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RFID Benefits Span Supply Chain

New business cases published by the Auto-ID Center suggest that RFID will have widespread benefits.
Feb 03, 2003Feb. 4, 2003 - The Auto-ID Center has published five new papers spelling out business cases for adopting its Electronic Product Code technology. The papers, prepared by Accenture and IBM Business Consulting Services, suggest that RFID will produced shared benefits in the retail industry.


The three papers by Accenture cover the value of RFID technology in the retail supply chain, in demand planning for consumer packaged goods, and in freight transportation. The paper on the retail supply chain looks at the savings two fictional retailers will get from reduced labor costs and lower transportation costs.

Kitchens Inc. is a $2 billion company with 500 stores serviced by three distribution centers. The reports suggests the company could save 35 percent in labor cost, or $17 million per year by adopting RFID, and it could save another $7 million by reducing theft and administrative error. The system would cost $7.8 million to install and another $100,000 per year to maintain at each installation.

Accenture also looked at the benefits to a fictional sports apparel retailer called Fast Lane Inc. The company has sales of $5 billion and has $20 million in assets used to move product to the retail stores from its distribution center. An RFID asset-tracking system would provide a one-time benefit of $2.5 million in reduced assets due to the ability to plan better, which would in turn save $375,000 per year in depreciation charges.

By sharing information from the RFID tracking system with its vendors and logistics providers, Fast Lane could reduce its level of safety stocks by four days. That translates into a reduction of $58 million in inventory and a savings of $5.8 million in carrying costs. Tracking inbound trailers with RFID could also cut detention and demurrage charges by $280,000. Accenture estimates Fast Lane would have to spend about $1.35 million to implement the system and would achieve a return on investment in just over a year.

The two IBM papers deal with reducing losses associated with shrink and with products becoming obsolete. The report on shrink suggests the benefits will go to manufacturers as well as retailers. IBM's consultants didn't focus on benefits for individual companies, but rather on the opportunities for an entire value chain.

The report suggests that tracking cases could reduce shrink significantly and save manufacturers from $8.4 million in the music and video industry to $33.4 million in the apparel industry.

Music and video retailers could save $16 million and apparel retailers could cut shrink by $67 million by tracking cases. Retailers can do even better if they track individual items. The report suggests the reduction in shrink would range from $24 million to $98 million, when tracking items.

The reports from both Accenture and IBM Business Consulting Services point out that the benefits achieved by individual companies will depend on many factors, including their current level of automation and their ability to make changes to exiting business processes.

But both reports suggest that the potential benefits from RFID a real and dramatic. The Accenture retail supply chain report concludes: "Retailers should begin implementing RFID solutions to address critical issues now, to prepare for the industry wide adoption ahead."

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