ID-codes, modern 2D-codes apply ver-

tically stacked bars (stacked codes) or squares to achieve a higher data capacity. With

this it becomes possible to support an error correction also. Therefore the data capturing

procedure of 2D-codes on the other hand requires more expensive capturing devices in

contrast to traditional barcode-systems. Besides 2D-codes, 3D-codes achieve a higher

information density than other character codes by utilization of color encoding103.

103 Strassner, 2005


______________________________________________________________________


2.4.2 Chip-Based Systems

Chip-based systems are suitable for applications requiring reliability and counterfeit

threat avoidance. Besides data storage, chip cards may also have an implemented pro-

cessor and can support cryptographic procedures as well. Typical fields of application

are identity cards, assurance cards and electronic means of payment. RFID-chips are

descendents of radio engineering and thus, they transmit the stored information via ra-

dio frequency to the capturing device. RFID-chips are flexible in design, possible varia-

tions can be labels, cards or inlays, and they are extendable by a data storage, sensors or

battery operation104.

2.4.3 Object-Recognition-Based Systems

Object-recognition systems do not need an additional identifier fixed on the object. The

capturing system analyses the image of the object which is to identify by means of

computing intensive algorithms. In most logistical applications merely the recognition

of size and form takes place, which allows the control of logistical supply and conveyer

systems. Indeed image recognition methods bear developmental potential, because

through efficient and reasonable camera and computer technologies an increasingly

more accurate object differentiation can be achieved. A possible field of application

might be the monitoring of proper item tagging105.

104 Strassner, 2005 105 Strassner, 2005


______________________________________________________________________


2.5 Architecture of RFID Systems

2.5.1 RFID Readers, Antennas and Tags

A RFID-system consists of the following components, illustrated in Figure 28.

RFID-Reader

Reader Antenna

Transponder or Tag

Tag Antenna

Air Interface

Source: Balkovich, Bikson et al., 2005

to Information Systems

Figure 28: Typical RFID System Architecture

1. RFID-transponder (Tag)

The word “transponder” had been made up from the expressions “transmitter”

(sending) and “responder” (answering). These transponders are computer chips

capable to communicate an identification number and equipped with an antenna.

Passive tags are only able to store and transmit a pre-programmed fixed ID-

number which merely makes sense when it is related to additional information in

a data base. Apart of that, variations exist which are fitted out with an additional


______________________________________________________________________


data storage or sensors. Active transponders have a supplemental battery and

thus, a wider signal range than passive ones, which draw their energy from an

electromagnetic field generated by the antenna of the reader. Additionally active

tags are able to record information on the transponder, which allows enhanced

signals and data. A RFID-tag is typically attached to an identifiable object.

2. RFID-reader

The readers, also equipped with an antenna, communicate with the transponders

located in their read range. Readers are able to both reading and writing data.

The read range depends on environmental conditions, like the presence of water

or metal and the kind of the transponder, which had been deployed106.

2.5.2 RFID Middleware

The RFID-middleware captures the data from the readers, aggregates and filters them in

accordance to pre-defined rules and transmits them whenever required to the corporate

information systems, such as ERP-systems or web services. Due to the large number of

objects communicating in a RFID-system, a timely filtering-out of irrelevant data is

crucial for system performance. A central question remains, in what way certain basic

services, like object pursuit, or monitoring of the object condition can be integrated into

the middleware. This had been object to numerous investigations in recent years107.

106 Finkenzeller, 2002 107 Kubach, 2003; Römer et al., 2004; Sarma et al. 2000


______________________________________________________________________


2.5.3 Selection Criteria for RFID Systems

For the selection of the right RFID-system the following criteria are decisive108:

• Reading range

• Bulk recognition opportunities

• Data capacity

• Data transmission rate

• Environmental conditions

• Supported standards

• Hardware costs

Respectively their robustness and signaling range towards environmental conditions, as

well as the transponder costs, active RFID-systems differ fundamentally from passive

ones. The battery-supported active tags can have a signaling range up to 100 meters.

Due to the relatively high maximum transmission capacity the environmental interfe-

rence, like humidity or metal, is low. However the battery life is lowered through ex-

ploitation of the maximum transmission capacity. While active transponders are dep-

loyed in closed logistic systems, where reuse is possible, passive tags are economically

useful in open systems, e.g. product labeling.

The tag is always prepared to receive a signal from the reader, and is responding by

transmitting data back to the reader, when data is recalled. This is realized by utilization

of common frequencies which are shown in Figure 29 below, considering the whole

bandwidth of the radio spectrum. Data range and signal range are depending on the

choice of the frequencies.

108 Hodges and Harrison, 2003; Flörkemeyer, 2005


______________________________________________________________________


Figure 29: Frequency Spectrum of RFID

For LF (Low Frequency), HF (High Frequency) and MW (Microwave) systems the

same frequencies are available worldwide. Except UHF (Ultra High Frequency) systems

are regionally limited in their released frequency range and transmission capacity. Due

to the frequencies are related to each other, some special capturing devices are able to

receive signals from different UHF transponders nevertheless. Because of the fact that

the read range is not only depending on the frequency but also on environmental condi-

tions and the configuration of the entire RFID-system itself, only directive forces for an

average read range can be quoted.

Characteristics like bulk recognition, which realizes multiple capturing of several ob-

jects at the same time, or data capacity, are determined by the manufacturer of the RF-

ID-system. The data transmission rate depends on the frequency and the deployed tech-

nical standards for data transmission (air interface between capturing device and trans-

ponder)109.

109 Halliday, 2003

ElectricWaves

RadioWaves Infra-Red

VisibkeLight

UltraViolet X-Rays

GammaRays

CosmicRays

Radio Spectrum

9kHz 30 kHz 300kHz 3000kHz 30Mhz 300Mhz 3000MHz 30GHz 300GHz 3000GHz

VLF LF MF HF VHF UHF SHF EHFNot

designated

125-134kHz

13.56MHz

860-930MHz

2.4 & 5.8GHz

Electromagnetic Spectrum

Source: Zheng, 2008


______________________________________________________________________


Supplementing components, such as sensors or features to support data security extend

the functionality of RFID-systems. In SCM several concepts exist for the implementa-

tion of a segmented data storage providing limited access, utilized by collaborating

partners in the value chain network to deposit confidential data110.

2.5.4 The EPC Network as a Global Auto-ID Infrastructure Approach

In the year 1999 the MIT and its Auto-ID center started to realize the vision of a RFID-

based globally available infrastructure approach to enable daily items with attached RF-

ID tags to automated communication within this landscape111. A special numbering

scheme had been elaborated to allocate globally unambiguous labels, known as the

Electronic Product Code (EPC) on one hand, and to establish an EPC network referring

to the architecture of an Auto-ID infrastructure112. This is put into action by RFID tags,

able to store EPC’s consisting of 64 or 96-bit numbers, whose format is based on the

Global Item Number (GTIN), which refers to the international standards body

EAN.UCC. The EPC enables RFID-tagged items to be tracked separately from all other

like items.

Another vision related to the EPC infrastructure is the implementation of a Global Data

Synchronization Network (GDSN), which facilitates data sharing between supply chain

partners. While the task of Global Data Synchronization is the accuracy improvement of

supply chain data, efficiently resulting in lowered process cost concerning sales order

and invoice payment, the EPC is responsible for inventory tracking and efficiency en-

hancement of order fulfillment and logistical processes. Due to the seamless collabora-

tion of the two systems, accurate inventory visibility becomes possible, enabling sophis-

ticated vendor managed inventory (VMI), collaborative planning, forecasting and reple-

nishment (CPFR), as well as scan-based trading (SBT)113.

110 Jansen, 2002 111 Das and Harrop, 2001 112 Sarma, 2001 113 Radko and Schuhmacher, 2004


______________________________________________________________________


The EPC global Inc., meanwhile a well-established enterprise, markets and refines the

EPC. Parallel several Auto-ID laboratories of famous U.S. universities contribute with

their research results to the further development of the EPC network, of which elements

are shown in Figure 30 below.

Figure 30: EPC Network Architecture

1. RFID-tags store only the EPC (96 bit). Transmitting frequency is 13.56 MHz (Class

1) or UHF (Class 0 and Class 1)

2. RFID-readers adapt the protocols of Class 0 and Class1 dynamically, as well as the

deployed frequency, and have a TCP/IP interface114

3. The middleware savant captures the data streams generated by the readers and trans-

fers them, according to the needs and filtered, to other applications115

114 Reynolds et al. 2002 115 Clark et al. 2003

RFID-Tag

RFID-Reader

Savant

EPC InformationService

External Software Applications

ObjectNamingService(ONS)

DNS Protocol

PML

PML

PML

Source: Flörkemeier, 2005


______________________________________________________________________


4. EPC utilizes a special XML

work, called Product Markup Language (PML)

5. An EPC information service provides information related to the product for the o

jects registered throughout the EPC network

6. The Object Naming Service (ONS) functions in analogy to the DNS (Domain Name

Service) of the internet, and points out the adequate address of the data source, e.g. a

HTML-site, where product relevant information is to find in accordance to the data

of the EPC118

Figure 31 below gives an impression about the

with improved EPC standardization, as well as the benefits estimated to achieve.

Figure 31: EPC / RFID Adoption Timeline

116 Flörkemeyer et al., 2003 117 Harrison and McFarlane, 2003118 Verisign, 2004

ID Systems and RFID Technology

______________________________________________________________________


EPC utilizes a special XML-based data language for communication within the ne

work, called Product Markup Language (PML)116

An EPC information service provides information related to the product for the o

jects registered throughout the EPC network117

The Object Naming Service (ONS) functions in analogy to the DNS (Domain Name


site, where product relevant information is to find in accordance to the data

below gives an impression about the course of RFID adoption going along


EPC / RFID Adoption Timeline

Harrison and McFarlane, 2003

______________________________________________________________________


based data language for communication within the net-

An EPC information service provides information related to the product for the ob-

The Object Naming Service (ONS) functions in analogy to the DNS (Domain Name


site, where product relevant information is to find in accordance to the data

course of RFID adoption going along



______________________________________________________________________


2.6 RFID-Based Ubiquitous Computing

Concerning the ability to integrate physical objects with IT-systems, RFID is a first step

to realize the vision of Ubiquitous Computing119. According to this vision, technology

for itself takes a backseat, whilst it is integrated in any kind of daily items to turn them

into “smart things”120. By the means of sensors, data storages, processors, wireless

communication and several other technologies of Ubiquitous Computing, these things

are capable to capture information from their environment, react to environmental influ-

ences accordingly through pre-programmed rules and to communicate with each oth-

er121.

The research in the field of Ubiquitous Computing is mainly technology-driven122. Five

significant trends had been crystallized, which lead to Ubiquitous Computing123.

1. Steadily falling chip prices, determined by smaller sizes, enable an allover inte-

gration of these nearly invisible chips into any daily item.

2. The invention of new materials, like electronic paper or electronic ink are pro-

voking progressive applications.

3. Innovative technologies, such as Bluetooth or Body-to-Area networks will be

deployed by smart things for communication.

119 Mattern, 2003b 120 Gellersen et al., 2000 121 Ferguson, 2002 122 Abowd and Mynatt, 2000; Satyanarayanan, 2001 123 Mattern, 2003a


______________________________________________________________________


4. Corporate decision making processes will be enhanced through keen information

granulation, by the means of innovative sensor technologies, which allow smart

things to gather more details from their environment124.

5. Infrastructures will occur providing basic services for a world of smart things,

e.g. in communication, identification, localization and monitoring125.

Especially the automated identification will play a key role in Ubiquitous Computing

applications, like RFID. Passive objects, in contrast to devices, normally unable to take

action anyway, merely need the ability for automated identification, realized by a Ubi-

quitous Computing infrastructure on the basis of a virtual counterpart of exactly that

certain object126. Services like localization, monitoring and notification will be provided

by this infrastructure, shifting real world activities into virtual ones, and therefore re-

placing human-to-machine interactions by machine-to-machine relationships, in the

sense of “Human out of the loop Computing”127.

2.7 RFID as a Machine-To-Machine Communication Enabler

Data capturing from RFID-tags replaces human-to-machine communication by ma-

chine-to-machine interactions. Human tasks, e.g. the manually conducted barcode scan-

ning, can be left out. Three stages in the development of Ubiquitous Computing tech-

nologies in terms of to achieve a higher degree of process automation by media disrup-

tion avoidance between reality and IT-systems, had been observed128:

124 Aykildiz et al., 2002 125 Siegemund, 2004 126 Bohn and Rohs, 2001 127 Tennenhouse, 2000 128 Fleisch and Dierkes, 2003


______________________________________________________________________


• Manual Integration

In this first stage of development the process data capturing and the process

steering is conducted by human beings with the aid of data models and proce-

dures which had been pre-programmed. Manual integration widely gained cur-

rency in logistical processes. Due to barcode deployment, a remarkable increase

of efficiency in logistics had been observed in recent years, instead of dealing

with item dispatch notes

• Automated Context Capturing

Through automated data capturing via RFID, companies can gain process infor-

mation at lower marginal cost. This means, that measurement taking becomes

increasingly feasible at several locations during a process. By analyzing the

gained data, weak spots can be detected throughout a certain process

• Decentralized Steering

The concept of decentralized automation represents the highest degree of auto-

mation. Context capturing, decision making and the conduction of activities

happen directly at the object, respectively via the switchboard of the IT infra-

structure. This relieves superior organizational units, fastens decision making,

and creates a networking landscape which is quasi self-managing.129

129 Bossard, 2003


______________________________________________________________________


2.8 Conclusion

The passages prior to these concluding remarks have clearly shown that RFID is a coor-

dination technology which is mature enough to embed it in SCM processes. Taken the

aforementioned coordination theory into account, it has been pointed out that RFID de-

livers a remarkable contribution to support the coordination instruments, such as inte-

gration, automation and decentralization by automated data capturing even remotely

beyond the enterprise walls, gathering new business intelligence through enabling visi-

bility without a real sight and providing important, real-world product relevant informa-

tion all along the supply chain while it is connected to other superior information sys-

tems. Because of this RFID has to be considered as a future technology which can en-

hance supply chain effectiveness and efficiency drastically, even on a global scale.

