Chapter 15

Technology
Standards

McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

15.1 Introduction
Technology standards are important in
supply chain management
Review

IT related standards
New technology platforms
Evolving technology standards

15-2

New Developments
Radio Frequency Identification Devices
(RFID)
Consolidation of market to a few players
New approaches to system design

Service Oriented Architecture (SOA)

15-3

15.2 IT Standards

High level of standards evolving due to following

reasons:

Market forces
Standards reduce cost of system development and
maintenance.
Interconnectivity
Connecting different systems and work across
networks has pushed the development of standards
New software models
Internet has produced the need for software that has
new development and deployment characteristics.
Economies of scale
Standards reduce the price of system components,
development, integration, and maintenance.
15-4

Software Standards and the Next

Inflection Point

FIGURE 15-1: Software standards and the next inflection point

15-5

Four Phases
Proprietary
Until the early 80s
Mostly mainframe computers accessed
through key punches and dumb terminals
Little communication between systems
with few options such as private networks
or physical media.

15-6

Four Phases
Stand Alone

IBM PC software and hardware introduced the

first standard platform called Wintel

Eventually created a large user base and a large

market for applications
Communication standards developed mostly for
local networks

Ethernet and IBM token ring

For business networks private networks were

mostly used for file transfers

Microsoft Windows and Intel standard

Electronic data interchange (EDI)

Client/server was developed

15-7

Four Phases
Connected

Missing link in communications provided by the internet

Expanded the connection across organizations and
beyond the local network
Forms of communication enabled:

Electronic mail
File and information transfer
Electronic commerce from shopping, bidding, and exchanges
Shipment tracking
Extended collaboration between companies on joint forecasts,
transportation and other activities.

Year 2000 fears

Legacy systems replaced by client/server-based enterprise

resource planning (ERP) systems
ERP Systems:

1st generation systems: finance and human resource applications

Subsequent: Manufacturing and distribution
More recent: Adding supply chain capabilities
15-8

Four Phases
Collaboration

Next phase of standards

Currently being developed
Addresses collaboration
Supporting technology built around SOA and
BPM technologies
Has further increased the importance of ERP
systems

15-9

15.3 IT Infrastructure

Critical in the success or failure of any system

implementation
Forms the base for data collection, transactions,
system access, and communications.
Infrastructure components:

Interface/presentation devices
Communications
Databases
System architecture

15-10

Interface Devices

Common devices:

Personal computers, voice mail, terminals, Internet devices, barcode scanners, PDA

Uniform access capability anytime and anywhere

Standard way to track products in order to provide
participants with the information they need to perform
efficiently
Uniform Code Council

Created the bar code system, Universal Product Code (UPC), in

1973
Scanning and recording information about products
Automatic data capture interfaces, bar-code readers and radio
frequency (RF) tags
RF tags used to locate items, particularly in large warehouses.
Together with GPS capabilities, enables tracking of tagged cargo
while in shipment.
RFID tag a replacement for the RF tag
15-11

System Architecture
Encompasses the way the components
are configured
Components imply:

Databases, interface devices,

communications

Two main categories:

Legacy system architecture
Client/Server architecture

15-12

Legacy System Architecture

Evolved as departmental solutions using

mainframe or minicomputers that were accessed
through dumb terminals
Companys main systems for special
applications such as word processing or
spreadsheets.
PCs
Connecting PCs by means of local area
networks (LANs)
LANs extended across companies with wide
area networks (WANs)
15-13

Legacy System Architecture

FIGURE 15-2: Legacy system architecture

15-14

Client/Server Architecture

Systems take advantage of the PCs computing

power and friendly graphic interface.
PC is typically called the client
Main processor is the server.
Client/server computing

a form of distributed processing

some processes are performed centrally for many
users
while others are performed locally on a users PC

15-15

Client/Server Architecture

Most current system design use this architecture

Variations in:

Sophistication and price of the client

Number and type of servers
Other design parameters

Internet a form of client/server

Local PC browser processes the HTML (hypertext

markup language) pages and Java applets (i.e., small
applications)
These are retrieved from servers
Evolving towards a Web-centric model where the
client is a Web browser connected to a Web server.

