Radio waves look to pick up ERP market

It usually takes five to 10 years before a particular technology is considered mature. The internet, for instance, which was seen as an emerging trend in the eighties, garnered worldwide adoption during the nineties. Now, it has become a mainstream technology that is being used for numerous business applications.

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By  Peter Branton Published  March 6, 2005

Introduction|~||~||~|It usually takes five to 10 years before a particular technology is considered mature. The internet, for instance, which was seen as an emerging trend in the eighties, garnered worldwide adoption during the nineties. Now, it has become a mainstream technology that is being used for numerous business applications. There are several indications when a technology matures, such as sales and commercial adoption. On that basis, ERP (or enterprise resource planning) is showing signs of maturity. It has been enjoying significant market growth; analyst house Datamonitor estimates that the ERP software market in the Middle East and Africa region was worth US$51 million in 2004, and is expected to increase to about US$80 million in 2008. Globally, the ERP applications market is expected to grow to US$36 billion by 2008, according to IDC, with vendors increasingly competing against each other in both vertical and horizontal markets. ERP systems are widely implemented by large organisations to the point of saturation. At this stage, most of the opportunities seen in the corporate sector come from early adopters that are upgrading or replacing existing systems. To grow further, vendors have to either create new demands or find other markets to offer its solutions to. ERP vendors are doing both. The rising interest in RFID (radio frequency identification), the current consolidation in the industry, and the untapped potential of the SMB market are some of the major influences reshaping the ERP market today. “ERP is quite a mature market now. The technology has been around for a while, and as far as functionality goes, there aren’t many major walls to break through,” says Adam Jura, associate analyst, Datamonitor. “I think a lot of ERP solutions may start to offer functionalities from other applications, such as RFID or integrate other applications, such as product lifecycle management.” Two major initiatives in the US have pushed RFID into the limelight: the US Department of Defence and Wal-Mart. When the US Department of Defence issued a mandate to all of its suppliers to embed passive RFID chips in each individual product — if possible — and when retail giant Wal-Mart Stores announced that it would require its top 100 suppliers — and subsequently its next 200 suppliers — to put RFID tags on shipping crates and pallets, suppliers and competitors were sent scrambling to learn more about the wireless technology. Across the globe, similar implementations are taking place. In Europe, the Metro Group, the world’s fifth largest retailer, has started its own RFID implementation throughout its entire process chain. The project, which began last November, involved about 100 of its suppliers, 10 of its central warehouses and around 250 stores within the group’s various units. Similarly, Marks & Spencer has recently concluded an RFID trial involving six of its shops. The domino effect that was generated in the retail industry is now being felt in other vertical sectors as well, primarily because of the potential the technology holds in optimising the supply chain. “RFID increases the opportunities for companies to really get creative as to how that technology can be used. ERP is one of the areas that will piggyback on the excitement of this new technology,” says Nizar Badwan, general manager, Exact Software Middle East. “RFID’s potential to reduce losses, keep shelves well stocked and automate inventory control will revolutionise retailing and bring significant advantages to other industries as well,” adds Basil Daniells, sales and marketing manager of Scala Middle East. ||**||Early stages|~||~||~|But at this time, it’s too early to gauge its success, says Tony Hart, senior analyst, Datamonitor. “There’s a lot of talk and hype about it at the moment. There are so many companies doing things around RFID but the majority of them tend to be in the pilot stages,” he adds. “RFID is still at the very early adopter stage. There isn’t a huge uptake on RFID throughout the world just yet,” adds Jura. “We’re expecting them to increase quite a lot over 2005 and especially in 2006.” Certain issues have to be ironed out before RFID takes to the mainstream. For one, how is a company’s ERP system going to handle the upsurge in data? “The ERP vendors targeting the manufacturing, logistics and retail industries are going to see the biggest impact of RFID within their markets,” Jura says. “But the challenge will be on integrating RFID data with ERP systems. For that to happen, vendors can take two different approaches. They can either build the functionality within their own application programs or they can partner with middleware vendors such as IBM and Sun Microsystems,” Jura adds. ERP companies that IT Weekly has spoken to — Exact Software, ACCPAC and Scala — say their offerings are already RFID-ready. “If you designed the product correctly, there are no integration issues. RFID is just an additional way of capturing information,” says Marc Van der Ven, ACCPAC International’s regional manager. “If you use open industry standards then you can get information captured by RFID easily into your ERP system, but if you have been doing proprietary development, these are not usually flexible enough to adapt to new technology,” Van der Ven adds. Rivals Oracle and SAP have released RFID capabilities in their software packages last year. Microsoft’s Axapta 4.0 is due to be out in 2006. Once released, it will be the company’s first ERP platform — the company’s ERP line includes Great Plains, Navision and Solomon as well — to receive upgrades for RFID integration. New versions of Great Plains and Navision that will support RFID will also be launched next year. “Microsoft Business Solution (MBS) is providing native RFID support in our ERP solutions,” says Soha Kamal, regional product group manager, MBS Middle East and Africa. “The RFID services are an important element here, but the value really comes from the business logic contained in the ERP solution. So, rather than providing just one piece to the puzzle and have the customer figure out how to integrate it with the business process logic, we are doing that work for the customer as far as core business processes are concerned,” she adds. Kamal says Microsoft ran several successful pilots last year in Europe and the US. But in