Broader RFID Adoption Seen by 2005

Accenture touts benefits of auto-ID; Wal-Mart to require pallet-level adoption by end of 2004

New York — June 16, 2003 — Manufacturers and retailers will begin broadly adopting auto-ID technology combining electronic product codes (EPC) and radio frequency identification (RFID) to tag and track inventory and equipment by 2005, potentially saving billions of dollars each year, according to new reports from consultancy Accenture.

The reports come just as über-retailer Wal-Mart has announced that it will require its top suppliers to deploy RFID tags at the pallet level by 2005.

The Accenture reports describe how auto-ID solutions have the potential to dramatically improve production operations, asset utilization, forecasting and inventory accuracy, and, ultimately, customer satisfaction by pinpointing the location and status of products as they move through the manufacturing and retail value chain. These improvements can increase the quality and efficiency of the entire supply chain and lead to significant savings in areas such as inventory and labor costs, Accenture asserted.

"Our research found that by 2005, many manufacturers — especially those in the consumer electronics and grocery sectors — will be using RFID technology to track products at the pallet and case levels," said Jeff Smith, global managing partner of Accenture's retail and consumer goods practice. "And retailers — particularly in the consumer electronics, pharmaceutical and apparel industries — should be among the first to use RFID tagging at the item level."

The research results were published in three white papers Accenture developed as part of a business case program for the Auto-ID Center, a not-for-profit global research organization comprising more than 90 companies. The business case program assesses benefits for manufacturers, retailers and other participants in the supply chain. Accenture is a board member of the Auto-ID Center, which was founded by the Massachusetts Institute of Technology and now has locations in the United Kingdom, Australia, Japan and Switzerland.

The three white papers include "Auto-ID on the Line," geared to the manufacturing industry; "Auto-ID in the Box: The Value of Auto-ID Technology in Retails Stores"; and "If You Build It, They Will Come: EPC Forum Market-Sizing Analysis."

According to "Auto-ID on the Line," manufacturers have the potential to improve production operations, customer satisfaction, profitability and shareholder value by implementing auto-ID technology. Possible benefit for these companies include:

  • increasing revenues up to 1 percent through improved quality and customer service;
  • cutting working capital 2 to 8 percent by reducing the amount of raw materials inventory needed for production, as well as the amount of work-in-process and finished goods inventories; and,
  • reducing fixed assets 1 to 5 percent through better maintenance and utilization of equipment.

"RFID can deliver significant economic and competitive advantages," said Lyle Ginsburg, managing partner for technology innovation in Accenture's products operating group. "Manufacturers have a tremendous amount to gain and can realize the benefits by using RFID and EPC at the case, pallet or item level."

In "Auto-ID in the Box: The Value of Auto-ID Technology in Retail Stores," Accenture suggested that retailers using auto-ID could free-up labor from in-store receiving, stocking, inventory and checkout for more direct customer support. In addition, auto-ID has the potential to help retailers reduce product loss and the number of out-of-stock items. Retailers that face product obsolescence or spoilage will have better data to manage products nearing the end of their life cycles.

The biggest potential benefits for retailers include:

  • increased sales of up to 3 percent from improved store in-stocks;
  • reduction of in-store labor expenses of up to 65 percent in receiving, 25 percent in stocking and cycle counting, and 100 percent in physical counting; and,
  • reduction in product loss equivalent of nearly 1 percent of sales.

Inventory management and out-of-stocks are the highest priority applications for auto-ID, according to "If You Build It, They Will Come: EPC Forum Market Sizing Analysis." This paper highlights market-sizing results from an EPC forum conducted with more than 200 manufacturers and retailers in December 2002. Key findings include:

  • Pallet- and case-level tagging will be widespread in the next 12 to 24 months; the timing for item-level tagging will depend on product category economics and tag prices.
  • Retailers expect to implement auto-ID solutions 12 to 18 months sooner, across more categories and at lower case and item levels than manufacturers expect to implement the solutions.
  • Standards are the key to enable interoperability between multiple vendors.

Meanwhile, Wal-Mart has announced that it will require its 100 top suppliers to implement RFID technology to allow for tracking of pallets and crates by January 2005. The retailer is seeking gains from better inventory management and supply chain visibility.

The retailer is joining other consumer-oriented companies such as Gillette, Benetton and British retail chain Marks and Spencer in pioneering the move to broader use of RFID tags in the supply chain. But challenges remain to the widespread adoption of the technologies, including the finalization of standards, reduction in the cost per tag from about $0.50 currently to $0.05, a current lack of manufacturing capacity to churn out the billions of tags that will be required and a clear picture of how to integrate RFID into the existing technology infrastructure.

For more information on RFID projects underway today, see the iSourceonline articles on initiatives at Benetton (April 9, 2003) and Gillette (January 8, 2003).

For more information on the use of RFID solutions in the supply chain, see "Needle in a Supply Chain Haystack," the Net Best Thing column in the January 2002 issue of iSource Business.