Auto-ID Could Save Billions

Accenture study cites benefits for packaged goods, retail, freight transportation industries; challenges remain

New York  February 6, 2003  New technology that tags and tracks inventory and equipment could save the packaged goods, retail and freight transportation industries billions of dollars each year, according to a study released today by systems integrator Accenture, but barriers to broader adoption of the technology remain.

The technology, known as auto-ID technology, is a combination of electronic product codes and radio frequency identification (RFID).

Auto-ID solutions can extend a company's ability to capture accurate information about the location and status of physical objects  an ocean container, a pallet of paper towels, hazardous materials or expensive stereo components, for example  and track the objects as they move from the manufacturing shop to the retail store, according to the study.

These tracking capabilities can increase the efficiency of individual processes and asset utilization, enhance forecasting and inventory accuracy, and improve the ability of companies to respond to rapidly changing supply and demand with a high degree of certainty. The result of these supply-chain efficiencies is reduced inventory and labor costs and increased sales.

"Our experience shows that the benefits of auto-ID are available today," said Lyle Ginsburg, managing partner for technology innovation in Accenture's products operating group. "In fact, we expect the RFID application market to expand to almost $7 billion by 2008. Companies that wait to use this technology will not only miss out on significant cost savings today but also risk losing their future competitive edge."

The study results were published in three white papers that Accenture developed in collaboration with the Auto-ID Center and its members, as well as with clients, suppliers and members of academia. Accenture is a board member of the Auto-ID Center, which is an informal association of 90 companies and universities that came together to explore the benefits and impacts of auto-ID technology.

According to the study, consumer goods companies could increase the certainty of demand signals throughout the supply chain, improving demand planning forecast accuracy by 10 to 20 percent. For instance, Accenture asserted that auto-ID technology could help these companies increase sales 1 to 2 percent by reducing out-of-stock items; decrease inventory 10 to 30 percent by reducing the amount of safety stock or minimum stock needed for immediate demand; and increase manufacturing and distribution capacity and asset utilization while reducing capital expenditures.

"Our research indicates that pallet- and case-level tagging will be widespread within one to two years," said Ginsburg. "Among the drivers of this adoption are data standards, lower-cost tags and retailer support. Manufacturers should prepare to meet the demands of their biggest customers, who are already  or will soon be  requiring suppliers to employ auto-ID technology."

The study also suggested that retailers using auto-ID technology could move product to and from distribution centers at record speed, with nearly 100 percent accuracy. Retail companies could reduce safety-stock inventory and labor costs while increasing product visibility, or tracking, during the supply chain process, Accenture asserted.

"Auto-ID technologies can unlock unprecedented value for retailers and enable them to radically change the way they do business within the supply chain," said Ginsburg. "For example, retailers could reduce labor costs between 5 and 40 percent by enhancing distribution center processes and, depending on lead-times, reduce their safety-stock supplies by one to four days."

Finally, freight transportation companies could realize significant value from auto-ID technologies, according to Accenture, which investigated the impact of this technology on freight companies' ability to reduce costs in shipment handling and delivery, shipment theft and loss, and automation of manual activities.

The research found that asset utilization and operational efficiency were two areas that could see early positive effects from employing auto-ID technology. For example, improved asset tracking and asset utilization through tagging could result in a reduced need for new equipment and more efficient use of existing equipment. A decreased number of sorting and delivery errors could not only improve operational efficiency but also customer service.

Auto-ID could also help improve security. With better information on the whereabouts of containers and packages, transportation companies could maintain closer control of their assets and could more easily provide regulatory agencies with accurate information about any package in their pipeline.

"Clearly, shippers' and consignees' expectations for shorter delivery times and better availability of in-transit shipping information will continue to grow," Ginsburg said. "In response, Auto-ID technologies can help freight transportation companies manage their operating expenses and provide higher levels of service to their customers, while operating more safely and securely."

Despite its potential, several barriers nevertheless remain to the broader adoption of Auto-ID technologies, including cost, according to David Landau, director of product management at supply chain execution specialist Manhattan Associates, which recently joined with mobile computing solution provider Symbol Technologies and Alien Technology, a provider of RFID tags and hardware, to produce a strategy for delivering an RFID solution for supply chain execution. "Even at $0.05 a tag, which is the magic number that everyone is throwing about, it's still not cheap," Landau said in a recent interview.

Landau further noted that adopting these technologies will require a great deal of process change, which could hamper adoption, and that the RFID industry will need to adopt universal standards of the sort that made barcodes a reality in the past.

Pioneers in adopting these technologies including consumer giants Procter & Gamble, Gillette, Unilever, J. Sainsbury and Tesco. Gillette announced in January they would buy half-a-billion of Alien's radio-frequency identification (RFID) tags for use in its supply chain and in retail stores over the next several years in the first large-scale test of the new technology.

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