order to meet the demands of the SMB market, the company is applying what it calls “democratisation of RFID”, where the technology is made readily available to manufacturing and distribution segments. “Many SMBs are not making extensive use of automated data capture today,” she says. “Here, RFID can be a key technology to provide automated data capture that will increase visibility and control of supply chain and manufacturing processes, all the way to largely automating associated transactions.” ||**||Tag problems|~||~||~|Cost is another major hurdle for companies considering RFID adoption today. Many of the industries that would benefit from it are high-volume businesses that operate on very low margins. But as of last year, tags cost from US$0.40, with the aim of producing them for less than $0.05. But even then, it can be a hard sell for companies that operate with low margins. Jura says the release of new standards, such as the EPCglobal UHF RFID Generation 2 air interface protocol specification (or commonly known as Gen2), will drive further adoption of the technology, and consequently, drive down costs. “The costs will start reducing once the standards are in place and everybody starts using the tags,” adds Tarek Hassaniya, channel account manager, Symbol Technologies Middle East. Efforts in development are being done on a daily basis concerning reducing the cost of the technology. At present, it is going to be feasible only for pallets and boxes.” But Gartner and Forrester Research both agree that a price level of less than US$0.10 can only be achievable within six to eight years, a most-likely stumbling block to extensive RFID adoption. At current price levels, it’s only cost-effective for companies to tag high-value items that could be lost, stolen or counterfeited, such as computer games, DVDs, prescription drugs and clothes. “If you are to put it [tags] on items, it has to be high-value items rather than deploying them on inexpensive consumer goods, such as a bottle of water or a gallon of milk, where the cost of the tags are sometimes higher than the cost of the actual product,” says Hassaniya. “In the years to come, people will start implementing such things on an item level, but that will only happen once the costs are driven down.” Other tag-related problems also abound, ranging from non-functioning tags to environmental conditions such as temperature, humidity and radio frequency interference, which can render tags unreadable. According to an AMR Research survey, about 10% to 12% of tags arrive at the user site in a non-working condition. This results from a combination of tag failure, incompatible tag and reader combinations, and products that are unsuitable for RFID, such as canned goods and baby wipes, among others, the report said. ||**||Long-term view|~||~||~|Once these issues are sorted out and it lives up to the expectations of the industry, RFID technology is going to create a whole new dimension in data collection and application. From warehouse management, these wireless barcodes can be used in various applications. For example, tire company Michelin has started to investigate RFID technology after its rival Bridgestone was forced to pull out millions of faulty tires in August 2000. Since then, the company has developed a method of placing an RFID tag on a tire that can withstand strenuous manufacturing and distribution pro- cesses. But so far, no one has requested RFID-enabled tires yet because of the added cost, according to the company. Pharmaceutical companies are using RFID chips to track and avert the theft of highly controlled drugs. Globally, about 2% to 7% of pharmaceuticals are counterfeit, and the problem is worse in emerging markets. The need to have safe and secure supply chains is forcing pharmaceutical companies to use RFID technology in authenticating products at each process of the supply chain — from product development to the doctor’s office. Pfizer will be adding RFID tags to bottles of Viagra by the end of this year. It plans to use the technology to prevent fraud of other products as well, says the company. Airlines are also looking at providing RFID-enable key onboard parts and supplies to optimise aircraft maintenance and airport gate preparation turnaround time. According to a SITA report, replacing bar-coded bag tags with RFID tracking chips can help airlines dramatically reduce an annually cost of US$1 billion for lost baggage. The report claims that by using RFID tags, errors made by baggage handlers can drop from 15% to less than 5%. At the moment, only a few airports, such as Hong Kong International Airport, are testing RFID technology for their luggage tracking systems. Here in the Middle East, there are no major RFID adoptions as yet. This is mainly because local companies are still looking at the technology as costly, and standards are not in place yet, says Hassaniya. Badwan agrees. “That’s one of the biggest challenges for RFID right now. I think you will find that some companies will be reluctant, especially those that are not on the cutting-edge of technology. Standards for that technology are an important issue,” he says. “That’s one of the things that will help Middle East adoption. If standards are in place, people will be more comfortable in using the systems, because with standards, there will be compatibility,” adds Colin Summers, regional manager, Intermec Technologies Middle East. Aside from standards, Summers says the fact that multinational companies have offices here will also drive RFID adoption in the region. “You have so many multinational corporations that have operations here. So if these companies start using RFID in the US or Europe, then for sure they will want to start using the same strategy in their operations here,” says Summers. For now, companies are taking a wait-and-see approach. It is up to the pioneers to prove the success of the technology and for ERP vendors to show they are ready to support it. It’s very unlikely for companies to throw away their existing ERP systems based on RFID because RFID, at the moment, is still relatively unknown in terms of the true business benefits it can provide,” says Hart. “There are a lot of benefits that people are talking about. But I think many companies will have to endure a few years of costs before they start reaping the real benefits of RFID.” “I think ERP vendors are definitely aware of RFID and the potential that it can create. But most of them will be ready to present an RFID-enable solution within the next year or two. Whether they are ready for it right now, I’m not sure. But having said that, I don’t think anybody is 100% ready for RFID at the moment. It’s a very immature technology,” Jura says. ||**||

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