1. The Evolution of EPC Standards Sanjay Sarma July 12, 2005

2. Agenda Pre-history History Why are we doing this? How to proceed

3. Pre-history

4. RFID In 1998, RFID was very expensive

5. Low-cost RFID time 5 10 15 20 die size/cost, cents handling cost Silicon: 4c/mm 2

6. Why was RFID expensive? increased chip sizegreater functionality reduce functionality (Networking & software) reduce chip size (handle small chips)

7. context-aware router sensor context-aware router sensor 01. 203D2A. 916E8B. 8719BAE03C Manufacturer 24 bits Product 24 bits Serial Number 40 bitsHeader 8 bits The Hypothesis Place unique number on tag  Electronic Product Code, EPC  64 bit, 96 bit, and upwards Develop manufacturing technology for small chips Move data on the network  Network service for resolving EPC  Network architecture for gathering and routing data

8. History

9. 1998-1999: DISC, Auto-ID Center founded at MIT 2001: First standards presented 2002: Gillette orders 500,000,000 tags from Alien 2003: Wal-Mart, DoD Mandates  EPCglobal launched, Center retired 2004: More mandates 2005: First bulk tagging  Emergence of Gen 2  Multi-site deployments  Beginnings of value

10. The first set of standards Hardware  UHF Air interface  HF Air interface  Multi-protocol reader Software  Savant  ONS

11. The stack Readers tags Company Software Gen 1 air-interface Savant ONS Readers tags ERP+RFID Software Company #1 Company #2 Reader interface Gen 2 air-interface Reader Protocol EPC-IS ONS + Blob

12. How Gen2 RFID works RF level  Multiple speeds  Dense-mode  Many dials for EU, Asia, US operation Logic level  Generalized selection  Advanced sessions  Advanced payload etc. access Generalized Selection Anti-collision (Query) Access of payload Entire population Thinned population Single tag identified Payload from tag

13. Recent news Standards taking off: Gen 2 is ratified EPCglobal begins Peloton exercise  Bring industry into synchronized action  Better planning and collaboration/coopetition

14. Why are we doing this?

15. CONTAINER PALLET CASE SLEEVE SINGLES AGGREGATIONTRANSFER Back Front Manufacturing plantManufacturer’s DC Retailer’s DC Retailer TRANSFERSORTING TRANSFER STAGING TRANSFER BASKET Themes: timely transfer error-proof operations minimize shrinkage The goods transfer process

16. CONTAINER PALLET CASE SLEEVE SINGLES AGGREGATIONTRANSFER Back Front Manufacturing plantManufacturer’s DC Retailer’s DC Retailer TRANSFERSORTING TRANSFER STAGING TRANSFER BASKET Too much inventory Errors Shrinkage Wasted effort Mis-shipments Shrinkage Errors Inefficiencies Shrinkage Mis -shipments wasted actions PI resets Don’t ask Holes Extras What really happens

17. Magnitude of Challenges Inventory Management:  Inventory uncertainty: 65 % of 370,000 records inaccurate (HBS study of one major retailer) Transportation uncertainty: Perfect delivery is dismal  Stock-outs: Average 9% out of stock in retailers world-wide Lost sales due to stock-outs: 4%  Overstock: Huge channel inventories CPG average 11 weeks inventory Retailers average 7 weeks inventory Locked up capital, industry-wide Brand Management:  Counterfeit: $500B pharmaceuticals business, $50B counterfeit  Diversion: Market size difficult to estimate

18. The problems are everywhere Across geographies Across product lines Across time Store Forecasting 13% Store Ordering 34% Store Shelving 25% Distribution Center 10% Retail HQ or Manufacturer 14% Other Cause 4% Across the supply chain

19. Supply Chain Physical Flow

20. Tracking across Supply Chain

21. Finding value Companies like Gillette, HP and Kimberly Clark Value buckets like  Out-of-stocks  Manufacturing automation  Supplier management  Perfect shipping  Warehouse design  Claims management  Promotions management  Automatic shipping and receiving

22. Getting value Net present value 2005200620072008 Claims management Tagging Promotions Operational gains

23. How to proceed

24. Lessons Carpe Diem  Launch and learn (don’t wait to learn)  Recognize challenges before they occur  Your needs will be unique Do it right  Understand the hardware  Understand the software  Work it into your business processes  Think long-term Work with others  Collaborate  Shape the industry

25. The state of the industry enthusiasm time Gen1 tags Mandates First broad adoption Gen 2 First insights the future