Forrester View

BI vendors are sleeping through RFID’s arrival

The latest Research from Forrester says that companies should not let the lack of vendor solutions stop them from applying RFID data to BI uses

Radio frequency identification (RFID) represents a new technology for collecting data about the supply chain with the aim of positively influencing retailers (with on-time delivery of the right inventory to meet demand), manufacturers (with accurate demand for items to be made) and distributors (with precise item location and routing). This impact will be measured by how well each process can be optimised and the level to which each can be synchronised. The measuring requires that appropriate targets, benchmarks and thresholds are established, and that is where business intelligence (BI) technology will eventually be of great benefit.

Forrester user clients have asked which BI or enterprise application vendors have a well-defined approach to analysing and reporting for RFID data. Forrester contacted leading BI vendors, including Business Objects, Cognos and SAS Institute, along with application vendors such as OSIsoft and SAP, to find what each is offering in terms of BI for RFID. The feedback was slim and the news was not encouraging.

SAP is focussed on operations, not BI: SAP clearly has a mature RFID approach based on its strength in the supply chain and RFID middleware product strategy. However, this does not include BI. Forrester expects there will be analytic applications built on SAP BW InfoCubes and ODS, but that is still to be defined by SAP.

Leading BI vendors are waiting for a stronger market need: Not wanting to waste time, money and other resources on poorly defined supply chain analysis and reporting, Business Objects, Cognos and SAS are taking a wait-and-see approach. It will be 24 months before these vendors offer solutions based on RFID data. Look for the pure-play BI vendors to deliver solutions only after the middleware suppliers integrate RFID data with existing operational supply chain applications.

Recommendations

Don’t wait for the BI vendors: The fact that BI offerings are slim does not mean that companies should delay exploring BI uses for RFID data. The value BI can deliver to companies will be predicted on what data is generated and captured (location GPS, starting point, ending point, quantity and expiration date), how your business is modelled and which specific processes (distribution, manufacturing, retail) the data will directly impact. Prove the concept jointly with BI vendors and consultancies: Approach BI vendors and speciality consulting organisations with the idea of a proof-of-concept project rather than a well-defined BI initiative. Require that each put something new and untested into this project, with the result being shared with all participants.

Data integration vendors don’t yet feel the need to support RFID directly: Extract, transform and load (ETL) tool vendors feel that data integration for electronic product code and other data generated by RFID systems are currently the arena of specialised middleware vendors such as ConnecTerra, GlobeRanger, IBM, Manhattan Associates, Microsoft, OATSystems, Oracle, RF Code, SAP and Savi Technology. An ETL tool can pick data that originates from RFID once the middleware stores it in a database or hands it to an operational application. But there’s currently no need for ETL reaching all the way to the edge into an RFID system. To stand the test of time, RFID middleware must include a balanced combination of core infrastructure and packaged application features, including device management, integration, data management and packaged business logic.

Money on the table

The lack of definition of viable and necessary applications built to support BI and RFID has been misinterpreted by BI vendors as “no good reason to invest in development.” The fact is that user organisations are willing to invest in BI technology to leverage RFID data, even without a well-articulated demand-side statement.

What are some of the expected spending levels? Forrester estimates that a consumer-packaged goods manufacturer will spend between $2 - $20 million to meet retail mandates. Though Wal-Mart’s mandate has received the most publicity, other companies such as Best Buy, Target and UPS have announced plans for RFID. Additionally, IBM, HP and Sun recently unveiled plans to focus on and market RFID to their customers.

But what does this mean to BI vendors? In early 2004, Forrester surveyed 235 North American IT decision-makers in relevant industries such as consumer-packaged goods and retail. 61 percent plan on increasing their spending on business intelligence (see Figure 1). Indeed, BI vendors are sleeping through the arrival of RFID, thus missing an opportunity to supply a demonstrated demand.

Who will reap the rewards?

The vendors best suited to exploit the RFID growth opportunity are the ISVs that are closely related to supply chain, transportation and distribution application providers.

Large ERP vendors: Oracle and SAP have significant marketshare and mindshare around ERP; they are most likely to develop RFID solutions to complement their respective supply chain modules. Both Oracle and SAP have invested heavily in BI technology, with SAP BW data warehousing and SAP Netweaver application integration from SAP; and Oracle Warehouse Builder data warehousing, Oracle Discoverer and OLAP functionality embedded within the Oracle 9i AS and 10g AS components of its RDBMS.