When forces like increasing mandates from power retailers, falling prices going along

with technology improvements and growing acceptance as a whole will drive the RFID

adoption in the future and thus, an increased diffusion of RFID throughout the supply

chains takes place, one important aspect remains to be mentioned.

The challenge of future RFID applications for the IT-governance to come will be the

efficient handling of huge data streams accumulating within the network. Here it is ne-

cessary to thrive for adequate network designs, filtering out every irrelevant information

with new IT-specific toolsets to deliver just the essentials. The next chapter will ex-

amine how RFID can be deployed within the supply chain and what benefits as well as

challenges it entails.

3 Benefits and Challenges of RFID in the Global Supply Chain

______________________________________________________________________


3 Benefits and Challenges of RFID in the Global Supply

Chain

3.1 Introduction

Several advantages for a firm can arise from RFID adoption within the global supply

chain. Sound visibility, which can achieve its highest level by real-time generated vir-

tual representations of the entire supply chain, enables inventory and demand level pre-

dictions and also to avoid shrinkage, grey market diversion as well as black market

counterfeiting. Thus, production and material flows become remarkably more efficient

and effective. Moreover RFID can bear potentials to monitor all aspects of the business

cycle, like production, stock keeping, distribution, sales and returns, in real-time which

improve the current situation and enable to make predictive decisions in the face off the

expected demand. Sound Ubiquitous Computing throughout the supply chain will drive

companies to pool their IT resources and exploiting them more efficiently while avoid-

ing their over-deployment. Increased business agility entailed by cross-functional IT-

sharing provides the utilization of new resources while established services can be re-

scaled130.

This chapter deals with an overview how RFID can impact the supply chain creating

value all along the supply chain via the elimination of coordination problems in SCM

processes. The cost side is also taken into account to examine financial methods which

can be employed for a desired company investment in RFID applications.

130 HP invent, 2005


______________________________________________________________________


3.2 RFID Implementation Drivers

According to a study conducted in the automotive industry, all of the companies which

had been surveyed see an enhancement of efficiency in operative processes as the main

driver for a possible deployment of RFID-systems131. Six possible applications of RFID

in operative processes had been crystallized, which are demonstrated in Figure 32 be-

low.

0 1 2 3 4 5

0= not important 5= very important

Tracking & Tracing

Local LogisticalApplications

ReceptaclesManagement

Production Control

Customer Service

Security

Figure 32: Preferred RFID Application Fields

• Global tracking and tracing

More accurate data concerning the condition of a certain shipment for instance,

guarantee companies to react earlier to unexpected events, such as delivery de-

lays. Significant cost savings are expected in processing of those events, as well

131 Fleisch et al., 2004


______________________________________________________________________


as in costs due to failures. This enables firms to adapt their production plans to

the current situation, or to procure their supplies from somewhere else. Also

suppliers will have an advantage from accurate information about the delivery

status. An automated message about the customer’s reconfirmation of incoming

goods, triggers an automated billing procedure.

• Local logistical applications

Companies hope to increase efficiency mainly in the sectors of incoming goods,

inventory management and distribution. At least on the level of receptacles or

bundles, an automated control of completeness by RFID-systems can accelerate

the transactions concerning incoming goods and helps avoiding stock deviations

in inventory management.

• Production control

Companies see potentials for improvement of the configuration management, as

well as in product assemblage through enhanced conduction of quality control

• Management of receptacles

Due to the loss of receptacles throughout the supply chain costs amounting to

millions of Euros occurred. RFID-systems are deployed for shrinkage avoid-

ance. Another reason for transportation receptacles tracking is the opportunity to

trace the content of the receptacles indirectly.

• Customer service and security

Several applications of RFID-systems are conceivable in maintenance, recy-

cling, as well counterfeiting avoidance.


______________________________________________________________________


3.3 RFID as a Technology for Coordination and Integration

Auto-ID systems serve as an interface to the real world, consisting of an agglomeration

of objects and their current conditions, and they support the coordination of resources.

RFID-systems have to be considered as components within a superior SCM architec-

ture, integrating inter-organizational SCM systems with local SCM applications and

interface systems, like it is depicted in Figure 33 below. 132

Figure 33: Meta Model for Coordination and Integration in SCM

RFID can reduce the coordination expenses in the following ways: First, RFID-systems

increase the integration depth of corporate IT-systems with the real world by providing

more accurate information to the corporate IT-systems, which supports decision mak-

ing. Second, several processes can be automated, such as the identification of a lorry in

front of a loading platform, via its transponder code, which triggers following processes

132 Strassner, 2005

CentralControl

DecentalizedControl

RealWorld

SCMSystems

Global ProcessesSCM, CRM

Support

Automation

Support

Automation

Objects and Conditions

ApplicationsWMS, PPS

Local ProcessesInventory Management

Production Control

Inte-gration

EAI-Tech-nologies

Coordi-nation/Inte-

gration

Inte-grationRFID

SensorsActuators

Coordi-nation(Rules)

Source: Srassner, 2005


______________________________________________________________________


like the unloading immediately and automatically. Third, transponders are capable to

distribute the information which is relevant for decisions up to the objects within the

material flow, and thus, they support the decentralization of decision making, respec-

tively, the self-organization of logistical systems133.

3.3.1 Development Trends of Integration

The implementation of enterprise resource planning systems (ERP) in the mid-1990ies

represented a major step in integrating of corporate TI-systems. ERP-systems are map-

ping business processes, such as both, within the main departmental fields of a compa-

ny, e.g. accounting, logistics, production, and also beyond these fields, like the synchro-

nization of the invoice and order processing, as they automate these processes at least

particularly. By contrast, E-business systems and web services enable an efficient com-

munication and collaboration between firms today, because of their unlimited integra-

tion range134. Besides this mobile computers and smart things enhance the integration of

corporate resources in favor of the integration depth, like it is depicted in Figure 34.

Due to the fact, that integration depth supplements the potentials of the integration

range, the efficient realization of collaborative planning and production within delivery

networks, for instance a vendor managed inventory, becomes possible only on the basis

of reliable information135. Another step in the direction of integration enhancement is the

deployment of sensor technology going along with RFID-systems.

133 Strassner, 2005 134 Scheer, 1994; Alt et al., 2002 135 Werners and Thorn, 2002


______________________________________________________________________


FlexibleManufacturing

InventoryManagement

AssetManagement

PartsSupply

DevelopmentPotentialsthrough

Integration Depth

Development Stateof Corporate IT-Systems

Spot Solutions ERP-Systems E-Business-Systems

SmartThings

MobileComputers

Client/Server

Mainframe

Function Department Enterprise Network

Integration Range

Inte

grat

ion

Dep

th

Information Technologies

A-R

esou

rces

B-R

esou

rces

C-R

esou

rces

Source: Fleisch, 2001, p.187

Figure 34: Integration of Corporate Information Systems

3.3.2 RFID Contribution for Integration

RFID-systems connected with an Auto-ID infrastructure, providing additional services

for object recognition, enable services like object history retrieval, status control or ob-

ject monitoring. These services require data related to the object itself and its context.

For example a T&T-system needs at least the object code and the information about the

locus of the capturing device to update the object status. Data storage directly at the

object is also realized by RFID-systems. This is useful when an open infrastructure is

unreliable or not available at all136.

Solely taking the identification function of RFID-systems into account, four creative

dimensions, depicted in Figure 35, are worth to mention, which determine the degree of

integration, respectively the achievable information granularity related to the delivery

network. 136 Das and Harrop, 2001


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A-Resources

B-Resources

C-Resources

Infrastructure Coverage

Reliability

Integrated Kinds of Objects

Level of Material Flow

CarrierBunchSingle Item

Spot Solution

Control Point

Complete

99.9 %

Source: Fleisch, 2005

Figure 35: Integration Capability of RFID Systems

• Level of material flow

Transponder can be deployed on different levels within the material flow. A

higher transportation level aggregates several objects of the material from a low-

er level. Three distinct transportation levels have to be mentioned: cargo carrier,

batch and single item. The highest degree of integration will be achieved by RF-

ID deployment on the single-item level

• Integrated kinds of objects

The value added of a system for tracing and tracking goods throughout the

supply chain depends on how critical it might be for value adding process. The

assessment criteria depend on the particular application, e.g. expenses for ma-


______________________________________________________________________


nual data capturing, costs due to failures or the usefulness of the data for other

services137.

• Infrastructure coverage

The frequency of updates determines the accuracy of status specifications in IT-

systems. For most applications it is sufficient if the update is made at certain

control points throughout the supply chain, where goods might change hands or

carrier. So-called smart shelves on the other hand require a steady monitoring138.

• Reliability of data capturing

SCM applications require different demands on the reliability of information

supply. A nearly 100% reliability is crucial for dispatch control, especially when

it is connected to a billing function. The basic assumption, that a 100% reliabili-

ty can not be achieved has to be taken into account139.

3.3.3 Elimination of Coordination Problems

The right information about the condition of a system, also the identification of coordi-

nation problems and the related estimation of the consequences resulting from possible

coordination measures, is prerequisite for the elimination of coordination problems. The

following points show, that integration, full or particular automation and decentraliza-

tion of real-world processes throughout a supply chain can eliminate or mitigate coordi-

nation problems by RFID deployment140:

137 Lampe et al., 2005 138 Fleisch et al., 2002a 139 Brusey et al., 2003 140 Fleisch and Österle, 2004


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• Integration

RFID-systems provide topical and complete information about the delivery net-

work. If integration is fully realized in terms of the depiction of a certain part of

the real world which represents the delivery network, a following abstraction of

data supply can take place, because the information systems has direct access to

the conditions of the real world in this case. One coordination measure which is

supported by real-world information is the communication expenses. Due to the

fact that integrated systems avoid too much interfaces, as well as media disrup-

tions, the cost of communication can be lowered141. The second aspect is an im-

proved quality in planning. The data streams describing the real world, and

transferred by RFID have a direct influence on the quality of the results gained

in typical SCM planning processes, such as simulations or trend extrapolations.

Third, the decision quality can also be enhanced. Occurring coordination prob-

lems, like critical stocks or flaws in product quality, often have to be tackled

immediately. The availability of relevant information concerning the cause of

these coordination problems facilitates decision making, and enables a transfer

to find the right decision from human to machine decision makers.

Instead of using the original objects, for instance the search for a container

somewhere in the pipeline of the supply chain network, their images can be uti-

lized to conduct the necessary activities, by retrieving the virtual substitution of

the container and its current location from the IT-system.

• Automation

The range as well as the depth of integration of SCM systems is prerequisite for

enhanced automation in SCM processes. This means increased expenses for de-

signing automated systems on one hand, and declining coordination expenses in

conducting these automated processes on the other hand. Automation solves

coordination problems by pre-defined rules, and therefore avoids delays. The

gained time savings reduce coordination expenses. Human intervention to solve

141 Fleisch, 2000


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coordination problems is not necessary in closed-loop control circuits. RFID-

systems contribute to close the loop. Control circuit based process chains ex-

amine all process results and thus, they do not transmit any faulty results which

might lead to subsequent problems. Process efficiency can significantly en-

hanced through elimination of certain process steps, e.g. additional quality con-

trols. Sinking costs result from reduced complexity142.

• Decentralization

The coordination of resources in SCM has to be considered as a steady negotiat-

ing between different actors involved the SCM processes. The order processing

sequence, the order of unloading as well as the location of storage might be ob-

jects of those negotiations. RFID-systems support the decentralized actors in de-

cision context capturing by providing them the data directly linked with the ob-

jects in the environment or, if applicable, saved in the infrastructure. Due to au-

tomated context capturing, the supported units might be machines as well.

Though shifting centrally made decisions, where often several hierarchy stages

are involved, into decentralized ones reduces coordination costs. Decentralized

decision makers are capable to recognize environmental changes quickly and to

decide intuitively. Apart of that, decentralized, loosely associated units have a

higher local flexibility, and therefore they can be employed in several locations.

Decentralization prerequisites that the decision maker is equipped with the ade-

quate competencies, necessary for decision making, and it is limited to the addi-

tional benefit resulting from this competency allocation, which should exceed

the expenses of decentralization143.

142 Vanberg, 1994 143 Strassner, 2005


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3.4 Process Reengineering and New Business Models

According to the BPR literature information technologies play a decisive role as an

enabler of new business processes144. Besides enhanced process efficiency and their re-

lated beneficial effects, RFID technology is also useful to create new processes and

business models. Potentials for process reengineering arise from increased integration

depth of SCM systems, integration of other technologies of ubiquitous computing and

decentralization. Due to enhanced information availability the guiding principle is “See

more, do more!”145

3.4.1 Increased Flexibility

Flexibility is a decisive success factor in nearly every industry. The ability to react im-

mediately on any market shifts must be given in operative processes, as well. By the

means of decentralization the authority is distributed to operative units, which supports

the implementation of the demand-driven supply chain and mass customization.