15-16

Client/Server Architecture

FIGURE 15-3: Client/server system architecture

15-17

Client/Server Architecture
Pros and Cons

Can distribute functions among specialist

servers that perform them efficiently
Easier to add new modules and functions
Disadvantages:

Complexity of navigating between servers

Making sure that data are processed correctly and
updated across the network. T

Trend toward standardization

Called interoperability

Two systems capable of interacting in a sophisticated

way that is a built-in feature of their design

15-18

Middleware

Applications that reside between the server and

the client
Facilitate communication between different
system architectures, communication protocols,
hardware architectures
Important in the implementation of supply chain
systems

Can collect the data from various databases and

systems
Format the data in a way that can be used by various
planning tools

Enterprise Application Integration (EAI)

Above process applied between companies over the

Internet
15-19

Electronic Commerce

Replacement of physical processes with

electronic ones
Creation of new models for collaboration with
customers and suppliers
Facilitates interaction between different
companies as well as the interaction of
individuals within companies.
Examples:

Purchasing over the Internet/Exchanges/Order

tracking/E-mail

15-20

Standards and e-commerce

Has been in existence for many years

Private networks for corporations (e.g.,
WANs)
Public networks at universities and
government agencies.

Internet standards
Intranets
Extranets and Exchanges

Differences

in who is allowed access to the system

15-21

Portals

Role-based entry into a companys systems

Aggregates all the applications and sources of
information employees need in order to perform
their job into a single desktop environment,
typically through the Web browser.
Require integration technology for structured
and unstructured data sources, including
databases, Java classes, Web services, and
XML.

15-22

E-commerce

Several levels of sophistication

One way communication such as web browsing

Direct data base access for retrieving personal data
or creating transactions such as on-line purchases or
managing a bank account.

Advanced applications use:

Electronic Data Exchange (EDI)

XML-based processes

General standard that does not address the issue of

terminology in a specific industry

RosettaNet in High-Tech industry

15-23

Rosetta Net

Views itself as an e-business equivalent of the Rosetta

stone,
Carried the same message in three different languages,
enabling translation from hieroglyphics.
Aimed at producing a flexible standard governing on-line
business collaboration between manufacturers and
suppliers.
Defines dictionaries and Partner Interface Processes,
which handle multiple data transactions among partners.
Being used by some high-tech vendors
Has been expensive to implement.

15-24

Cross-Company Application
CPFR

Web-based standard
Enhances vendor-managed inventory and continuous
replenishment
Joint forecasting
Electronic exchange a series of written comments and
supporting data

Past sales trends

Scheduled promotions
Forecasts

Allows the participants to coordinate joint forecasts by

concentrating on differences in forecast numbers

Sharing of forecast information

Tends to reduce bullwhip effect

May lead to a significant decrease in inventory levels

15-25

CPFR Development

Developed by Voluntary Interindustry Commerce

Standards Association (VICS) committee

Retailers, manufacturers, and solution providers.

Mission to create collaborative relationships between
buyers and sellers
Improve efficiencies, increase sales, reduce fixed
assets and working capital, and reduce inventory for
the entire supply chain while satisfying consumer
needs

Created the CPFR Voluntary Guidelines in 1998

Published the CPFR Roadmap in November
1999

Roadmap explains how manufacturers and retailers

can implement a CPFR partnership.
15-26

CPFR Roadmap Steps

www.cpfr.org

Develop guidelines for the relationships.

Develop a joint business plan.
Create a sales forecast.
Identify exceptions for the sales forecast.
Collaborate on exception items.
Create an order forecast.
Identify exceptions for the order forecast.
Resolve/collaborate on exception items.
Generate orders.

15-27

15.4 Service Oriented Architecture

(SOA)

Standards based approach to managing

services

Different software packages

Business process orchestration
Delivers flexible use and configuration

Adopted by all the major business software

vendors

basis of their development tools and platforms

widely by systems integrators to develop custom
applications
15-28

SOA Contributions

SOA-based integration

Uses standards and the business process execution

language
Makes maintenance much simpler and is easier to
learn.
Improvement over traditional integration

Point to point using Enterprise Application Integration (EAI).

Hard to maintain
Uses proprietary technology with a separate infrastructure

15-29

SOA Contributions

SOA-based integration Composite

application development
Top down approach to application
development
Composition of ready made components
which are reusable
Built in integration (services) make them easy
to use and maintain

15-30

SOA Contributions

Modernizing Legacy applications

Many IT departments spend 70% to 80% of
their budget maintaining mainframe or other
legacy applications.
Using SOA, companies can define the
business processes and start separating the
business logic from the application.

