Part II: Organizational Prerequisites for Smart Materials, Automatic Identification, and Quality
Chapter 8: The Next Frontier in Technology and in Supply Chain Management: Automatic Identification
8.2 Identification Is Key to Introducing Smart Technology into the Supply Chain
The concept of using smart technology in the supply chain for identification purposes is new. Yet, practical applications are not that far down the line. Some companies, such as Gillette, plan to start implementation of chip-based auto-ID by 2002, and they foresee a generalization of smart technology applications by 2005. International Paper has a joint project with Motorola, and other companies are actively engaged in a process of exchanging ideas, sharing vision on the course smart technology will most likely take.
But what is meant by smart technology? The simplest way to answer this query is to say that it
represents the development of low-cost and low-power solutions that permit the use of smart material in the best possible way. What does smart material stand for? Any sort of material that one uses is an object one can classify and identify. It may be raw material, semi-manufactured goods, or ready
products. It may be in process at the factory floor, stored in a warehouse, or in actual use in the home or office.
If this material, wherever it happens to be, has the means of knowing itself, or at least the class to which it belongs and its serial number, then it can be thought of as being smart; all the more so if it can receive messages from this material and respond in real-time to queries about its routing. This is the sense of automatic identification, which is based on very low-cost chips.
As Exhibit 8.1 suggests, auto-identification is the merger of two technologies: classification and identification (see Chapters 10 and 11), and semiconductors. Classically, inanimate material has been identified as a group: computers, chips, tables, chairs, razors, pencils, or other objects. Some of this material, typically the more expensive, has a serial number — therefore, individual identification. Autos, all sorts of motors, and personal computers are examples. This serial number, however, has the following limitations:
Exhibit 8.1: The Concept Underpinning Automatic Identification Is the Merger of Two Technologies
It is typically issued by its manufacturer; it is not global.
It is imprinted on a piece of metal attached to the machine; it cannot communicate its ID.
It helps very little in inventory optimization, where the class to which the item belongs (not the individual item) is tracked.
Both globality and auto-ID are important. Yet, despite big pronouncements such as the Universal Product Code (UPC), there has been a distinct lack of valid identification methods and procedures. In a globalized economy, this is a major drawback. Half-baked approaches such as UPC are not enough.
Identification should have universal characteristics with synonyms and acronyms avoided as much as possible. This is not easy, but it is doable (see Chapter 10).
Classification is a prerequisite to a global ID system. Once a piece of material, any material, has been properly classified, it can be uniquely identified; and with low-cost technology, it is possible to go to the next step: automatic identification. What one needs to add to this material is a very inexpensive chip with an antenna; therefore, the ability not only to store the ID number but also to communicate it to other entities: materials or people.
A more advanced implementation stage of smart materials will go beyond communication and require some sort of computation. This will be available everywhere in abundance at very low cost during the coming years. The same is true for efficient, user-friendly personal access to databased resources to be used by smart materials and by people.
Individual item identification, chip technology, antennae, and direct access to databases are the pillars of the emerging and growing domain of smart technology. Several experts now consider the concept of smart materials as indivisible from the next major productivity strides — a process sure to impact, in a most significant way, enterprise resource planning. In all likelihood, ERP as it is known today will be turned on its head with smart materials. The same is true of CRM. Rather than using a long-established production plan, a manufacturing process will depend on the products it makes to organize their own processing and assembly operations. This may come about because smart materials can provide the manufacturing and distribution system with much more information than the UPC's limited product-type data. There are, however, major organizational challenges to be addressed prior to this happening. For example, one must answer in a globally valid sense the following query: when does a given material become a thing for which auto-ID is necessary or at least makes sense because of foreseen
developments?
To a large extent, the response is related to use, cost, and projected effectiveness. Gillette plans to identify every razor blade when the cost of an e-tag drops to 1 cent, which it eventually will. Exhibit 8.2 gives a bird's-eye view of the pyramid of computing devices and their costs, as it presents itself at the beginning of the twenty-first century. Computing devices are unique in the range of costs: those at the tip of the iceberg cost millions of dollars; at the base, chips are available for a few cents.
Exhibit 8.2: The New Pyramid of Computing at the Beginning of the Twenty-First Century
The perceptive reader will appreciate the opportunities that the bottom of the cost pyramid presents in terms of identifying inanimate materials. A global Electronic Product Code (EPC, ePC) based on the technology just described will lead to smart tags able to identify a practically unlimited number of individual items, as well as aggregates of goods such as assemblies, collections, or storage locations.
Individually, each of these goods will be able to transmit much more information than type and price.
This information will help to create an intelligent infrastructure leading to far better inventory management and near-instantaneous customer checkout in retail environments — without human intervention.
What the reader should retain from this discussion is that the implementation and use of smart tags is not only technically feasible, it is also commercially practical once the price of manufacturing and applying smart tags drops to a few cents each. More demanding, however, than the design of the single chip is the ability to fulfill system prerequisites. One of the challenges is the architecture to be used.
Without doubt, a global system of automatic identification requires an open architecture, and an open mind about the nature of e-tags and their communications chores.
The tougher part of the smart materials revolution will be cultural because organizations are made of people and people tend to keep old habits. Both an open architecture and an open mind are made necessary by the fact that the global supply chain is the largest network in the world. It is operating all the time, seamlessly to most people, and it is at the same time sophisticated, random, and complex.
When they serve a larger scope than the local retailer, supply systems tend to become self-sustaining entities with totally distributed command and control characteristics. One of the marvels of stand-alone supply systems is the way that big cities, such as New York, London, and Paris, feed themselves without any bureaucrat pulling strings from a Kafkasian castle.
Experts believe that the impact of smart supply systems on the economy is going to be so profound that when these systems change, the real world as we know it will change with them. Therefore, a major challenge in the coming years is to identify how the virtual world of supply systems connects to the real world of physical entities (humans and machines) and how the two influence each other.
As Exhibit 8.3 suggests, the real world of entities and the virtual world of data are coupled together.
Classically, these links have been ad hoc and mostly local. However, the Internet has changed all that
because it provides a global interconnection capability. As a result, more and better organized online interfaces are in development — some planned, others self-generated and self-sustaining through I- commerce — although many of the latter are still weak. The next wave of change, which most likely will make these interconnection links stronger, is auto-ID. This is expected to provide a bigger step forward in coupling interfaces than seen thus far with computers.
Exhibit 8.3: The Link Between Real and Virtual Worlds Has Classically Been Weak, but Technology Helps to Strengthen the Tie
As technology advances and sophisticated solutions come at reasonable cost, it is unavoidable that the interfaces between the real world and the virtual world will change. Most links are provided today, by and large, through Old Economy solutions. However, to have these two worlds — the physical and the logical — seamlessly merge their services, the New Economy will have to reinvent the sense of linkages, their nature, and the way they are used.
In conclusion, auto-identification by smart materials and the ability of all entities to communicate their information or ask for other datastreams will revolutionize current concepts. Nothing has yet been seen concerning the real magnitude of the oncoming change and its management. Sending and receiving data by inanimate entities will cause changes in the physical world beyond those experienced during the past 60 years with computers and give a big boost to Internet commerce because I-commerce will be at the core of streamlining the total supply chain.
Today, Internet commerce still represents approximately 6 percent of the U.S. economy's supply chain, including dealing in shares and therefore in virtual commodities. In other countries of the Group of Ten, this figure is smaller, which documents that I-commerce has a long way to go to serve the global economy. Any solution should consider the broader perspectives of globalization, deregulation, innovation, penny e-tags, and universal broadband communications — both in setting goals and in reaching them.