Increased customer orientation provokes process reengineering on all stages of the value

chain. Short-term service provision increasingly replaces long-term advance planning,

which is evident for a transition from the “push” to the “pull” principle. The pull prin-

ciple affects also the coordination on all stages throughout the value chain146. The im-

plementation of the demand-driven supply chain is realized by transformation of centra-

lized into decentralized control through installing of control circuits linked with each

other147.

144 Osterle and Winter, 2000 145 McFarlane, 2003 146 Asgekar, 2004 147 Wildemann 1997


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The efficient translation of customer-oriented mass customization into action requires

adequately adjusted production methods148. Work peaces equipped with RFID tags

communicate the required steps of work to the production machines149. Even highly in-

dividualized items are recognized by the production machine through RFID tags. By

this means the configuration control happens automatically during the assembly. Lo-

wered marginal costs for individualization are evident for the declining trade-off be-

tween the number of customized variations and the efficiency of the whole production

process.

3.4.2 Complexity Management

On account of that RFID-systems are integrating the real world into IT-systems, and

therefore supporting real-time systems, even complex SCM processes can be reduced in

their complexity by the following process innovations, respectively extensions150.

• Changeover from one-way to reusable packaging

RFID deployment reduces the costs of reusable packaging management. This

circumstance fosters the utilization of reusable packaging even within the

bounds, where this kind of packaging had been previously considered as too ex-

pensive. Through the deployment of a sophisticated Auto-ID technology the

management of different receptacle fleets can be brought together in common

pools, which increases the attraction of reusable packaging additionally.

148 Scherer, 1996 149 Finkenzeller, 2002 150 Strassner, 2005


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• Arising new stock keeping models

Reliable inventory information and automatic identification enable the switch to

new stock keeping models151. Automated stock keeping solely is not limited to

central warehouses anymore, but also becomes possible in smaller decentralized

depots. Hence, automated large warehouses only to be carried out efficiently

with a high operating rate, can be replaced by smaller warehouses in the location

of demand. To save storage area these warehouses may be organized chaotically

which has no negative effect on the visibility of the SCM system as well.

• Horizontal integration of delivery chains

Physical division of different delivery chains reduces complexity and avoids

failures. For example service providers in freight forwarding organize their dis-

patch departments by dividing them up into separate product categories and

points of destination. Standardized RFID-systems support a flexible handling of

individual dispatch units by utilization of the same logistical infrastructure. This

enables also the gearing of delivery networks from other business lines, e.g. re-

tail, and fosters efficient resource utilization.

3.4.3 Collaborations

Trust is the basis of successful collaborations152. Reliable processes and visibility are

promoting confidence between companies. The necessity of control and complaints

management is rooted in processes susceptible for interference and lacking confidence.

A process integrated quality assurance, which moreover reveals the current quality sta-

tus automatically, helps to avoid manual quantity controls of incoming goods. Due to

less dispatch errors, companies can remedy their complaints management. Misunders-

tandings concerning the invoice payments always bear a certain potential of conflict,

151 Sheffi, 2004 152 Friedli, 2004


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possibly resulting in expensive further negotiations. An automated capturing of certain

events, like incoming goods or product sales, enables a direct coupling of payment or-

ders and these events. Enhanced visibility and more accurate capturing of events within

the material flow, directs the attention increasingly to product price and quantity sur-

passing service features, which can affect the stipulations of payment. The value of a

certain product is also justified by its punctuality in delivery and is individual configura-

tion. Through RFID deployment, which supports the aforementioned process automa-

tions above, the punctuality in delivery and the service level can be dramatically en-

hanced, attracting manufactures to enter collaborations with their suppliers. The follow-

ing passages describe relevant RFID-based services supporting the material flow and

which provide an additional value-adding service by a third party, in contrast to process

optimization conducted by the user himself153.

3.4.4 Product Services by Means of Individualized Data

Due to manufactures can store product-related data by the means of transponder tags

directly attached to the product, and they confer an individual history on each item. De-

pending on the customer requirements the manufacturer decides which kind of data are

to store on the tag and about the opportunity to modify the stored data afterwards. A

supplier, for instance, can deposit data which are important for later assembly directly

with the product. The user avoids additional expenses for information procurement and

possible failures caused by mistakes in this way. These informational extended products

provide the basis for immediate and more individualized services. With the help of the

product history maintenance services are better planned and the certain value of a prod-

uct can be determined more accurate.

153 Strassner, 2005


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3.4.5 Information Management Infrastructure Services

Increasing transponder prices and retardation of reading/writing access might limit the

data storage directly at the product. External infrastructure services make any product-

related data available, independently from the presence of the product. The infrastruc-

ture provider aggregates the administration of product data and provides this data indi-

vidually according to the needs. Therefore lower costs for the user will arise via the rea-

lized effects of scale. A good example for an infrastructure of that sort is the EPC net-

work, providing product-related data worldwide in dependence of an explicit identifica-

tion number.

Another service related to supply chain event management and aligned to the informa-

tion requirements of the supply chain partners throughout the delivery network, pro-

vides the selection and messaging of this relevant information. The user decides about

what kind of events he will be informed, respectively which kind of activities have to be

done automatically by the means of certain pre-defined rules.

Other infrastructure services provide data concerning product configuration and product

authenticity to accelerate product recalls and support maintenance service on one hand,

or to prevent the circulation of counterfeited products by checking the serial number

automatically with every sales transaction154.

3.5 Impact of RFID on Logistics

The logistics sector encompasses all aspects concerning the planning, control and ex-

ecution of material and information flows which are relevant for corporate success. This

section of the thesis reveals an insight how logistics is conducted between companies,

mainly focused on the material and information flows all along the supply chain. RFID

represents an essential vehicle for optimization of logistical processes today, because

154 Strassner, 2005


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most RFID pilot projects are focused on logistical processes and the most significant

economical effects are expected especially in this sector. Therefore the logistic service

providers are affected the most by emerging technologies like RFID. Due to that RFID

deployment within the industry increasingly gains currency for efficient logistical

process execution, the logistics service providers have no other choice than to contribute

to the implementation of RFID. Thus, the logistics service providers are forced to han-

dle that technology sufficiently and moreover, they will have to offer additional RFID-

based services, such as to impart RFID-based know-how to their customers, to stay

competitive in the future. Mid-term expected allover cost reduction and therefore an

improvement of their competitiveness in the international business environment,

represent the main drivers for logistics providers to implement new technologies to real-

ize promising process courses. Changing consumption behavior and increasing globali-

zation of relationships between manufacturers and their end-customers are provoking

the exploitation of further value-adding potentials all along the sequence of essential

process steps155.

3.5.1 New Spheres of Action

Several new spheres of action are emerging in logistics through the deployment of RF-

ID for process optimization on one hand and the development of services for certain

companies on the other hand156.

One major aspect is that RFID is capable for automatic identification of goods within a

very short time, independently if it is about a container or piece goods. The identifica-

tion of single items will be possible in the near future as well as bulk recognition. Due

to the fact that physical material flows can be made visible via RFID, described as

tracking and tracing, the basic information will be provided for specially added informa-

tion services. Especially in the field of container transportation and parcel services the

effects of a seamless pursuit of goods have positive implications. A higher quality in

155 Bovenschulte and Gabriel and Gaßner and Seidel, 2006 156 FTK, 2006; Fleisch, 2005


______________________________________________________________________


tracking and tracing can be achieved by condition monitoring which delivers informa-

tion about the current quality, condition concerning temperature or damages and the

transportation status of the goods monitored. Without RFID such a status information

gathering would not be automated and therefore not possible efficiently and effectively.

New opportunities for process optimization arise from the high grade of transparency

enabled by RFID in all the essential transactions concerning the history of the transpor-

tation process. Processes are better analyzed and controlled by RFID-based status in-

formation. Through enhanced optimization of material flow transactions the delivery

times of goods become shorter and can be better controlled, by their automated registra-

tion in information systems, as well as the reproduction of all transactions in SCM sys-

tems. If RFID-based status information is processed in an effective manner, they can

support process planning and proactive capacities, like advanced planning of product

delivery via truck, which shortens the lead-times drastically. Another new sphere of

action are service offerings concerning increased transportation safety. With the help of

RFID mistakes in delivery can be recognized. Data related to material specification,

urgently required in transportation of hazardous substances, can be stored on RFID tags

and easily captured at the point where the goods change hands. Special processes which

require a supplementary identification of handing-over points in the supply chain for

warranty reasons, as well as a proof concerning a non-interrupted cold chain in the food

sector, identification via RFID provides a solution. However general equipment of all

unloading points including their intermediate unloading locations with such an adequate

reading architecture is prerequisite. Another new task in the computerized logistics en-

vironment works at the management of network dynamics. Increased efficiency normal-

ly aims at decentralized and broadly autonomous control of every single step within a

process. To realize that open systems with adequate architectures and precautions are

necessary, as well as standardized communication interfaces and data formats.


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3.5.2 Emerging Responsibilities in Global Supply Chain Logistics

Several newly emerging responsibilities in logistics arising from the specific opportuni-

ties and risks related to global supply chains will determine the tasks of logistics execu-

tives sustainably in the near future. Four special domains had been crystallized to be

taken on157.

• Risk Manager / Advisor

The question of a comprehensive evaluation, as well minimization of global

supply chain risks will obtain increased importance. This is related to both the

corporate planning connected with the offerings of logistics service providers, as

well as the optimization of whole entire supply chains with methods of SCM.

The risk evaluation and planning includes political, financial and political as-

pects as well as issues to treat accidents in the right manner.

• Joker Service Provider

According to the needs of the industry and the international trade contingency

planning provides certain way outs as alternatives to cope with occurring risks

related to supply chain disruptions, which represent additional potential to diffe-

rentiate from the competition. Especially in this field the competencies of SCEM

will gain importance, which combines knowledge based on experiences, capaci-

ty to act and excellent IT-systems in an effective manner.

• Supply Chain Location Optimizer

The global optimization of value chain networks by location management and

supplier management becomes a major challenge, which is not only limited to

157 Klumpp, 2008


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economical and logistical planning processes, but also increasingly comprehends

communicative public relation tasks.

• Environmental Manager

The question concerning the protection of the natural environment and the world

climate, which had been discussed widely, will play a significant role in logis-

tics, not only due to newly arising legal or regulatory constraints, but also in

terms of new potentials for product offerings and differentiated services in logis-

tics. Standards to determine CO2 emissions, utilized for measurement, will

create complex and highly qualified new tasks for future logistics managers.

The aforementioned tasks point out clearly that global value chains in fact bear specific

and on balance higher requirements, and the advantages are predominating on the other

hand, due to the emerging growth potential arising from a specialized alignment of

SCM activities and logistics service providers in the field of logistics as a whole. All

these newly created jobs can also be employed in an RFID environment, taking envi-

ronmental, information service, data security, risk mitigation and stakeholder related

issues into account.

3.6 Security Issues

Due to globalization more and more companies have to trade on a global scale. The

continuing expansion of global business processes inevitably requires the sharing of

supply chain data with trading partners all around the globe via internet, even if this

information is critical. Serious issues concerning data security arise from the sensitive

nature of that information, also gathered by RFID applications. Therefore trusted and

proven technologies which are flexible and adapted to the needs of the supply chain

should guarantee data security throughout the value chain. The long-term market viabil-


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ity and supporting services have to be taken into account, when a company chooses an

individual security system. If the security framework is scalable and reliable, it does not

negatively affect the complexity of current business processes, nor causes any supply

chain disruptions. The following challenges have to be taken into consideration, which

have to be addressed by a security framework’s configuration158:

• Authentication

Authentication can be described as the explicit and clear identification of a peer

entity at the other end of the communication channel. Not knowing the identity

of a possible trading partner and the verification of received information is

doubtful, can bear serious risks concerning that critical supply chain data is dis-

closed to competitors and that regulatory liabilities will arise from that disclo-

sure

• Data Protection

A proper data protection prevents interception or modification of data by unau-

thorized parties both in transit as well when it is stored on a media. Reliable en-

crypting and decrypting algorithms ensure relatively safe data interchange be-

tween supply chain partners.

• Access Control

Access control pre-defines the rules of which persons within a company are

permitted to perform corporate data. These responsible persons have to be cho-

sen properly and have to be of high integrity. On the other hand, in any case of

158 Verisign, 2005


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irregularity subsequent investigations normally are limited to this group of per-

sons

3.7 Privacy Concerns

Most of the RFID applications of today, especially in global supply chains or in global

logistics, do not concern privacy. For instance, a container which is tracked and traced

in the pipeline of a supply chain does not provide a possible inference to personal data.

But there is one aspect which affects the supply chain and therefore can not be left un-

mentioned. If a RFID-tagged end-product, which already had been pushed trough the

supply chain at least is offered on a store shelve for sale, and the tag logically remains

attached to the product to provide product related data for later vendor managed reple-

nishment, it might be possible theoretically that the end consumer, who takes the prod-

uct home, can be tracked and traced either, with the help of that tag. Sophisticated fu-

ture observation technologies might enable drawing-ups of customer-related consump-

tion or mobility profiles for market research reasons. In this case the privacy is obvious-

ly concerned. The question is in what way an incidentally determined ID-number of a

RFID tag, which is attached to a product might become personal data by the fact that the

tag can be recognized in several shops and the data from that tag are processed together

with other data to derive a mobility profile through this, which can be explicitly as-

signed to single person159.

