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The Buzz in Consumer Electronics

By enabling companies to react quickly to sudden changes in demand for new products, RFID adoption in the consumer electronics supply chain could benefit manufacturers as well as retailers.
By Elizabeth Wasserman
Apr 01, 2005—Ever-changing customer tastes and rapidly advancing technologies make anticipating demand in the consumer electronics industry difficult. Take Sony’s NW-HD1 Network Walkman, which was introduced with great fanfare last year. Sony had to quickly drop its price on the Network Walkman by $50 to $349, because consumers objected to converting music into Sony’s proprietary ATRAC3 format instead of the ubiquitous MP3 files. The Network Walkman suffered further markdowns—to as low as $259—after Sony announced it was introducing a new version that would play music in both formats.

When consumer electronics manufacturers make and ship too much of a product that becomes outdated, retailers are stuck with stock that nobody wants. These items take up precious storage space in the back room. Retailers have to start slashing prices or return the obsolete merchandise to the manufacturers. Either way, profit margins for retailers and manufacturers take a hit.

RFID deployment in the consumer electronics industry could help retailers identify hot-selling items more quickly and make sure they have the items on store shelves when prices are high. It could also reduce the amount of space in the storeroom taken up by goods that might become obsolete if they fail to sell quickly. And RFID could help manufacturers better meet demand by tying production to real-time sales data. In fact, many analysts believe that this is one of the few sectors where both manufacturers and retailers may benefit from RFID.

For now, retailers are in the driver’s seat. Some have already shifted the burden of storing merchandise to manufacturers, and now they are asking them to shoulder the costs of RFID tagging as well. “Retailers are increasingly focusing on having manufacturers manage parts of the supply chain,” says Chris Remy, senior manager of Accenture’s supply chain service. “They would rather have consumer electronics companies hold on to the products and be able to respond when the product is selling or, in the case of product obsolescence, take the product back.”

Some consumer electronics manufacturers—such as Hewlett-Packard, Microsoft, Panasonic and Sony—have begun tagging pallets and cases to meet the RFID mandates issued by mass merchandise retailers. And Best Buy, the Minneapolis-based consumer electronics chain, announced last August that it would require its major suppliers to begin applying RFID tags to pallets and cases by January 2006. The consumer electronics powerhouse will require major suppliers to tag all pallets and cases by May 2007. Late this summer, Best Buy also expects to issue item-level specifications for suppliers. (To learn more about Best Buy’s plans, see Best Buy Aims for Item-Level Tagging.)

Other major retail chains, besides Best Buy, are likely to spur adoption of RFID in the consumer electronics supply chain. But there are logistical challenges. Some 20 million digital TVs, 22 million DVD players and 22 million desktop and laptop computers will be shipped to U.S. retail stores alone in 2005, according to the Consumer Electronics Association (CEA), which represents U.S. manufacturers and retailers. Many retailers also stock some of the 667 million CDs and 1.5 billion DVDs that the Digital Entertainment Group estimates are sold each year. Still, the benefits could be huge. RFID tagging in the supply chain has the potential to bring up to $4 billion in annual savings to the $125 billion-a-year consumer electronics industry, according to a recent Accenture study.

And RFID may be well suited to this high-end industry. RFID tags—which can range from 25 cents to $1 or more—can be cost-effective on a $2,000 high-definition TV, a $35 printer ink cartridge that often gets miscounted during shipping and even an $11.99 CD, a commonly stolen item. Also, consumer electronics have historically short life spans due to technological innovation. “Laptop computers are a great example of a product that moves quickly through a life cycle,” says Paul Freeman, RFID program director at Best Buy. “It’s very different from paper towels or paper products. You could inventory those for a year if you wanted, and they’re not going to be replaced with something newer or better.”
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