Running the Numbers - April/May 2006

The latest facts, figures and benchmarking data in inventory optimization, RFID, payment and Sarbanes-Oxley

A Tough Nut Worth Cracking

Advanced inventory optimization solutions are complex and difficult to use, but companies will turn to new options for taking advantage of these applications and reap substantial returns, predicts an ARC Advisory Group study.

The report, "Advanced Inventory Optimization Worldwide Outlook: Market Analysis and Forecast through 2010," calculates that the worldwide market for advanced inventory optimization (AIO) will grow at a compound annual growth rate (CAGR) of 12.6 percent over the next five years, expanding from $99.2 million in 2005 to reach $179.6 million in 2010.

ARC said AIO solutions are a type of supply chain planning (SCP) solution. However, the optimization is different from that found in traditional SCP systems that contain a single- stage inventory calculator designed to determine inventory targets for only a single node in the supply chain at a time.

Rather than calculating safety stocks for a single supply chain node, AIO solutions simultaneously calculate where and how much inventory should be held across the network of locations at which inventories could be held.

However, AIO is also complex. The math is difficult to understand even for those who have a good understanding of statistics, making the solution difficult to sell, ARC said. Once sold, it can be difficult for users to drive value from AIO solutions on an ongoing basis. According to Steve Banker, the service director for supply chain management at ARC Advisory Group and the principal author of the report, "This type of solution is not well served by a traditional software license and service model." Consequently, for the AIO market, ARC is projecting much faster growth from the "knowledge-based outsourcing" (KBO) and "software as a service" sales models.

RFID Talent Pool Still Shallow, Survey Finds

Companies deployment of radio frequency identification (RFID) technology continues to be hampered by a shortage of individuals skilled in the technology, according to a survey by the Computing Technology Industry Association (CompTIA).

Seventy-five percent of the technology companies said they do not believe there is a sufficient "pool of talent" in RFID technology from which to hire. Among companies that believe there is a talent shortage, 80 percent said the lack of individuals skilled in RFID will impact adoption of the technology. The figure is significantly higher than a year ago, when 53 percent of responding companies said the shortage of talent would have a negative impact on RFID adoption.

"RFID is a complex and still evolving technology, and expertise is absolutely required for its usage to be a success," said David Sommer, vice president, electronic commerce, CompTIA. "The skill sets and 'need-to-knows' related to RFID are many and varied. Clearly there is work to be done in our industry in terms of RFID education, training and professional certification."

U.S. Businesses Overpaid Suppliers in Excess of $5 Billion in 2005

U.S.-based businesses overpaid suppliers by $5.25 billion in 2005, up 5 percent from 2004, and the recovery audit services (RAS) market continues to flourish despite improvements in enterprise systems and processes, according to a recent survey of corporate overpayments from consulting firm PayStream Advisors.

PayStream's analysts estimate the recovery audit industry recovered $3 billion of erroneous payments in 2005, leaving nearly $2.25 billion in errors undetected and uncollected. "U.S. businesses continue to suffer from lost profits due to overpayments because they are unable to identify, recover and repair faulty processes in their business operation," noted Henry Ijams, managing director of the Charlotte, N.C.-based firm.

Enterprise resource planning (ERP) systems do little to stem the tide, according to the consultancy. Despite a near record $20 billion spent on corporate accounting systems in 2005, corporate overpayments continue to bleed profits from companies in nearly every industry. "Due to the complexity of corporate purchasing activities, nearly all businesses suffer payment errors," said Ijams.

The RAS firms profiled in this report provide a range of audit services, including retail, commercial, healthcare, contract compliance audits, statement audits, sales and use tax audits, escheatment review and real estate lease audits. Many of these providers also sell recovery audit software. PayStream said it sees a promising future for the RAS industry as a whole.

Sarbanes-Oxley Just a Fraction of Compliance Spending

Corporate spending on compliance in 2006 will reach $27.3 billion, with $6 billion (or 22 percent) allocated to the Sarbanes-Oxley Act, AMR Research reported in "Spending in an Age of Compliance, 2006." Based on a recent survey of 325 North American business leaders and IT professionals, the report predicted that spending will climb even higher in 2007, with companies devoting $28 billion to compliance initiatives.

"Spending on Sarbanes-Oxley is only the visible tip of the compliance iceberg," said John Hagerty, vice president of research at AMR Research. "Any expectation that compliance spending might moderate is just wishful thinking as companies in all industries grapple with increased regulatory concerns and stricter governance and risk policies within their own firms."

The survey also shows that technology is playing an increasingly significant role in the integration of compliance requirements into existing business processes. In fact, 75 percent of companies will leverage compliance to improve business performance, with almost $9 billion of the $27.3 billion spent on compliance in 2006 earmarked for technology.