The industrial committee of EPC Global has defined a policy guideline concerning a

voluntary self-commitment of its member companies to mark all products which had

been tagged and to give precedence to the consumer to turn off, remove or destroy the

tag after product purchase. It is also discussed to dissolve a previously initiated deacti-

vation of a tag to utilize the transponder for possible reclamations or maintenance ser-

vices afterwards.160

159 Artikel 29-Gruppe, 2005 160 EC, 2005; GS1, 2006


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For international or global RFID applications which might concern privacy, the Safe-

harbor agreement between the European Community and the U.S. might be a useful

model regulating the interchange of personal data in international business applications

accordingly to the European data protection principles in a pragmatic way, without re-

quirements for any extra standardized legal data protection framework.161

3.8 Environmental Issues

Besides other electronic components with an extensive material composition particular-

ly harmful for the environment, also RFID-systems have to be considered as discarded

electronic gadgets after use. Typically RFID transponders contain copper, silicon, po-

lyester and active tags also lithium in their batteries. Although there is no urgent call for

action concerning manufacturing or waste disposal of RFID-systems today, it has to be

examined in the future, in what way the huge quantities of RFID transponders attached

on consumer goods and other daily items, which are predicted in the long run, will af-

fect the present waste disposal and recycling processes. The chemical compound of

household waste seems to be unproblematic for modern incineration plants, but waste

separation and sorting might be a problem, if the RFID transponders can not be sepa-

rated from paper labels, glass or plastic and therefore are polluting the recycling

goods162.

161 Bovenschulte and Gabriel and Gaßner and Seidel, 2006 162 Behrendt, 2004; Hilly et al. 2005


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3.9 Cost-Benefit Evaluation When Investing in RFID

Coordination technologies create benefits by reducing the coordination costs, but on the

other hand they produce costs as well. Figure 36 below presents a model to determine

the optimal degree of coordination.

Costs

Coordination Intensity

Total Costs

Autonomy CostsCoordination Costs

K 1

K 1 : Piont of optimal Coordination Intensity Costs

Source: Frese, 1995, p. 101

Figure 36: Autonomy versus Coordination Costs

According to this model the optimal degree of coordination is situated at the intersection

of the marginal cost curves derived from autonomy costs and coordination costs. This is

the point where these two cost types are equal163.

163 Frese, 1995


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3.9.1 Cost-Benefit Comparative Method

The cost-benefit comparative method is widely spread in investment accounting while it

puts both the investment amount and the current payments opposite to possible divest-

ments and profits. In most cases the difference between the expenses and the benefit,

compared to prior conditions, or investment alternatives over several years, are taken

into account to determine the average annual surplus, respectively the loss. Through

discounting of the expected returns, cost-benefit comparative methods oriented to capi-

tal markets consider the Net Present Value (NPV) method, additionally the opportunity

costs resulting from missed interest yields. The duration of depreciation for the invest-

ment is a suitable period for consideration. IT projects mostly strive for an amortization

period less than three years164.

3.9.2 Total Cost of Ownership Method (TOC)

The Total Cost of Ownership method (TOC) to evaluate IT-investments had been de-

veloped by the Gartner Group in the 1990ies165.This method takes both, the direct and

the indirect costs related to the investment into consideration, over its whole lifetime

cycle. Besides the assessment of globally aligned departmental or company IT projects,

respectively the management of IT infrastructures, this approach also encompasses sin-

gle investments in hard and software, current maintenance costs, initiation-related infra-

structure costs for network extension, as well as personal costs for employee training

and capital costs166. The daily practice has to tackle the problem of identifying the indi-

rect costs and their accountability, thus the exclusive employment of the TCO method is

164 Strassner, 2005 165 Emigh, 1999 166 David et al., 2002


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not recommended for possible justifications of strategic decisions, because of its one-

sided cost focus.167

3.9.3 Process Cost Accounting

Process cost accounting aims to assign costs, related to cost drivers, directly to

processes, respectively activities. For the evaluation of IT-systems, this approach takes

the change in costs directly related to IT deployment into consideration. The method is

oriented to process chains rather than to departmental or company boundaries, and

enables the evaluation of collaborative SCM applications. The process cost accounting

supports strategic decisions merely by cause-related cost accounting, due to it is focused

on the evaluation of process efficiency168.

3.9.4 Shareholder Value Tree

IBM and Accenture use the shareholder value tree to depict the beneficial effects of

RFID-systems169. While comparable value-oriented methods, like the aforementioned

EVA are well-known in SCM, the shareholder value tree establishes a link between par-

ticular cost-benefits effects and the corporate value as a referential magnitude, which is

strategically relevant. A global view can be achieved by adding up single corporate val-

ues throughout the global supply chain network. The validity of the determined value

contribution depends on the specifications extend of the cause variables which had been

observed and evaluated. If the shareholder value tree method is linked up with process

cost accounting, the specifications extend will be significantly enhanced. So-called root

cause chains should be paid attention to, because they are suitable to find out the re-

167 Klerkx et al., 2004 168 Strassner, 2005 169 Alexander et al., 2002b; Chappell et al.,2002b


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quired interrelatedness between these influencing factors and their impact on value crea-

tion.170

3.9.5 Benefit Evaluation

Beneficial effects related to RFID-systems can be evaluated qualitatively or quantita-

tively. Since the usual investment accounting methods, for example the benefit-cost

comparative method, determine a monetary magnitude, a quantification of these benefit

potentials is to recommend. Another expedient, which supports the identification of

monetary implications, is the analysis of root cause chains. Qualitative potentials, like

further detailed knowledge about object movement throughout the value chain, are to

evaluate only by the means of additional assumptions related to this information. A

process matching, contributing to efficiency enhancement might be conceivable. To

verify the sustainability of a possible investment in RFID-systems, the related beneficial

effects have to be examined over several years. Firstly, some effects will occur only for

one time; secondly, a comparison of these effects with the starting investment in the

first year is only useful when these one-off costs are distributed over several years as

well. A suitable period of time is the depreciation period of an investment, which has to

be compared with the costs occurring in that period. Over that period the expected sav-

ings and increases of earnings are to determine along the lines of a pro-forma cash-flow

calculation. The assessment of the benefit has to be process-oriented and related to the

present situation. To reduce the risk of misinterpretations, an additionally computed

worst-case scenario is to recommend, which particularly does not take the costs due to

strategic failures as well as additional earnings into account, both uncertain magnitudes

anyway171.

170 Strassner, 2005 171 Strassner, 2005


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3.9.6 Cost Evaluation

The main cost drivers in RFID technology are hardware components, like transponders

readers, antennas, wires respectively WLAN and server as well as software, e.g. mid-

dleware, integration and maintenance172. A quantity structure of the needed technical

components can be derived from system planning and through the multiplication of the

quantities by the unit prices the total costs can be determined. But an accurate cost de-

termination is hampered by the complexity of logistical systems, price variations of the

technical components, as well the estimation of integration costs. The factors responsi-

ble for these limitations are listed below173:

1. High complexity

Logistical systems are highly complex when they encompass several value-

adding stages and unguided processes. Several value-adding stages can have dif-

ferent system requirements, e.g. different RFID frequency bands. The presences

of WLAN, internet connections or ERP-systems have an influence on the selec-

tion of suitable RFID-systems as well. Unguided processes require RFID-system

flexibility, respectively spacious infrastructure coverage, combined with flexible

control software

2. Falling prices of RFID components

Due to falling prices cost accounting becomes quickly obsolete. Therefore a set-

ting-up of cost models is useful where the prices of the cost-driving components

are interchangeable

172 Dunlap et al., 2003 173 Strassner, 2005


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3. Integration expenses

Uncertainty in estimation of the expenses for integration often occurs because of

the missing experience to implement complex RFID-systems successfully.

The cost structure of RFID-systems consists of the following cost types:

• Data carrier costs

Object labeling through tagging

• Infrastructure costs

Hardware components, antennas, readers, wires, WLAN,

Servers and services, like the utilization of externally operating infrastructure-

systems

• Integration costs

Installation and configuration of the RFID-system, as well as the adaptation

to already existing IT-systems. Integration encompasses also process reengineer-

ing, interruptions and employee training

• Maintenance costs

Expenses for repairing and control and replacement of defect or older compo-

nents


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To determine the value added in RFID-systems, economical considerations are focused

on the cost relevant factors of a certain RFID installation, such as transponders, infra-

structure and integration in the nearer sense. The influencing extends of these cost fac-

tors on the total costs depend on the number of objects to identify, as well as the reusa-

bility of the transponders.

Table 6 points out the substantial cost determining factors for different system types.

3.9.7 Evaluation from the Supply Chain Management Perspective

Based on two reasons an additional evaluation from the SCM perspective might be use-

ful. First, some effects can only be measured by taking the entire performance of the

whole delivery network into account. For example, if a dispatch drawing up, conducted

by a supplier is more reliable due to the accurate achievement in meeting his delivery

dead lines, becomes only visible by considering the system holistically.

Second, it is essential to assign beneficial effects directly to those independent enter-

prises throughout the supply chain network, respectively, departments, who make deci-

sions about financing of the infrastructure. For the evaluation of the benefit, firstly

created on the project or on enterprise level, the following aggregation by a shareholder

value tree demonstrated in Figure 37, which represents a holistic view, might be a poss-

ible solution to handle this problem. According to the aforementioned survey in the au-

tomotive industry, most of the surveyed companies have cost savings resulting from

increased process efficiency in mind. Besides costs arising from shrinkage or due to

Reusable Not Reusable

Less Objects Infrastructure, IntegrationInfrastructure, Integration,

Transponders

Many Objects Infrastructure, Integration,Transponders

Transponders

Source: Strassner, 2005, p.152

Table 6: Cost determining Components of RFID Systems


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product recalls are already taken into account by the corporate cost accounting and de-

tailed descriptions for activities linked with the according resource requirements, used

for process benchmarks are available in most of the companies, the related cost savings

due to automation of activities become calculable174. A process reengineering can in-

crease the efficiency of RFID-systems dramatically. For example, shrinkage can be reli-

ably reduced by adapting the transportation routes of certain receptacles to the capturing

range of the RFID infrastructure.

Expected Implications of RFID Deployment

Increased Service

Additional Services (Individualization)

Increased Customer Retention

Grey Market Close-ups

Increased Process Efficiency

Relabeling Avoidance

Reduced Costs due to Failures

Reduced Costs due to Recalls

Shrinkage Reduction

Lower Security Buffers

Reduced Inventory in Transit

Reduced Inventory Depreciation

Increased Resource Utilization

Shrikage Reduction

Outsourcing of Warehousing and Forwarding

CorporateValue

Increase

EBITIncrease

LoweredCapital Costs

SalesIncrease

LowerCosts

Decrease inCurrentAssets

Decrease inFixed Assets

+

+

+

Source: Fleisch et al., 2004

Figure 37: Shareholder Value Tree of RFID Implications

174 Luczak et al. 2001


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3.10 Conclusion

The lessons learned from this chapter comprehend the notion that an increased automa-

tion level and enhanced process efficiency are possible beneficial effects of RFID dep-

loyment in global supply chains; however the successful implementation of RFID is

also related to rising costs. The main cost drivers of RFID systems are transponders, the

whole data capturing infrastructure, as well as software and integration and maintenance

services175. In comparison to other Auto-ID systems employed in logistics RFID appli-

cations are rather expensive. By deploying RFID in open logistical systems combined

with a huge number of objects to identify, transponders crystallized as the main cost-

determining factor. A maximum automation level will be achieved when all objects in

the delivery chain had been tagged with transponders and if a dense infrastructure of

data capturing points is available. Due to RFID systems permanently compare real-time

processes with planned ones, enabled by control circuits, they can also benefit to

processes which had already been automated, especially those SCM processes bearing

high costs due to failures. This might also explain why parcel services pursue increased

process efficiency by deployment of RFID tags, and that they are pioneers in the im-

plementation of more advanced T&T technologies already176. Strategic failure costs aris-

ing from missed dispatch orders might become very high when customers change the

parcel service immediately, due to those failures. Although RFID systems increase the

automation level via the implementation of closed-loop control circuits, they are not

suitable to realize full automation stand-alone without integrating other technologies

like sensors and actuators. This topic is highlighted in the following chapter and

represents the current state-of the-art of RFID development.

175 Dunlap et al., 2003 176 Bretzke et a., 2002

4 Current Best Practice and Case Study

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4.1 Introduction

Today more than 20 million containers are already transported across the seas contain-

ing valuable and perishable goods, such as electronic appliances or food, and the trend

points to upward. Besides the rapidly growing amount of air cargo, the goods traffic

conducted by trucks, even in Germany, has more than doubled since the early

1990ies177. More and more companies depend on punctual deliveries, like spare parts for

instance to ensure a production going off smoothly. But not always the transportation of

materials works without any hitch. If damaged or perished goods arrive at the plant it is

often difficult to find out the culprit or failures creeping throughout the supply chain.

On their way around the globe goods are often changing hands and therefore logistical

companies as well as trading partners are more than interested in seamlessly monitored

transportation routes.

An efficient and reasonable solution to close that gap might be upgraded RFID trans-

ponders in combination with sensor technology, revealing further opportunities which

cannot be accomplished by conventional Auto-ID systems. This value-added can en-

hance RFID technology drastically. Compatibility to EPC standards up to now merely

suitable for object identification is prerequisite. This chapter reveals future opportunities

for deployment of RFID sensors and gives an overview about existing technology and

related standards while a case study is presented in brief as well.

