Want to see the future of RFID-enabled business processes? Check out what's going on at Kimberly-Clark Corp., a $15 billion maker of paper-based consumer products. While the industry hashes out standards and experiments with tags and other RFID building blocks, Kimberly-Clark (Irving, TX) and partner SAP AG (Walldorf, Germany) are pushing the technology to the next level, leveraging the data collected by the budding RFID (radio frequency identification) infrastructure to inject greater visibility and zero latency into a new set of business processes.
The partners plan to go live this quarter with the first deliverable in their RFID collaboration: Electronic Proof of Delivery (E-POD), which aims to address the longstanding and widespread problem of invoice reconciliation between consumer products manufacturers and retailers. After that, the partners will turn their attention to additional pilots to enable new RFID business processes around promotion management, retail distribution support, out-of-stock reduction, and a handful of other areas, according to officials at both companies.
Kimberly-Clark has long been an RFID pioneer among consumer product goods (CPG) manufacturers. The company was among the first to respond to mandates put forth by retail mega giants like Wal-Mart Stores Inc. to tag merchandise so it can be monitored throughout the supply chain. In April 2004, Kimberly-Clark became the first U.S. company to ship an item with an electronic product code (EPC) tag. Additionally, it plays an active role in EPCglobal Inc., the international organization promoting RFID standards, and has constructed a 5,000-square-foot warehouse for the sole purpose of testing all of its RFID-related efforts.
The SAP partnership around RFID, which began in 2005, was a natural, since many of Kimberly-Clark's key back-end business systems -- including those for production and inventory management -- are built on SAP software. For the last few years, Kimberly-Clark and others have been focused on working out the "physics" of RFID tagging and reading. While that was an important first step, the real benefits of this technology will be delivered through new business processes that will drive collective value for retailers, manufacturers, and the end users of products, explains Greg Tadych, director of business systems at Kimberly-Clark, in Neenah, WI.
"Having the data captured is interesting, but what you do with it once it's captured is what's really important," Tadych says. "It's the first time you have the opportunity to look at product movement information after it leaves your doors and before it hits the cash registers. That visibility is one of the exciting things we had to capitalize on."
Manufacturers will certainly benefit from RFID partnerships such as the SAP/Kimberly-Clark pact, since such efforts explore what is still uncharted terrain. Leveraging RFID to enable new business processes is a costly proposition -- one that's out of range for most mid-size manufacturers. Much of the work coming out of the SAP/Kimberly-Clark partnership will eventually be productized and offered up by SAP to other manufacturing customers, company officials say.
"It takes these explorers to look out over the horizon and invest the money and manpower to try to find the solutions," says Michael Mahler, research director at Gartner Inc. (Stamford, CT). Being something of a technology laggard, he says, makes a lot of sense for the average company. "Let the big guys experiment, but have a clear understanding of what they're doing."
Bridging the Disconnect
E-POD and the partnership with SAP are part of a five-year strategy intended to allow Kimberly-Clark to leverage data collected from the RFID infrastructure and enable new business processes, Tadych says.
He notes that E-POD, which aims to optimize shipping and receiving between manufacturers and retailers, was the starting point because proof of delivery is something all trading partners must do and because there were many manual processes in place that were inconsistent. E-POD aims to address the longstanding problem of invoice reconciliation -- the process undertaken when there are discrepancies between what the manufacturer ships and what is received by the retailer.
These discrepancies can occur for a variety of reasons. A forklift driver grabbed the wrong stack of pallets, for example, or the product shipment didn't fit on the truck because it didn't have the right capacity. Regardless of the impetus, the result is a series of exceptions that can add up to significant dollars in financial restitution. According to one study by the Grocery Manufacturing Association, invoice reconciliation costs CPG manufacturers somewhere in the neighborhood of $20 billion to $30 billion annually.
"When it doesn't match, you get into discrepancies, and a financial settlement needs to occur," Tadych explains. "E-POD eliminates the burden of that and provides common visibility into what shipped and what's on the truck as it leaves."
RFID is the enabler for E-POD because it helps connect the physical world with the information-systems world. "Technology can help manage the transactions around orders and shipping, but there's still a disconnect with what's happening in the physical world," says Krish Mantripragada, director of solutions strategy for RFID at SAP. "With RFID, you scan the product materials as things are happening -- just before you load a truck or when you're packing cases into a pallet, for example. When things are packed incorrectly, the signal tells you that. So rather than discover errors after the fact, you're capturing the exceptions as they occur."