15-31

SOA and BPM

Strongly linked
SOA drives a layered approach

Business process tools use business services

or composites to design the application
Lower levels provide orchestration,
implementation services and the actual
applications

15-32

SOA Layered Architecture

FIGURE 15-4: SOA layers

15-33

SOA Strategies of Major Software

Companies
Vendor

SOA Strategy

Composite Platform

Repository

Ecosystem

IBM

Focus on platform for

applications custom
and ISVs

IBM SOA Framework

Websphere registry

PartnerWorld
Industry Networks

Microsoft

Focus on platform and

some Service
interfaces for current
applications

.NET Framework +
WinFX + Biztalk
server

None

.NET Partner
program

Oracle

Fusion platform

Oracle Fusion
middleware

Part of fusion
architecture

Generic partner
program

SAP

Enterprise service
applications on the
Netweaver platform

Netweaver composite
applications

Part of Netweaver
architecture

.NET Partner
program

15-34

Technology Base: IBM and

Microsoft

Microsoft

Focused on development platforms for SOA software

development.
Major platforms:

Java 2 Enterprise Edition (J2EE)

Microsoft .NET

IBM

Focused on the technology platform

Less on the applications.
Middleware technology called Websphere

Positioned as a supplier of components and services for the

creation of custom applications.

15-35

J2EE and .Net Platforms

eXtensible markup language (XML)

Facilitates direct communication among computers on

the Internet
XML tags give instructions to a Web browser about
the category of information

Universal description, discovery, and integration

(UDDI)

Web-based distributed directory

Enables businesses to list themselves on the Internet

15-36

J2EE and .Net Platforms

Web services description language (WDSL)

Simple object access protocol (SOAP)

XML-formatted language that UDDI uses

Developed jointly by Microsoft and IBM
Describea a Web service's capabilities as collections
of communication endpoints capable of exchanging
messages
XML-based messaging protocol
Used to encode the information in Web service
request and response messages before sending them
over a network.

Business Process Execution Language (BPEL)

specification that defines how Web services can be

combined to orchestrate long-lasting business
processes
Has been submitted for standardization by a group
led by IBM and Microsoft.
15-37

ERP Vendor Platform:

SAP & Oracle
Both competing on their own SOA
platforms
SAP strategy

Tie developers to its platform

Create innovation around it that will drive
adoption.

Oracle strategy

Focused on integrating the many software

vendor packages it has acquired in the last
few years under one platform.
15-38

SAP

Enterprise-services architecture (ESA)

Blueprint for services-based, enterprise-scale
business solutions that offer increased levels
of adaptability, flexibility, and openness.
Based on SAP Netweaver

15-39

NetWeaver

Collection of infrastructure and integration technologies

Basis for SAP's applications like mySAP ERP, SRM,
CRM, etc.,
Flexibly interoperate with one another and with pieces of
applications from other software vendors.
Elements of NetWeaver

Application server
Integration server
Web portal
Business intelligence software
Master data management system

Plan to replace the three-tier client/server architecture

used by the current ERP suite.

15-40

Oracle

Traditional application development vendor

Several acquisitions from 2005

Peoplesoft (which already included JD Edwards)

CRM vendor Siebel
SCM vendors such as Demantra for demand planning and
G-log for transportation.

Platform called Oracle Fusion around which all

applications will eventually standardize.
Middleware applications include JDeveloper, BPEL
Process Manager, Enterprise Service Bus, Oracle Web
Services Manager, Business Rules and Oracle Business
Activity Monitoring.
Impact beyond installed base not strong
Strength with traditional technology-based developers

Supporting developers/Does not fully address the business

users needs
15-41

SOA Summary

SOA changes the method and possibilities of

designing application software
An application architecture with standard ways
to integrate services.
Services defined using a standard description
language and have evocable interfaces
Services can be part of business processes
Processes, transactions, and special functional
components all have to be exposed as services
allowing composite, diverse applications to be
exposed as well.
Each interaction should be independent of each
and every other interaction and the interconnect
protocols of the communicating devices.
15-42

15.5 RFID

Technology that deploys tags emitting radio

signals and devices, called readers, which pick
up the signal.
Tags:

Can be used to read an Electronic Product Code

(EPC)
EPC:

Active (broadcast information)

Passive (respond when queried by a reader)
Read-only or read/write and one-time or reusable.

unique ID number for a specific item in the supply

chain

EPCglobal network

allow password protected access to the internet of

RFID data anywhere in the supply chain.
15-43

RFID Development

Proliferation and full implementation of the

technology will take many years
EPCglobal network has not yet even been
accepted as the standard.
Other Challenges:

Lack of common international standards for tags,

technical problems with tag scanning accuracy, and
reduction in the cost of tags.
Reliability of tags
Problems reading tags through metal or liquids and
interference from nylon conveyor belts.
Policy issues related to privacy concerns.
15-44

RFID Applications

Two important drivers

Mandate by some major channel masters and
procurement agencies
Immediate benefits that can be gained from
implementing the technology.

