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RFID Continues to Take Back Seat in Automotive

This guest article from AMR Research's Kevin Reale considers reasons for the automotive industry's lagging adoption of RFID, while making the argument that once adoption finally takes off, auto manufacturers will need to deploy the technology to remain competitive.
Sep 26, 2006This article was originally published by RFID Update.

September 26, 2006—Demand-driven supply network (DDSN) leaders are spending almost five times more on RFID than automotive companies that are operating traditional supply chains, according to AMR Research's latest analysis of over 450 retailers and manufacturers.

Companies identified as DDSN leaders are widely implementing RFID in distribution networks and points of sale/consumption to accelerate visibility of demand. In addition to this, they are using sensors in their extended supply networks for synchronizing manufacturing and logistics networks with demand, enforcing or recording regulated manufacturing and supply chain compliance, and error-proofing to ensure Right First Time manufacturing.

AMR Research data collected also shows that DDSN leaders are turning to RFID to instrument and accelerate their sensor-driven networks. This is particularly evident in more complex European supply networks, where RFID ranks as the fourth-highest among the 22 categories of supply chain technology investments being made in 2006 and 2007.

To better understand the state of the industry as it relates to RFID investment in automotive, AMR Research conducted a survey with the Automotive Industry Action Group (AIAG). The results of the survey show that 75% of the 70 automotive respondents have problems with the current process and tracking capabilities of the entire supply chain. Despite this issue, 41% of the survey respondents have no plans to deploy RFID.

So why isn't RFID the automotive industry's highest priority?

Lack of standards, which makes deployment costly and challenging, was cited as the main barrier to deployment by 18% of respondents. Even early adopters that are moving forward say standardization is a problem. Cost reduction (55% of the respondents), followed by customer mandates and operational efficiency (18% each), outweighed the standards issue. Unfortunately, the lack of standards requires additional efforts in deployment for these organizations that are often still maintaining the current operation methods.

Cost ranked very high as a barrier to adoption, with 51% naming poor ROI as the biggest hurdle and 16% naming hardware and integration. And even those 50% that are in the midst of deployments or pilots still find ROI to be a problem, with 40% of them still struggling with hardware and integration costs as well.

As the automotive industry continues to evolve from mass production (105,000 vehicles per nameplate -- 1985) to niche vehicle production (40,000 vehicles per nameplate -- estimated 2009), increased usage of just-in-time, just-in-sequence assembly and improved quality control requirements will increase. This evolution will require increased level product and process-related information to be tracked for the purpose of quality control and inventory management.

RFID is a technology that could provide incredible value once it works its way through its natural evolution. Automotive is still in the Pioneer Phase of adoption, while other industries are starting to progress into the "get it done," or growth, phase. This is the time of discovery for the automotive industry, which is pursuing practical and valuable ways to apply the technology.

Once the industry enters the broad adoption phase, RFID implementation will be essential for automotive companies that are seeking to become leaders in demand-driven supply networks.
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