Using RFID's real-time signals, E-POD will automatically match the physical flow of goods and the information flow of business transactions at various points in the supply chain, reducing discrepancies. If a discrepancy is found, the system will issue an alert, allowing problems to be addressed as they happen.
Event-driven features in SAP's NetWeaver platform made it well-suited to this kind of exception management. Working with SAP, Kimberly-Clark was able to furnish E-POD with a collaborative dashboard that displays filtered alerts, business intelligence, and a list of appropriate actions that will resolve issues raised by the alerts. The system generates alerts in real time based on a variety of business rules and, because the electronic product code data is shared with and collected from retail partners, both the manufacturer and the retailer can take appropriate action.
Say, for example, Kimberly-Clark is sending a half truckload of diapers to a Wal-Mart center every three days. Using RFID data, E-POD's business rules will alert managers to whether that truckload of diapers is moving through the supply chain faster or slower than anticipated so they can make adjustments to maintain the optimum inventory.
As part of the Kimberly-Clark relationship, SAP also worked closely with OATSystems Inc., a Waltham, MA-based RFID software developer. Together, they created tight integration between SAP's Auto-ID Infrastructure, which bridges RFID to its business applications, and OATSystems' RFID framework, which Kimberly-Clark has standardized on as the data collection source for all of its RFID data.
Besides using RFID to streamline the proof-of-delivery process, Kimberly-Clark is also planning to utilize those real-time signals as additional benchmarks for its advanced planning, forecasting, and replenishment initiatives. Historically, Mantripragada says, "With advanced planning and forecasting applications, you based your plan on data you got and readjusted accordingly, but there was quite a bit of latency. Now," he says, "you can use the [RFID] reads to determine how long it takes for a product to move from the supplier's distribution center to a retailer's distribution center, benchmark your performance, and fine tune your operations on an hourly basis."
Building on this base, SAP and Kimberly-Clark plan to leverage their RFID efforts to deal with the tracking and tracing of promoted products as they move through the extended supply chain. With current point-of-sale data, it's difficult for retailers and manufacturers to determine the effectiveness of a promotion or whether they have enough product on the shelf to accommodate demand. RFID and E-POD will help Kimberly-Clark determine where a product is in the process and how long it takes to move from point A to point B. By analyzing that data, Mantripragada says, manufacturers like Kimberly-Clark can gain insights into the success of a promotion that they would not have had using with existing technology.
"With RFID and E-POD data, we have a good view as to how fast some of that product is flowing during the promotional period, and we can tie that flow back to the customer order," Tadych says. "This gives us extreme visibility -- there's nothing more frustrating than running a promotion and not having the product there."
Out-of-stock management -- observing the flow of product as it leaves the distribution center and moves through to the customer's distribution center, and also adjusting the replenishment process -- is another business process that's a natural extension of these efforts, and SAP and Kimberly-Clark have identified a handful of others that will be tackled as a result of their ongoing partnership.
Challenges Ahead
Of course, being a pioneer means navigating a few bumps, and the SAP/Kimberly-Clark RFID partnership is no exception. The partners, for example, have had to deal with data quality problems sometimes caused by unreliable tags, and have learned how to garner interesting analysis on what at times was incomplete data.
The evolving nature of RFID standards has been another challenge. EPCglobal, the standards organization in which Kimberly-Clark is an active participant, is managing what is still an ongoing process, and the evolution of the standard has required Kimberly-Clark to perform additional testing and software redesign with SAP as it pursues E-POD and other pilots.
"The good thing about being an early adopter is you help set direction and gain early advantage," Tadych says. "But the standards are still maturing -- they probably changed two or three times since we started the pilot. This is an iterative process."
Once E-POD is live, Kimberly-Clark will have to deal with the challenge of getting retail partners to adopt its new RFID-enabled business processes. Getting buy-in for E-POD might be slow, according to Gartner's Mahler, because it's a process that is addressed to some degree in electronic data interchange (EDI), though it was never fully embraced by retailers. Moreover, E-POD is definitely more advantageous to CPG manufacturers than to retailers. "A retailer might wind up playing ball with the promise of less manual work for receiving and accounts payable, but the truth is, the consumer products company receives far more of a benefit," Mahler maintains.
Kimberly-Clark and SAP are continuing to hammer out the processes before they make E-POD available to Kimberly-Clark's retail partners, Tadych says. But he's confident retailers will embrace the benefits. While it's too early to quantify specific results of the E-POD pilot, he says early data shows that there's clear opportunity to make improvements on both ends.
According to Tadych, "We're seeing certain areas that we can improve upon collectively to drive the end goal of improving product at the retail level and making better availability of product on shelves for the end customers."