177 Schröder, 2008


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4.2 Application Fields of RFID Sensors

Today’s conventional sensor technology is often deployed to control machine or pro-

duction related processes. A good example is the so-called ABS sensor which controls

the rotation velocity of car wheels during the ride and triggers a brake release in case of

a wheel’s standstill to avoid skidding.

Non-RFID-based sensors exhibit the disadvantage that they have to be wired to a mea-

suring device which is often expensive, prone to wear and tear and non-contributory to

enhance flexibility. Sensor data can be read out wirelessly via RFID technology entail-

ing a lot more flexibility in handling the technology. Enormous costs saving potentials

arise from sensor deployment in monitoring and control of environmental conditions in

logistical transportation chains. Especially in cold chains the temperature has to be mo-

nitored and controlled permanently to avoid expensive cold chain disruptions. Seeking

for a culprit or a missing link within the supply chain after a cold chain had been dis-

rupted is often too idle. Besides temperature fluctuations often strokes and vibrations

are responsible for losses in product quality. These influences are measurable by RFID

sensors as well. Other application fields are humidity control to keep fruits and vegeta-

bles fresh and to delay corrosion of metal goods. Possible sensors developed to control

the mellowness of meat are also conceivable to detect optimal mellowness or spoilage.

RFID technology enables a measurement reading without touching the product or un-

wrapping the packaging. Constant monitoring within the cold chain enables to react

immediately to unforeseen events, rejecting unjustified liabilities and helps to avoid

depreciations due to spoilage. RFID technology in combination with sensing offers var-

ious opportunities to increase process efficiency within the supply chain, e.g. if high

market volumes which are subject to refrigeration have to be depreciated by only 5%

will result in billion Euro losses.

This is also the case in the pharma and electronics industry which might become an ad-

ditional application field for RFID sensors.


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4.3 Realization of RFID Sensor Technology

A distinction has to be made between active and passive sensors. Active ones deliver

electricity, while they require electric energy at the same time for functioning. Passive

sensors on the other hand alter electric magnitudes like the resistance of an expansion

measurement strip depending of its expansion. Therefore passive sensors do not con-

sume any electric energy during the measurement process. The measurement of a pas-

sive sensor is oriented to certain thresholds where the measurement strip will be de-

stroyed or is no more conductive, if these thresholds are exceeded.

Combined with an EPC-UHF RFID transponder the captured sensor data can be stored

in the free memory of the transponder, together with data related to sensor characteris-

tics, which describe the task of the sensor and the sensor configuration, which deter-

mines the time length and the number of measurements. Since the data length had been

determined to 16 or 32 bits the sensor measurements can be stored in succession in the

memory of the transponder. When the data is read out later single measurements can be

separated from each other again. An additionally stored time stamp guarantees the later

product tracing if necessary when a threshold had been exceeded throughout the trans-

portation route. The data interchange between reader and transponder is realized via the

EPCglobal air interface protocol, which had been upgraded by additional sensor specific

functions.178 Sensors can have various purposes for measurement: Light, pressure, tem-

perature, humidity, presence of gas, acceleration, strokes and vibrations.

178 Clasen, 2006a


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4.4 Sensor-Enabled Self

In recent years logistics ha been revolutionized by two major element in field of micro

system technology. First, the implementati

Devices) 179and the second idea is the self

new uprising processes are developed aiming at the self

the transportation directly

micro systems directly connected to the product. Self

processes and makes them more efficient.

Figure 38: The Intelligent Container

Transportation goods of today are passive ones, which means if the goods are strawbe

ries for instance the temperature inside the truck is monitored. In the future transport

tion goods will be accompanied by systems monitoring the transport, document

179 Finkenzeller, 2002 180 Freitag, 2004

Current Best Practice and Case Study

______________________________________________________________________


Enabled Self-Control in Logistics


system technology. First, the implementation of RFID (Radio Frequency Identification

and the second idea is the self-control of logistical processes

new uprising processes are developed aiming at the self-monitoring and self

directly through the transportation goods, respectively, via intelligent

micro systems directly connected to the product. Self -control simplifies logistical

processes and makes them more efficient.

: The Intelligent Container

Transportation goods of today are passive ones, which means if the goods are strawbe

ries for instance the temperature inside the truck is monitored. In the future transport

tion goods will be accompanied by systems monitoring the transport, document

______________________________________________________________________



on of RFID (Radio Frequency Identification

control of logistical processes180. In logistics

monitoring and self-control of

, respectively, via intelligent

control simplifies logistical

Transportation goods of today are passive ones, which means if the goods are strawber-

ries for instance the temperature inside the truck is monitored. In the future transporta-

tion goods will be accompanied by systems monitoring the transport, document their


______________________________________________________________________


tractability and, if necessary react on unforeseen events. If it is foreseeable that the

strawberries in the truck might perish the sensor network is alerting and the truck is di-

rected to a plant which produces jam for instance. To achieve this, a sophisticated dis-

tribution of intelligence and sensory function have to be installed which monitor the

transportation good on one hand and transfer the captured data to superior information

systems via the nodes like it is depicted in figure 38 above. RFID in this case enables

the short-distance readability and data transmission capability, while the sensors deliver

additional information about the condition of the product181.

4.5 Boundary Conditions for Sensor Systems

While a RFID identification chip can be powered by several µW, sensors and related

sensor electronic require more capacity. A digital sensor designed for temperature mea-

surement requires 35µW instead and an acceleration sensor even 50µW. This energy is

transferrable only over the short distance of a few centimeters182.

4.5.1 Sensor Coupling

Several methods can be applied for sensor coupling with RFID. A passive sensor-RFID

utilizes the energy radiating from the reader to feed the sensor, but is limited to several

centimeters for transferring. Active sensor-RFID’s are powered by battery. Such sys-

tems can work for years without changing the battery. Important in this case is an ade-

quate energy management. In mixed operations with a supporting battery the fact that

the communication is too energy consuming is taken into consideration and therefore

the battery lifetime is lowered. One example is a temperature data logger in cheque card

181 Lang and Jedermann and Behrens and Sklorz and Benecke and Laur, 2005 182 Lang and Jedermann and Behrens and Sklorz and Benecke and Laur, 2005


______________________________________________________________________


format where sensor and the data storage are fed by the battery while the energy neces-

sary for data transmission is provided by the reader.

4.5.2 Hierarchical Systems

If it is intended to maintain the more complex function of an active sensor tag at lower

cost compared to a passive one it is advisable to utilize hierarchical networks. This

means, if a certain refrigerated product is merely equipped with a passive RFID tag

holding an ID-number and a small memory but no sensing capabilities, is loaded into an

intelligent refrigeration container there is immediate radio contact between the reader in

the container and the RFID tag attached to the product. The container monitors tempera-

ture and humidity of the product, ubiquitously and not tied to one single place, and is

capable to determine the storage place. During the unloading process the product again

has radio contact with the reader which writes the course of temperature and humidity

directly on the tag. In this case the tractability as well as the seamless verification of the

product over the transportation route is guaranteed. To realize self-control it is neces-

sary to make decisions on the lowest possible hierarchical level. The energy analysis

delivers the same result that it is more suitable to reduce data at the lowest level while

communicating less because communication energetically seen is more expensive than

computing power. On the other hand it is not possible to equip a huge number of sensor

nodes with all capabilities conceivable, due to cost reasons. Therefore the sensor sys-

tems have to be structured in a modular and in a hierarchical manner.

The mesh width does not determine the density of nodes in a sensor network. Some-

times it might be possible that more nodes exist than sensors. The reason is the energy

consumption which can be reduced by transmission of the signal from node to node,

while more communication takes place over a shorter distance. Regarding the fact that

the required energy grows with its squared distance in first approximation, less energy

is consumed in the end.


______________________________________________________________________


4.6 Future Logistics Requirements

Complicated multi-tasking measurement with RFID sensors is very important in the

food sector, because the goods are perishable and the stakes are high concerning legal

constraints. The results of a 2005 survey conducted among logistical companies, mainly

settled in the German food industry revealed that the following parameters, which had

been mentioned for improvement of the present situation to meet future logistics re-

quirements, are temperature, humidity, transportation damages due to strokes and pres-

sure as well as the climacterium of certain fruits183.

Temperature crystallized as the main characteristic magnitude. Due to the exact temper-

ature has to be monitored and guaranteed by a logistics company, the transporting firm

is liable to recourse if the temperature demonstrably had been deviated from its specific

range. Nevertheless in contemporary containers only three points to measure are merely

provided. This is surely too less to monitor the transportation good sufficiently. This

hurdle can be taken by deployment of a RFID sensor network. The second parameter of

high priority is humidity. Many transportation goods are hygroscopic, especially indu-

strially dried food. This kind of food is emitting to or absorbing water from its environ-

ment constantly, until a balance between product humidity and the humidity of the envi-

ronment adjusts itself, taking the fact into account that this process is significantly de-

pending on the temperature. If the barrier related to formation of mould, normally 75 %

humidity, is exceeded the truckload is irretrievable spoilt. Thus, a ubiquitously and not

tied to one place measuring is necessary. Accordingly it is urgently required to monitor

the convection flux. This problem can be solved by utilization of sensors controlling the

flux or by analysis of the corresponding temperature profiles. Therefore widely scat-

tered measuring points are necessary as well as a numeric data model.

Damages in transit normally occur due to mechanical implications when a carton falls

down. To determine the culprit it is necessary to know exactly when this event hap-

pened. Especially the acceleration measurement represents a major hurdle because of

183 Lang and Jedermann and Behrens and Sklorz and Benecke and Laur, 2005


______________________________________________________________________


the necessity to measure continuously. While other magnitudes are measured within the

tact of one minute, and therefore the system remains most of the time in the energy sav-

ing sleep mode, a stroke is unforeseen and suddenly occurring. Even if the responsible

sensor is consuming only 50µW of electric energy, the battery is loaded by 36 mAh per

month.

Ethylene is a gas and plays a significant role during the ripeness process of certain cli-

macteric fruits like bananas. Climacteric fruits which are going to get ripe emit ethy-

lene, a ripeness hormone, while the presence of ethylene triggers the ripeness process on

the other hand. Hence, ripeness hideouts might grow in cargo holds due to an agglome-

ration of ethylene gas in closed rooms.

4.7 RFID Case Study – Gebrüder Weiss

Project Description and Objectives

Systems for seamless monitoring of cold chains are main challenging topics on the

agenda of the food, chemical, pharmaceutical and building material industry. Shrinkage

avoidance during the transportation and the capturing of detailed data for transportation

process optimization, highest quality demands and compliance to legal constraints crys-

tallized as the main drivers for the new technology. Besides the utilization of adequate

capturing technologies for data related to RFID transmission and the movement of the

goods all along the transportation route, the implementation of a common platform to

collect, administrate and process transportation data is crucial. Thus all players in within

the supply chain are informed in real-time about the actual transportation status in the

same way.

The following project had been conducted collaboratively between a RFID software

provider ( inet-logistics, 6991, Wolfurt, Germany) as the project supervisor, a logistics


______________________________________________________________________


company (Gebrüder Weiss GmbH, 6923, Lauterbach,Germany) as the pilot and a RFID

hardware provider (IDENTEC SOLUTIONS Deutschland GmbH, 69469, Germany).

The presentation of the problem had been attributed to the circumstance that most of the

contemporary logistical processes do not meet the essential requirement to realize an

automated and real-time based data capturing of consignments to determine the current

product status as well as the actual location in transit. The objectives had been the opti-

mization of the supply chain via RFID deployment combined with sensor technology as

decentralized information storage, additionally equipped with GPS and GSM. Therefore

a seamless tracking and tracing of goods in internationally aligned logistical cold chains

should be achieved.

Project Execution and Results

The project had been designed for one year with temperature critical goods which had

been attached by RFID sensors during the uploading process. Thus, information was

captured by fixed installed readers at the entrance and exit gates of the warehouse and

with the help of a GSM module the data had been transmitted to superior information

systems via SMS or GPS. The utilization of such a system configuration enables the

transmission of temperature deviations to a logistics server which is capable to react on

theses events with escalation routines. Additionally all loading and unloading points

along the delivery chain had been equipped with RFID readers to guarantee a structured

control of the material flow. Through this way of transmission information concerning

the current location and temperature data can be combined and transferred. This steady

data steaming enables the drawing-up of temperature curves all along the transportation

route in the superior information system, which is provided for all integrated supply

chain partners. Apart of that the transponders had been equipped with an LED lamp for

immediate alert if the temperature range had been exceeded or fallen below.

The software employed had been an internet-based solution with extended capabilities

to process all tracking and tracing data when the products move through the pipeline,


______________________________________________________________________


while administrating the dispatch units at the same time. Additional inventory record

keeping and archiving of all data related to product movement within the supply chain

had been possible as well.

Within the observation period of the project difficulties concerning the movement direc-

tion and explicit data capturing of RFID transponder movement in narrow places for

example at loading platforms had been noticed. Besides that the widest gap concerning

the data processing exists during the in-transit process.184

4.8 Conclusion

The range of applications and the current standardization state of RFID sensors had

been presented in this chapter. At resent RFID transponders with integrated sensors in

accordance with EPC standards are merely available as prototypes. It is expected that

the prices of RFID sensors will decline due to increasing demand similar to the price

reduction in the sector of common EPC-UHF transponders. If the prices will fall espe-

cially the agro sector and the food industry might take their chance by lucrative applica-

tions. Main fields of deployment might be probably the quality control of food and op-

erational substances. Concerning the efficiency it will be also highly important that a

globally accepted standard prevails over which is compatible to common standards of

EPCglobal . Apart of that the sensor data has to be integrated into the concept of the

EPCglobal network, representing the future internet of things, to ensure global availabil-

ity also for this kind of data if desired. RFID sensors represent a major element in the

realization of the “Internet of Things”.185.