15-45

Level of Implementation
Pallet/case or Individual Item

Item level tagging

Required to achieve many of the benefits of
RFID such as preventing counterfeiting and
theft.
Cost of the tags prevents widespread use
New IT systems would be required to track
individual items

15-46

RFID Mandated Applications

Wal-Mart
Department of Defense
Food and Drug Administration
In-Use Applications

Package Tracking
Product Tracking
Storing
Manufacturing
Warehouse Management
Product Launch

15-47

RFID and POS

POS as historical data used by many

demand planning tools to forecast
demand.
Does not measure real demand because of
lost sales due to out-of-stock items
Conservative estimate of 7% of sales
No one knows real value

15-48

Current Store and DC Execution

Problems

Scanning errors
Items not moved from storage to shelf
Wrong item picked at the DC
Items from the DC not verified in the store.
Maintaining accuracy and replenishing shelves
difficult due to:

Large product variety

Cramped storage
High inventory

Results:

Misplaced SKUs
Significant discrepancies between physical inventory
levels and information system inventory records
15-49

RFID Provides More Detailed

Information

Much beyond POS:

Received at Wal-Mart DC
Departed DC
Received at store
Departed store stock room (arrived on shelf)
Case (or tag) destroyed

Immediate benefits:

Better control over Overage, Shortage and Damage

claims
Management and ability to better assign responsibility
to the supplier, the carrier or Wal-Mart
Better control over product recall;
Use the data to improve processes through
collaboration
15-50

True Advantage

For the first time lost sales can be quantified.

Retailer knows:

what is sold
what is in inventory
when the shelves are not stocked

It will be possible to determine realized demand

based on actual sales plus lost sales
Analysis will require new statistical and
forecasting techniques that will take advantage
of the new information.

15-51

RFID Benefits to Retailers

Reduced inventory

Store and warehouse labor reduction

one time cash savings of about 5% of total

system inventory
annual reduction of store and warehouse
labor expenses of 7.5%

Reduction in out of stock

yearly recurring gain of 7 cents per dollar

sales

15-52

RFID Benefits to Manufacturers

Inventory Visibility

Labor efficiency

Better tracking of inventory throughout its

facilities.
Reduced cycle counting, bar code scanning
and manual recording

Improved fulfillment

Reduced shrinkage, improved dock and

truck utilization and improved product
traceability.
15-53

RFID Implementation Costs

Tagging

Readers

Recurring cost incurred by manufacturers

Most companies that sell RFID tags do not quote
prices because pricing is based on volume, the
amount of memory on the tag and the packaging of
the tag

Fixed cost that retailers and manufacturers will incur.

Large retailers: $400,000 for a distribution center and
$100,000 per store

Information Systems

Handle the type of real-time, item-level information

that RFID provides.

15-54

Differential Benefits

High benefits for manufacturing companies

selling a low volume of expensive goods, such
as drugs and general merchandise
Benefits not clear for manufacturers of high
volume-low cost products, such as food and
grocery, the benefits from RFID are not as clear.

These industries already have efficient supply chains

through the implementation of a variety of
technologies and processes;
Uncertainty in these industries is relatively small and
hence demand is highly predictable.

15-55

Supply Chain Benefits

Conceptually RFID implies perfect information

through the supply chain
Movement of goods can be triggered by a sale
of a single item
Not practical for many supply chains because of
costs/scale economies/other managerial issues
Needs a balance between pull chains and push
chains built on lead times and economies of
scale

15-56

SUMMARY
1990s evolution of the internet has been a
major factor in supply chain changes.
SOA provides the backbone for building
more adaptable systems that can operate
across different technology infrastructures.
RFID is a revolutionary technology that will
significantly impact the way supply chains
are managed and lead to greater
efficiency.

15-57