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What Companies Don't Know

Many businesses don't have a good handle on how badly they are managing their physical assets.
By Mark Roberti
Jun 06, 2016

I am often asked why, if radio frequency identification technology is as wonderful as I say, everyone isn't using it. There are a variety of factors involved, including the natural resistance to change and competition for resources. But there is also the fact that many companies just don't know—or care—a great deal about how inefficiently they manage their physical assets.

Brian Kelly, Johnson Controls' director of supply chain management, said, during his keynote address at RFID Journal LIVE! 2016, that his company didn't know how many containers it had for shipping products to suppliers. "It is somewhere between—and this is our best guess—four and five million," he told attendees. (You can view his keynote address here: part 1 | part 2.)

Kelly said he's been working for Johnson Controls for 26 years, and that some containers were purchased before he joined the company. "What's been lost, what's been stolen, what's been damaged, what's been shipped and never come back is really unknown over that period of time," he told the audience.

Many CEOs can tell you the precise profit margin for every single product their company produces, whether it went up or down in the last quarter, and what contributed to the change. But those same CEOs don't know how many containers—and other physical assets—their companies own.

Johnson Controls is by no means unusual. When I launched RFID Journal in 2002, a senior supply chain executive at a large American consumer products company told me: "At any moment in time, we don't know where about $1 billion worth of inventory is. It's not lost or stolen. We just can't locate it at the moment. If we could use RFID to eliminate that misplaced inventory, we could free up a $1 billion in cash to use for something else, such as an acquisition."

A few years later, I was interviewing the director of materials management at a major hospital in Boston. He told me that when his hospital decided to deploy an active RFID-based real-time location system, it brought all of its gurneys into one area so they could be tagged. "I thought we had 200 gurneys," he said. "When we got them all together, it turned out we had 300 gurneys." That's an inventory accuracy rate of only 66 percent.

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