.

184 Economic Commerce Centrum Stuttgart-Heilbronn, 2007 185 Clasen, 2006

5 Analysis and Discussion

______________________________________________________________________



5.1 Introduction

The previous chapters have given an impression about what kinds of complex reflec-

tions can arise to make a globally aligned and RFID enabled supply chain reality. Be-

sides that the technology will increase its complexity another time by taking the chal-

lenges arising from additional sensor technologies, mentioned in the chapter before, into

account, the feasibility of a virtual reproduction of the certain nature and complexity of

a global supply chain itself, diffused by RFID, provides matters for discussion as well.

An RFID enabled environment increases its complexity by the degree of how it is dif-

fused by this technology, how many different objects are integrated and how much

supply chain partners are involved. Another aspect is in what extend the pace of the

RFID environment’s development is influenced by external factors like hardware prices,

basic standards and the overall technological maturity of the whole system. Apart of

finding adequate solutions to manage the raising enormous volumes of unrefined data

produced by RFID in real-time, it is worth to think about strategic aspects to maintain

the status of the supply chain which had been currently achieved, or how to expand in

this or that direction.

Well-knowing that a perfectly end-to-end global supply chain equipped with RFID in

combination with other technologies does not exist yet, contemplations about how

would it look like, and moreover what comes next are interesting topics to discuss

about.


______________________________________________________________________


5.2 RFID Diffusion in the Global Supply Chain

Figure 39: Diffusion of

Figure 39 above shows a theoretical model of a

global supply chain, which is conceivable

cording to the coordination theory

more participants to utilize the technology

creased RFID diffusion must enable the total networking effect,

players in the value chain deploy the same

Today’s globally oriented supply chains are merely spot solutions

ID diffusion, except RFID rollouts from Metro Group and DHL in France aiming at

linking two counties by RFID applications

instance in China as well, does not really mean that this RFID network is seamless

throughout the whole pipeline. On the other hand in a seamlessly RFID diffused supply

chain under the aforementioned conditions media disruptions can be avoi

186 Metro, 2008

______________________________________________________________________


RFID Diffusion in the Global Supply Chain

on of RFID Deployment in Global Supply Chains

above shows a theoretical model of a continuously end-to-

global supply chain, which is conceivable, but does not exist in such

cording to the coordination theory, which prerequisites the acceptance

more participants to utilize the technology, as a result of the second

creased RFID diffusion must enable the total networking effect, conditioned

players in the value chain deploy the same Auto-ID infrastructure.

Today’s globally oriented supply chains are merely spot solutions concerning their R

, except RFID rollouts from Metro Group and DHL in France aiming at

linking two counties by RFID applications186. If the same companies



chain under the aforementioned conditions media disruptions can be avoi

______________________________________________________________________


RFID Deployment in Global Supply Chains

-end RFID-diffused

but does not exist in such extend today. Ac-

the acceptance of more and

the second-order effect, in-

conditioned that all

concerning their RF-

, except RFID rollouts from Metro Group and DHL in France aiming at

If the same companies deploy RFID for



chain under the aforementioned conditions media disruptions can be avoided and there


______________________________________________________________________


fore costs can be lowered drastically. Like it is demonstrated in Figure 39 the integra-

tion depth as well as the integration range increases by RFID diffusion. To widen the

integration depth more and more objects from different levels of the material flow can

be equipped with transponders. Taking into consideration that different items are of

certain kind of value, these items have to be also separated according their critical im-

portance when a company intends to deploy RFID transponders in its material flow,

especially regarding the arising costs. The following passages analyze and discuss dif-

ferent stages of development in terms of integration range and integration depth by se-

parating the integration objects according to their level within the material flow, while

the integration range is divided up into two dimensions first, along the supplier base and

second according how the material flow takes its way across the globe. Furthermore the

implications of external factors of influence, like prices and standards are taken into

account besides the importance of the maturity of the applied technology.

5.2.1 Integration Depth

Taking Figure 39 into account the integration depth rises proportionally to how many

objects from different transportation layers, like case, pallet or single-item level, are

attached by transponders. If all layers are fully-fetched RFID tagged the maximum de-

gree of integration depth and thus, the most accurate image of the material flow within

an IT-system is achieved. Regarding a steadily rising integration depth level, several

additional applications become possible, such as enhanced T&T opportunities combined

with SCEM systems throughout the whole material flow, theft protection, stock taking

and accurate compilation of dispatch orders. An investment in that direction would

cause high costs which makes it worth to think about a classification of the objects ori-

ginating from the different transportation layers into separate buckets related to their

critical importance, which might be determined by their security relevance, re-

procurement expenses, shrinkage rate or lifetime cycle. The expected benefit of a trans-

ponder, as well as the its type, active or passive, attached to a certain product might be a


______________________________________________________________________


possible mean to classify it to a certain resource class. Correspondingly classification

criteria like manual handling efforts for identification, as well as sorting and processing

of product related data, which might arise from missing availability or wrong applica-

tion, should also be included into the consideration.

5.2.2 Integration Range

Like it is depicted in Figure 39 the RFID integration range increases with the number of

different kinds of process steps involved by RFID data capturing according to the direc-

tion of RFID diffusion, represented by the two dimensions from domestic to global and

throughout the supplier network. An enhancement of the integration range can be

achieved by switching from commonly applied closed loop logistical systems to open

loop systems. While closed loop systems are applied locally in production control with-

in the company walls or collaboratively with other companies in circulating receptacles

management, open loop systems are unpredictable concerning the return of an object to

the its point of origin. Here all participants in the logistical network have to make

agreements among each other related to that problem. On the other hand special financ-

ing models have to be created when switching from closed loop systems to open ones187.

For creating a win-win situation for all players in the supply chain it is necessary to

share and distribute the arising costs accordingly to the expected beneficial effects to

avoid disadvantages for several companies carrying the initial costs for RFID tagging.

For instance while a manufacturer has to carry the costs for transponders and their at-

tachment on his products other following partners in the supply chain network might

profit on saving the costs for tagging and reduced amount of work involved.

187 Das and Harrop, 2001


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5.2.3 External Factors of Influence

The cautious attitude of many companies to adopt RFID systems often refers to high

transponder costs in comparison to the expected benefit188. Therefore further RFID dif-

fusion is hampered. Due to the chip price is depending on the amount of silicon em-

ployed, expected economies of scale caused by higher production volumes and miniatu-

rization which entails lower silicon requirements might reduce the chip prices in the

future. Expectations concerning the possible appearance of a “5 cent” chip are nurturing

the cautious attitude of the companies on the other hand189.

To achieve maximum RFID diffusion in the global supply chain a consistent communi-

cation standards are prerequisite for inter-organizational globally operating IT-

systems190. RFID systems are classified according relevant standards concerning tech-

nology, application, data processing and capability. A membership in corresponding

standardization committees, like ISO or EPC global, and industry associations might be

advisable.

The present market for RFID applications is characterized by product innovation. The

RFID manufacturers aim to create more and more sophisticated solutions to optimize

the technology and therefore to enhance its maturity, which might provoke many com-

panies to maintain their cautious attitude by waiting for the “best” solution. Hardware

prices, standards and the maturity of the technology are interrelated. A technology is

accepted as mature if it creates the expected benefit, as well as the economically acting

applier considers the price of the RFID technology as prerequisite for it acceptance. The

price on the other hand is depending on the customer demand which is related to the

acceptance of the user. The diffusion of other infrastructure approaches like the internet

or mobile phones can be characterized in similar ways.

188 Gartner, 2003b 189 Sarma, 2001 190 Fleisch, 2000


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5.3 Data Management

Taking the huge data influx of RFID applications into account, one question stands to

reason how these data streams can be managed efficiently. Besides the vast data volume

concerning the individual characteristics of an object provided by RFID, also the infor-

mation delivered by the EPC even occupies larger amounts of data storage than the

Universal Product Code (UPC) before. Even if this question seems to be timely many

ERP systems might not be designed for to process these data streams. Another fact

which requires attention is that RFID based data is always continuously streaming what

makes conventional ways storing data, for instance on disk, obsolete, disregarding that

past RFID data stored on a disk become obsolete as well, after actual data has been ar-

rived. In an RFID and Auto-ID environment it is necessary to process data in real-time

combined with sophisticated filtering systems, rather than processing it afterwards when

it is stored on a disk. At this point it is worth to think about “in memory” databases to

manage this unrefined data, which are a thousand times faster than disks. A contempo-

rary application of those databases is already to find in the field of financial securities

trading. In this case data streams are transferred directly to the processor while bypass-

ing memory, the same way a network router is working191.

5.4 Strategic Subjects Worth for Discussion

5.4.1 Actual Information Requirements

RFID technology is capable to provide information for the user from every location of

the supply chain. This information eliminates uncertainty and therefore SCM processes

can be remarkably enhanced, but on the other hand, as it was mentioned before, RFID

can also produce bulks of information nobody needs. Thus, the information quality

191 Gregory, 2006


______________________________________________________________________


should be taken into account and moreover the adequate information supply aligned to

possible beneficial effects. A first step in that direction might be the determination and

evaluation of the actual information demand oriented to the strategic model of the real-

time enterprise where information relevant for decision making is available according to

the actual needs. The arising costs related to shortcomings in information supply are

corresponding wit the potential value-added of the right information at the right place.

Regarding this the beneficial effects of information can also sum up. For instance

prompt information might not only be useful for automated registration of a certain ac-

tivity but to efficient provision of transport capacities, invoice transactions or supplier

evaluation. Therefore RFID systems capable to support critical information supply

should be preferred.

5.4.2 Verification of the technological Maturity

Since the performance of RFID system depends on environmental factors like the pres-

ence of metal or humidity, and technology providers can indicate capacity ratios, such

as reading range or bulk recognition capability, only in form of guide values depending

on those environmental factors, verifications concerning the feasibility of a possible

RFID rollout are highly to recommend. In this case references from other companies

can be analyzed without time consuming efforts, or a pilot is to conduct especially when

several partners within the supply chain, suppliers or logistics providers, can be in-

volved which might help to avoid conflicting situations afterwards and a consensus can

be achieved concerning the utilization of a common configuration of a RFID-system. It

is also useful to integrate technology provider into pilot projects, because in this early

stage of RFID adoption these technology providers might be willing to co-finance these

pilot projects while having the RFID award in mind.


______________________________________________________________________


5.4.3 Consideration of Standards

RFID systems enable the utilization of common established data standards like number-

ing schemes for product labeling, such as FACT or EAN 128. RFID-specific on the

other hand are certain standards relating the air interface, usually air as a conductor free

medium between the transponder and the reader through which data communication is

achieved by the means of an electromagnetic field.192 Therefore users should employ

theses standards also for local applications, to prepare the preconditions for a later ex-

tension of the system by exploiting the economy of scales resulting in falling hardware

prices and further technology development. The fact that focal firms are striving for

new standards in collaboration with their value chain partners and technology providers

is a critical success factor in standardization projects of SCM. To involve these compa-

nies might help to enforce new and perhaps better standards earlier, which represent a

competitive advantage in know-how.

5.4.4 System Integration

RFID systems supplement existing system architectures in SCM by delivering a more

accurate image of the physical material flow. Hence, it is prerequisite that appliers adapt

these RFID systems to their in-house applications and infrastructures, because imple-

menting RFID via new interfaces merely enables a substitution of conventional Auto-ID

systems through RFID. Sensors and MEMS are a good example for integration technol-

ogies combined with RFID. They increase the information richness and enable process

control besides process monitoring as well.

The utilization of common infrastructure service providers might be a solution to avoid

redundant implementation of basic functions, such as identification, tracing, monitoring

or the management of product related data of logistical objects and helps to decrease the

expenses for integration of the applications as well as to avoid incompatibilities. There- 192 www.aimglobal.org


______________________________________________________________________


fore it is to examine which kinds of SCM information services have to outsourced, also

taking into account that several manufactures of RFID middleware support RFID con-

nections to infrastructures like EPC global.

5.4.5 Process Organization

The adaption of existing process procedures to RFID systems which are to implement is

also worth to mention. Users might feel inclined to underestimate the implications of

RFID in favor of overrating the velocity of its implementation process, and thus, the

economical impact of RFID applications is questioned due to the unexpected low pace

of process efficiency. Thus, an additional reengineering of existing processes should go

along with future RFID implementation planning, because companies have to take into

consideration that the expenses for process reengineering might exceed those ones of

system adoptions, and that these expenses might be long-drawn-out. To achieve an ad-

ditional competitive advantage it is to recommend that firms adapt these further con-

tinuing process modifications to their individual SCM strategy.

5.4.6 Incremental Steps for Implementation

An RFID infrastructure which is implemented incrementally should be preferred be-

cause in a step-wise manner more and more logistical objects can be integrated resulting

in a better overview of the whole steadily widening RFID landscape throughout the

global supply chain, as well as the integration depth and range are continuously in-

creased, while additionally having in mind that every step in the implementation process

is less cost-intensive than the previous one caused by falling infrastructure prices due to

economies of scales. Figure 39 might help to assign a certain company to its current

stage of development and to support the planning of further implementation steps by

determining a useful path regarding the diffusion direction in accordance to the individ-

ual integration requirements. The right moment for implementation normally corres-


______________________________________________________________________


ponds with the externally influencing factors, like the technological maturity, prices and

standards. These circumstances must allow a reasonable cost-benefit ratio for the

planned applications. A premature implementation might be doomed to failure, while

delayed RFID implementations will cause competitive disadvantages.

