Running the Numbers - October/November 2006

Radio Frequency Identification

RFID in Manufacturing Can Boost Productivity

Global growth consultancy Frost & Sullivan finds that the European RFID Markets for Automotive, Aerospace and Industrial Manufacturing generated revenues of $23.7 million in 2005 and estimates this will reach $109.3 million in 2012.

The competitive nature of modern manufacturing is driving manufacturers to reduce costs and adapt business to increasingly demand-oriented systems. In this context, RFID can enhance product availability for customers and boost productivity across the entire production process, said Frost & Sullivan.

However, the firm added, the return on investment (ROI) from RFID deployments is difficult to quantify, as the full benefits of the technology depend on its degree of integration into wider business processes. Difficulty in identifying a clear standalone ROI, coupled with its high implementation cost, poses a significant challenge to prospective entrants into the RFID market.

" As the RFID market starts the transition from technology trial stage toward early adopter phase, a key challenge will be to clearly identify the range of expected benefits," cautioned Frost & Sullivan Research Analyst Rengarajan Srinivasan.

According to the firm, the maximum ROI achievable from the adoption of RFID can only be realized if the designing of business processes allows operation within real-world environments and well-integrated IT infrastructures.

" Manufacturers need to establish a strong business case for implementing RFID systems and develop flexible frameworks for evaluating ROI," advised Srinivasan. " New entrants are likely to have a better understanding of the nature of ROI that is practically achievable from the experience of early adopters and increasing numbers of credible pilot schemes."

Global Trade Management

Identity Authentication, Automation Seen Essential for Global Supply Chain

For many companies, especially small and midsize enterprises (SMEs), the ability to trade globally may well hinge on the extent to which they can authenticate their own identities and those of their business partners, according to a new survey of 127 senior executives worldwide conducted by the Economist Intelligence Unit and sponsored by IdenTrust.

Nearly three-quarters of the executives surveyed were from SMEs. Only one-third of respondents said that their companies comply fully with identity verification and other commercial transaction rules. In addition, 45 percent of respondents report that their systems are minimally integrated with those of their suppliers, with little or no visibility into transactions. These findings strongly suggest that the process of integration into the global supply chain still has a long way to go, according to the study's authors.

The study finds that authenticating the identity of counterparties in supply chain transactions is a particular dilemma for companies, given the widespread fraud and identity theft that often plague Internet commerce. More than one-fifth of survey respondents, and 31 percent of the manufacturers in the group, are concerned about the difficulty of performing due diligence on the financial soundness of counterparties, particularly overseas suppliers.

Other key findings of the report include the following:

• More SMEs than the overall sample (38 percent compared with 33 percent) say the single most important step to safeguard the global supply chain is for governments and the United Nations to designate counterparty authentication standards.
• Fewer manufacturers (26 percent) and fewer SMEs (28 percent) than the overall sample (33 percent) comply fully with identity verification and other commercial transaction rules.
• SMEs are more concerned about the lack of international electronic standards (43 percent) than the whole group of respondents (38 percent).
• Manufacturers are more concerned about guidelines for interoperability (29 percent) than the respondents overall (21 percent).
• Most companies say the greatest risk in automating the global supply chain is the reluctance of their suppliers to "go paperless."