Supply chain networks: Companies are spending less on functionally targeted supply chain management (SCM) applications in favour of supply network solutions that allow monitoring, managing and optimising the entire supply chain network. Forrester expects firms to stop investing in narrowly focussed functional SCM applications. Instead, they will hone their ability to monitor, manage and optimise their supply network processes. Forrester projects that the total spending on supply network process improvement initiatives in the US will rise from $2.4 billion in 2003 to $9.1 billion in 2008.

Figure 1: RFID adopters prepared to invest in BI for RFID. Source: Forrester

Pure-play SCM suites: SCM vendors such as Manugistics and i2 Technologies are looking to extend the reach of these suites to more users via optimisation and performance management solutions, and deeper relationships with BI partners. As long as the SCM vendors can serve up the data to the BI applications, this could prove to be the strongest short-term solution. SCM vendors aimed for higher rates of user adoption of their solutions. To that end, they enhanced their applications to make supply chain insights more accessible to users or to integrate these insights with third-party data mining and analytic solutions. For example, i2 Technologies has reengineered its Performance Manager to serve up supply chain information to several products (such as those from Cognos, Business Objects and Informatica) to leverage the firm’s current investments in BI tools.

Too early to buy

Before building a BI solution for RFID, consider the following challenges:

What’s in it for me? Many suppliers, distributors and retailers see RFID looming on their horizons, but they don’t necessarily see a return on the investment. Smart manufacturers will concede that short-term benefits are modest at best and will turn their attention to building a deployment plan aimed at maximising long-term opportunities. Develop a value assessment, such as the Forrester Total Economic Impact model, to define and measure the impact that adding a BI application will have on both bottom and top lines.

Best practices for RFID and BI are almost non-existent: RFID can help supply chain visibility with deeper data granularity and more timely updates. To achieve this, companies must develop best practices for integrating this information into BI systems—data warehouses, operational data stores or multi-dimensional data cubes—where business users can benefit from it. RFID data can help combat counterfeiting and supply chain security breaches. But to achieve all these benefits, companies need to define the mechanics of exchanging this data, as well as the business rules that will guide its use.

BI costs shrink the margin even more: BI costs, including data integration, data modelling, data quality, reporting and analysis, will be in addition to the estimated $9 million first-year cost for an RFID system. A typical supplier that attempts to comply can expect to spend about $9 million on RFID, depending on its distribution network; tags make up more than 80 percent of the costs. Companies should leverage existing BI analytic and enterprise reporting solutions and build proof-of-concept BI applications before investing in speciality RFID BI solutions.

Standards are still emerging for the data generated or captured: Each instance of RFID means a unique approach to capturing different data, making it difficult to pre-define what analysis can be done, what data models will represent, and how users can benefit from this data. RFID is in the early stages of adoption, but it’s not too early to plan how RFID data can expand BI functions. However, companies should not wait for externally-defined data modelling standards or approaches before developing BI applications using RFID data. Create new data models that first represent the RFID data available, and then look for ways to redesign existing data warehouses to accommodate the newer dimensions that RFID data will afford.

Collect data now, analyse later

Companies that are currently capturing RFID data—those under the Wal-Mart hammer—have enough pieces to develop proof-of-concept applications.

In a discussion with the CIO of a distribution company, he acknowledged that his organisation has included some RFID data in data marts, to make it available for inclusion in ad hoc analysis of the existing data warehouse. Lacking a clear set of analytic applications or a strong business driver, he was at a loss for exactly what to do with this data, and how to alter the existing data warehouse, as the granularity of the data was at a lower level of detail than had been previously captured. For now, the company’s goal is to capture as much data as possible and sort it out later, after more real-world experience points to viable best practices.

As the Forrester survey data shows, many other companies adopting RFID are in a similar position, affirming that there is demand for vendor solutions that provide reporting and analysis for RFID data.

For more information, contact Forrester India Country Manager Sudin Apte on sapte@forrester.com or phone 020 25674390 / 91.

Executive summary

RFID will soon impact the supply chain in a big way, but don’t yet look for BI solutions that exploit the mountains of data which will be generated by this emerging technology. Today, no BI or enterprise application vendor has a legitimate road map for leveraging RFID data for BI. Until BI solutions emerge in 2007, product-driven enterprises should capture RFID data and model it for analysis themselves.