5.5 Extrapolation into the Future

5.5.1 The Global Supply Chain virtually projected

A fully integrated information flow with the global material flow might be a possible

scenario for a computerized global supply chain. This can be realized via automatic

identification at control points located along the global transportation routes, combined

with an overall available IT infrastructure providing the retrieval and updating of rele-

vant supply chain information.

Taking the ongoing technological development into account wireless sensor networks,

microelectronic-mechanical systems (MEMS), new emerging radio technologies and

materials, like electronic paper are future technologies on their way to close the infor-

mational gap. They equip future information systems not only with “sensing organs”;

they also add capabilities to act. By this means a supply chain becomes computerized

supported by information which is merely not stored in data bases separated from reali-

ty, but as a part of the global material flow and directly applied within there. A globally

computerized logistics network is similar to the internet unlike that real objects are deli-

vered to every location on the globe instead of data packages. Things happening in a

virtual world become reality enabled by a computerized delivery network. For instance

an employee is clicking on several virtual items on his computer screen somewhere in

the world, triggering transportation orders, while the execution of these orders will fol-

low immediately. The difference between the real object and its virtual counterpart

within the IT-system has no importance for the user. Things from reality are changing

their status as a result of that their virtual counterpart has changed its status, and vice


______________________________________________________________________


versa. Due to the SCM-IT is fully integrated with the real world the relevant informa-

tion flows directly to the user dooming data bases to redundancy. From the users point

of view the examination of the inventory is still based on a data base retrieval, like it is

today, but the answer the user will get in a future scenario is based on the real situation

captured by RFID and connected sensing applications.

Assuming that this real-time information is available at any time, it stands to reason that

the often required increased visibility throughout the delivery network becomes ques-

tionable and, apart of that, may even lead to an information overload in the end. For

example, tracking information concerning a delivery related to a certain date makes

only sense if the delivery is further processed immediately after arrival, or in case of an

expected delay.

At least the human actor remains an indispensable element within SCM systems due to

his flexibility and creativity to plan and monitor processes, but his perception of the

environment and the interaction with IT-systems is altered. As a result of the habitua-

tion to RFID and other technologies, Human actors perceive the world in a new differ-

ent manner, because of a certain, further developed “digital sense”193. For instance the

search for relevant information in a data base will belong to the past, because the infor-

mational counterpart of reality is overall available.

5.5.2 Web 2.0 as an Asset Management Solution

RFID application will change asset management behavior drastically, because from that

moment when an asset has been tagged with an RFID chip it is made visible from every

location, and therefore suitable for possible audits which might change conventional

business rules and the understanding of asset behavior enormously. With the help of

RFID it is possible to proof that supply chains previously seen as responsive do not bear

these expectations and as a result several contractual obligations had been crystallized

as non-compliant contrary to all previous assumptions. Therefore RFID can catalyze

193 Sheffi, 2004


______________________________________________________________________


rapid process improvement in asset management by eliminating or mitigating ineffi-

ciencies, nonconformance, contractual breaches and other flaws in managing assets

within the supply chain.

The next generation of the internet, often described as Web 2.0 allowing and enabling

so-called nodes, the participants themselves in the network, to bring in their own contri-

bution. Therefore Web 2.0 realizes the so-called network effect which scales the utility

of large networks exponentially due to the increasing number of nodes, while altering

the online experience. Web 2.0 is changing the former internet environment into an in-

creasingly more personalized and participatory virtual landscape, which encourages also

marketers to establish direct relationship to their customers via offerings of services to

search for a product in a supermarket by utilization of internet capable cell phones sup-

ported by connected RFID systems.

Transferred on a global supply chain this could mean that the whole value chain net-

work changes into an agile system that is able to rapidly adapt to changes in its envi-

ronment, enabled through sophisticated ERP-systems equipped with in-memory data-

bases, Web 2.0 applications where human participants and computing agents, instead of

humans, are present, as well as contributing RFID applications. These technologies

combined to an entire whole might blast the network effect in that form, that self-

interested nodes providing value to the supply chain in a symbiotic way empowered to

develop asset management solutions within the global supply chain194.

5.5.3 The Internet of Things

The achievement of a Ubiquitous Network Society might be enabled in the years to

come by sophisticated future technologies at the stage for practical use. It is estimated

that RFID will become the mainstream technology in the retail industry around the year

2010 and is considered as a much broader approach than simple identification schemes.

Going along with the expected capability for single-item tagging around 2010, it is con-

194 Gregory, 2006


______________________________________________________________________


ceivable that numbering schemes like IPv6 ensure the identification of every single ob-

ject while making it addressable and connected to IP-based networks and announce the

first wave of the “Internet of Things” in the not too distant future. Considering that

even tags of today are already capable to operate with 128 bits address fields enabling

3.4 * 1038 unique identifiers, which represents more than a trillion addresses for every

square centimeter on earth, it is more than foreseeable that any object can be identified

uniquely.

The so-called “Internet of Things” in its fully-fletched maturity, which is expected to

become reality in the next 20 years, will be a much broader network approach than any-

thing else what had been existed before. In such an IT infrastructure, where RFID has

only a preparing and pioneering role, disregarding that the IT industry of today is far

away from being capable to develop systems where hundreds of millions of objects are

connected to IP networks, the objects of the real world are completely integrated into

the virtual one, which makes these objects to smart components having an active role in

a future internet. The imagination comprehends the existence of smart things self-

performing their transport, adaption to the environment, configuration, maintenance and

repair or even their own disposal. According to this vision it is easy to imagine that fully

automated supply chains and autonomous warehouses administrated by smart things,

making own decisions might become reality. Especially concerning the capability of

smart things to make decisions raises the motivation to discuss.

The question in this context is the reliability of intelligence related to Ubiquitous Com-

puting. If smart things are capable to make decisions collaboratively, it would be inter-

esting to know how they might converge for a common solution, and how locally made

proposals will take a backseat towards those decisions made globally.195

195 INFSO D.4 Networked Enterprise & RFID, 2008


______________________________________________________________________


5.6 Conclusion

Regarding the different aspects presented in this chapter, it is supposed to begin the

contemplation about a future global supply chain, interlarded with information

technology and providing 100% visibility, by spanning a bow between the present

global supply chain situation of today and the extrapolation into the future and thinking

about what must happen in between these two epochs. As it was mentioned before,

today’s globally aligned companies utilizing RFID in parts of their global supply chain

networks are operating merely on the case and pallet level today. Many players in

global supply chain networks have not been reached yet, and many others are not

willing to join an RFID network due to cost reasons or missing knowledge. Moreover a

global RFID diffusion is still in ist infancy. A lot of the aforementioned additional

sensing technologies are more like imagination than real mature approaches in global

supply chains. A fully-fletched global supply chain technology maturity can only be

achieved by an incremental approach for decades taking also the human factor into

account. Humans from several cultures of this world have to be trained and adapted to

the technology accordingly before it is accepted down to the smallest plant within the

supply chain. A second point is if smart things should make decisions on lower levels

autonomously, human beings scattered around the globe should be capable to take

superior control collaboratively as well.

A third aspect is the case of disaster. Disasters happen abruptly and suddenly and are

unforeseeable and no counterbalancing supply chain risk strategy can be carried out for

that. A possible scenario for a disaster might be a lack of electric energy supply

throughout the technology-driven global supply chain. The communication would grind

to a halt immediately and the information flow would automatically be stopped. This

scenario might lead to an immediate lack in worldwide overall supply, because every-

body in the global supply chain networks relied on the technology providing everything

just-in-time, and while holding less or even no security buffers as reserves, as a conse-

quence of a demand-driven supply chain, the supply process would stop automatically

due to over-optimization.

6 Conclusion

______________________________________________________________________


6 Conclusion

The examination has shown that supply chains of the 21st century are tending to align

themselves more and more globally. The main reason for this development is the

achievement of better results in internal metrics like cost-of goods sold as a percentage

of revenues, or total SCM costs due to enhanced opportunities to source abroad, as well

as having the labor costs in low-cost countries in mind. Besides that a clear GSCM-tend

is evolving directing the pace to increased flexibility, realized by enhanced visibility

and therefore creating the notion of the demand-driven supply chain, also seen under the

aspect to enter and exploit the potentials of newly emerging markets. Due to increased

information all across the globe customer expectations have heightened, while brand

loyalty declines. Thus, increased competition within demand-driven businesses requires

a customer responsive pull supply chain model to realize customized just-in-time deli-

veries.

The technological contribution to make a supply chain more flexible, visible and thus,

more responsive are Radio Frequency Identification Devices (RFID), as a coordination

and integration infrastructure approach, which already is mature enough to be embed-

ded into SCM processes. RFID gathers new business intelligence by enabling visibility

all along the supply chain while it provides important, real-world and product relevant

information to diminish uncertainty.

The examination has also shown that RFID suitably can be deployed in nationwide rol-

louts going increasingly international in the mid-term perspective, already before 2010.

Facing the reality of a contemporary highly fragmented global supply chain with its

global sourcing grounds, respectively its customers being widely scattered across coun-

tries and continents, unlikely will be completely diffused by RFID and accompanying

technologies in the next few years, although the technology for achieving this itself al-

ready exists.

6 Conclusion

______________________________________________________________________


The following reasons can be derived which might prevent or at least hamper such a

development on a global scale.

• Global frequency harmonizing is not sufficient

• Different kinds of RFID systems

• Lack of acceptance, trust or knowledge among the global supply chain players

• Cost aversion of the global supply chain partners to implement RFID

• Lack in willingness to collaborate

• Insufficient reliability of the systems, especially combined with sensing technol-

ogy because of radio holes over long distances

• Different governmental regulations concerning frequency bands, environmental

or health issues, as well as for political reasons

• Insufficient memory and processing capacity concerning the huge data streams

arising from too many globally integrated objects monitored globally

• Insufficient data security

Spot solutions of incrementally developing global and RFID diffused supply chains on

an international level are conceivable on the other hand. Even many low-cost countries

are not democratically oriented, which does not dissipate the reservations towards pri-

vacy concerns. The infrastructure concerning transportation routes and energy supply

especially in those countries is insufficient entailing future measurement and transmis-

sion failures.

Seen from another perspective, many benefits and advantages might arise from totally

global supply chain visibility enabled by RFID. Global material flows could be shown

in their current movement and condition, from every location on the globe in real-time.

Due to this happens in real-time the goods can be placed and redirected accordingly.

Since the arrival of certain goods at their point of destination is already clear, the goods

6 Conclusion

______________________________________________________________________


could change the proprietorship earlier and invoice payment could be accelerated. This

would prerequisite certain new trade agreements based on RFID technology, similar to

contemporary regulations for computer crime or data protection, and common accepted

compliant business behavior.

Conceivable are also global and multidimensional supply chain networks made of glass,

encompassing complete integration depth and full automated and therefore highly coor-

dinated processes, representing more or less giant marketplaces, in which goods and

products in transit are traded in real-time, based on decentralized decisions oriented to

actual demand directly at the point of sale. The pipelines of such networks could be

seen as streaming warehouses from which various customers are delivered just-in-time,

and worldwide.

Annex A

______________________________________________________________________


Annex A

Network

Configuration Description

Locus of

Manufacturer

Locus of Sup-plier

Locus of

Demand

Local

Manufacturing

Products are made local-ly, with local parts, to

meet local demand Domestic Domestic Domestic

Traditional

Export

Local Products are exported to foreign

markets Domestic

Domestic or

Abroad Abroad

International

Sourcing

Products are made local-ly, with parts sourced from abroad with pro-

curement based on specific needs, to satisfy local demand or foreign

demand

Domestic

Abroad, based

on Needs

Domestic or

Abroad

Global Sourcing

Products are made with parts sourced from abroad as part of

a global procurement strategy, to satisfy local demand or foreign de-

mand

Domestic or

Abroad

Abroad as part

of Procurement

Strategy

Domestic or

Abroad

Off-shoring

Products are made abroad, and then are re-

imported to meet

domestic demand.

Abroad Domestic or

Abroad Domestic

Global

Manufacturing

Products are made abroad to meet demand

in the respective

foreign market.

Abroad Domestic or

Abroad Abroad

Table 7: Possible Supply Chain Network Configurations ( Source: Hong and Hol-

weg)

Annex A

______________________________________________________________________


Time Key Issues Variables

Operational

(day to day management)

• Labor cost • Production & logis-

tics

lead times • Product quality • Customization of

products

• Delivery lead time against customer order

• Transportation needs (how often need for airfreight)

• Search and coordination cost • Transportation cost • Other indirect cost (travel,

set-up, • extraneous payments such as

bribes etc.) • Purchase / unit costs

Tactical

(1-2 years’

horizon)

• Flexible configura-tion

and local presence to

gauge customer needs

• Need to provide

appropriate product

variety and innova-tion

• Tax regime • Duties and tariffs • Degree of product customi-

sation to

local or customer needs • Cultural, language, skill dif-

ferences

Strategic

(5 years’

horizon)

• Location of

manufacturing

operation • Sourcing decisions • Outsourcing of

operations and

services

• Political risks • Market growth • Labor cost • Product life cycle • Transaction costs

Table 8: Concepts for Operational Assessment of Global Sourcing (Source: Hong

and Holweg)

Annex A

______________________________________________________________________


Static Cost Dynamic Cost Hidden Cost

Purchase price ex factory

gate

Increased pipeline and

safety stock due to

demand volatility

Currency

fluctuations, in

particular for

artificially pegged

currencies

Transportation cost per

unit, assuming no

unexpected delays of quality problems

Inventory obsolescence

due to long logistics

lead-times, e.g. in case of quality problems

Remaining overhead at the headquarters (Purchasing, technical assistance, R&D,

(product development)

Customs and duty to

clear one unit for export

Engineering time needed to address quality and warranty

issues

The loss of intellectual property

to contract manufacturers

Expedited shipments,

e.g. air freight, to ensure

uninterrupted supply

Legal risks in terms

of ownership of

facilities and market

access

Cost of lost sales and

stock-outs, as the supply

chain is unresponsive

The strategic risk of

political instability

and change

Table 9: Financial Assessment of Global Sourcing (Source: Hong and Holweg)

Annex B

______________________________________________________________________


Annex B

Table 10: RFID-Frequencies (Bovenschulte, M.; Gabriel, P.; Gaßner, K.; Seidel,

U., 2006)

Table 11: Transponder Capacity Data (Bovenschulte, M.; Gabriel, P.; Gaßner, K.;

Seidel, U., 2006)

Frequency Kind Frequency Range

Long Wave up to 135 kHz

Short Wave 6.78 MHz13.56 MHz

27.123 MHzUHF 433.920 MHz

860-915 MHz

Microwave 2.45 GHz

5.8 GHz

24.125 GHz

______________________________________________________________________


Frequencies (Bovenschulte, M.; Gabriel, P.; Gaßner, K.; Seidel,

: Transponder Capacity Data (Bovenschulte, M.; Gabriel, P.; Gaßner, K.;

Frequency Range RFID Application Fields Specific Features

up to 135 kHz Electronic Immobilizers, Entry Controls Not reserved as ISM band

6.78 MHz only isolated Utilization Commonly used ISM band worldwide13.56 MHz Chip cards, Single-Item Tagging Commonly used ISM band worldwide

Specific European Regulations for SRD27.123 MHz Railroad Applications Commonly used ISM band worldwide433.920 MHz Container Tracking & Tracing Commonly used ISM band worldwide

USA: Application has to be registered

860-915 MHz Tracking & Tracing of Pallets, Containers Different ISM bands worldwideEPC Certain European Regulation for SRD

2.45 GHz Commonly used ISM band worldwideCertain European Regulation for SRD

5.8 GHz Toll Systems Commonly used ISM band worldwideCertain European Regulation for SRD

24.125 GHz Commonly used ISM band worldwide

______________________________________________________________________


Frequencies (Bovenschulte, M.; Gabriel, P.; Gaßner, K.; Seidel,

: Transponder Capacity Data (Bovenschulte, M.; Gabriel, P.; Gaßner, K.;

Specific Features

Not reserved as ISM band

Commonly used ISM band worldwideCommonly used ISM band worldwideSpecific European Regulations for SRDCommonly used ISM band worldwideCommonly used ISM band worldwideUSA: Application has to be registered

by FCCDifferent ISM bands worldwide

Certain European Regulation for SRDCommonly used ISM band worldwideCertain European Regulation for SRD

Commonly used ISM band worldwideCertain European Regulation for SRD

Commonly used ISM band worldwide

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Abbreviations

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Abbreviations

ADC - Automated Data Capturing

BOSC - Build-to-Order Supply Chain

BPO - Business Process Optimization

BPR - Business Process Reengineering

BTO - Build-to-Order

CCO - Chief Collaboration Officer

COP - Cross-Over Point

CPFR - Collaborative Planning, Forecating and Replenishment

CRM - Customer Relationship Management

DNS - Domain Name Service

e.g. - example given

EAI - Enterprise Applications Integration

EAN - European Article Numbering

EAN.UCC - EAN International and the Uniform Code Council Inc.

EC - European Community

EPC - Electronic Product Code

ERP - Enterprise Resource Planning

etc. - et cetera

EVA - Economic Value Added

-

FDI - Foreign Direct Investment

GDSN - Global Data Synchronization Network

GPRS - General Packet Radio Service

GPS - Global Positioning System

Abbreviations

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GSCM - Global Supply Chain Management

GSM - Global System for Mobile Communications

GTIN - Global Trade Identification Number

HF - High Frequency

HTML - Hypertext Markup Language

IBM - International Business Machines

ICT - Information

ID - Identification

IEC - International Engineering Consortium

IP - Internet Protocol

ISO - International Standardization Organization

IT - Information Technology

JIT - Just-in-Time

KPI - Key Performance Indicators

LED - Light Emitting Diode

LF - Low Frequency

mAh - Milli Ampere hours

MEMS - Microelectric-Mechanical Systems

MNC - Multinational Company

MW - Micro Wave

NAFTA - North American Free Trade Association

NVP - Net Present Value

OCR - Object Character Regognition

OEM - Origina Equipment Manufacturer

Abbreviations

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ONS - Object Naming Service

PML - Product Markup Language

PML - Product Markup Language

POA - Point of Action

POC - Point of Control

PPS - Production Planning and Steering

R&D - Research and Development

RFID - Radio Frequency Identification Device

S&OP - Sales and Operations Planning

SBT - Scan-Based-Trading

SCEM - Supply Chain Event Management

SCM - Supply Chain Management

SKU - Stock Keeping Unit

SME - Small and Medium Enterprise

SMS - Short Message Service

SQA - Supplier Quality Assurance

SRM - Supplier Relationship Management

T&T - Tracing and Tracking

TCPIP - Transmission Control Protocol/Internet Protocol

TOC - Total Cost of Ownership

TQM - Total Quality Management

U.S. - United States

UHF - Ultra High Frequency

UMTS - Universal Mobile Telecommunication System

UPC - Universal Product Code

VMI - Vendor Managed Inventory

WLAN - Wireless Local Area Network

Abbreviations

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WMS - Web Map Service

XML - Extensible Markup Language

µW - Micro Watt

ITM Checklist – 360 o Analysis

______________________________________________________________________



General Economics

Provided that the RFID diffusion in global supply chains is more or less complete,

which is still a future vision today, RFID will have a politico-economical impact on the

employment situation worldwide. Jobs will be newly created, as well as low-skilled jobs

will disappear. On one hand highly skilled employees are urgently wanted to fulfill

complicated and comprehensive tasks throughout the global supply chain, but on the

other hand many jobs which had been previously conducted manually will not be re-

quired anymore due to enhanced automation of the supply chain. Therefore RFID has to

be considered also as a rationalization technology. Referring to an increased degree of

automation and the improved visibility of the supply chain the material flow will be

accelerated thus, global trade as well. Goods will come faster onto shelves and their

allover availability will be increased which might encourage customers to higher con-

sumption, which generates more sales revenues entailed by faster delivery. A complete-

ly new industry will arise around worldwide RFID deployment also, because the tech-

nology has to be maintained, replaced and steadily adapted to special needs and further

developed.

Strategic Management

One major strategic aspect in the global supply chain in accordance to RFID deploy-

ment is the right choice of suppliers to collaborate with in strategic alliances. This refer-

rers to supply chain data security on one hand, because huge data streams are generated

by RFID, and the willingness of these chosen suppliers to implement RFID a well and

to handle it correctly. Besides an excellent supplier management this requires also the


______________________________________________________________________


development of a supply chain wide technology strategy, because over-employed tech-

nology as well as technology which is not utilized enough will make the supply chain

chaotic and expensive. Therefore the right configuration of an RFID system has to be

elaborated adapted to the needs of the company. Before installation it should be also

taken into account if the own RFID system meets the provided transmission frequencies

abroad and if it is compatible with supplier systems. When a RFID system fits perfectly

with the individual requirement of a supply chain all players in the chain will gain com-

petitive advantage from that.

Marketing

Success in marketing can be remarkably broadened by RFID deployment in global

supply chains. Marketing is this kind of economic sciences which concerns customer

relationships in any kind. An excellent supply chain management normally strives for

the provision of the right goods and services at the right time, in the right place and cus-

tomer. Due to enhanced visibility throughout the supply chain also potential customers

have the opportunity to have an insight into the stocks of a supplier company via RFID,

provided that they are connected. The knowledge that a certain product is surely availa-

ble when it is desired fastens its sale and increases customer satisfaction. Referring to

that the reliability of deliveries can be dramatically enhanced by RFID deployment in

the value chain the brand will be strengthened as well as customer loyalty improves

remarkably.


______________________________________________________________________


Financial Management

The nature of global supply chains bears challenges and complexities in determining the

accurate supply chain costs. Critical factors are long lead-times, a huge variety of trad-

ing partners and service providers as well as duties, tariffs, taxation and increased un-

certainty. While RFID information technology infrastructure approaches support the

product flow in the supply chain drastically, they are including also several costing ele-

ments like transponders, hard and software. Therefore the global supply chain cost ac-

counting has to be aligned strategically according to the different supply chain and the

different operational strategies a company can have. Due to transponders represent the

lions share in RFID costing, these arising costs have to be shared among all trading

partners in the value chain. This is often realized by mandating suppliers to tag their

products and providing technical and financial know-how encouraging suppliers to im-

plement RFID. Enforced mandating and corresponding advisory will give rise to in-

creased RFID diffusion throughout the supply chain which entails falling technology

costs in the end

Human Resources Management

More or less RFID technology providers, system integrators and appliers are complain-

ing the missing practical knowledge of engineers, computer specialists and technicians,

hampering further development and implementing projects. This refers mainly to the

insufficient knowledge about the fundamental radio engineering opportunities and limi-

tations relating to RFID applications. These typical side effects of newly introduced

technologies have to be compensated by both an adaption of existing vocational and

training programs as well as supplemental contents in university education. Therefore it

is highly recommended to include RDID related concerns in the curricula of existing

vocational and training programs.


______________________________________________________________________


Business Law

Legal constraints and regulations concerning data protection, public privacy and envi-

ronmental issues might challenge RFID application projects in the future. The protec-

tion of consumer, patient or citizen related data is a topic widely but controversially

discussed in the public. A confrontation between data protectionists on one hand and

supporters of RFID might lead to undesired deferments of future RFID applications.

Merely an improved enlightenment of the public might not be sufficient to dissolve this

confrontation. Like other electronic products also RFID systems are subject of legal

instructions concerning environmental and health protection, which limit the deploy-

ment opportunities for materials adverse to health and which require also a special kind

of waste treatment for certain products as well as threshold values for radio transmitters.

At present a short-time need for action related exclusively to RFID systems had not

been noticed yet. A long-term challenge might arise for contemporary waste disposal

and recycling processes related to the implications of the further expected mass dep-

loyment of RFID transponders attached to daily single items

Research Methods / Management Decision Making

Enhanced visibility enabled by RFID and corresponding technologies like ERP, EDI

SCM systems as well as the internet facilitates decision making processes within the

global supply chain. Collaboration with suppliers and customers, the knowledge about

the complete own inventory and the expected demand mitigates the uncertainty within

the value chain drastically. When uncertainty declines due to enhanced information

about all necessary SCM concerns, the quality of demand forecasting and replenishment

can be remarkably increased. Improved forecasting concerning the expected arrival of

urgently required parts or products at the point of destination and the information about

where certain goods are located at the moment through tracking and tracing capabilities


______________________________________________________________________


of RFID systems support accurate decision making in logistical processes like directing

and redirecting in-transit goods in the pipeline of the supply chain, as well as in stock

keeping.

Soft Skills and Leadership Qualities

Supply chain excellence differentiates a company from its rivals. This has to be taken

for granted also in the case of its leaders. A globally operating supply chain talent must

be capable to assess all the operational and political processes taking place within a

global supply chain from a holistic and cross-functional perspective. First, globalization

has created urgency concerning of which talents are to hire and to develop. Deviating

from traditional expatriate initiatives the global supply chain talent should also take the

value of local employees under consideration, respectively their understanding of coun-

try-level idiosyncrasies, which requires industry-aligned local programs for adequate

talent development. Second, due to global supply chain management is highly complex

and cross-cultural the supply chain talent has to exhibit a more extensive and complex

skill set and related competencies enabling to hold a broader span of control. Supply

chain management must not be considered as the necessary evil by theses persons, but it

has to be seen as a business discipline. The operating performance of a company within

a global supply chain can be significantly hurt if the right mix of competencies is not in

place to avoid inefficiency and redundancy.

Declaration

______________________________________________________________________


Declaration

In lieu of oath I hereby declare that I produced the submitted paper with no assistance

from any other party and without the use of any unauthorized aids and, in particular,

that I have marked as quotations all passages, which are reproduced verbatim or nearby-

verbatim from publications. Also, I declare that the submitted print version of this thesis

is identical with its digital version. Further, I declare that this thesis has never been

submitted before to any other examination board in either its present form or in any oth-

er similar version. I herewith agree that this thesis may be published. I herewith consent

that this thesis may be uploaded to the server of external contractors for the purpose of

submitting it to the contractors’ plagiarism detection systems. Uploading this thesis for

the purpose of submitting it to plagiarism detection systems is not a form of publication.

Düsseldorf , 12.02.2009 Volker Girrulat

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Current State-Of-The-Art Benefits and Challenges of RFID Deployment in Global Supply Chains

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