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Driving Toward Smarter Supply Chains

The world's leading automakers are finding new ways to use RFID to help remove inefficiencies in the manufacture and distribution of cars, and eke out profits in an increasingly competitive industry.
By Elizabeth Wasserman
Feb 01, 2007—In the past few years, epic changes in the automobile industry have put increasing pressures on the Big Three U.S. automakers—the Chrysler Group, Ford Motor Co. and General Motors—and many European auto manufacturers also struggling to remain competitive. Gas prices have soared, sparking demand for hybrid vehicles and shrinking the market for sport-utility vehicles. At the same time, competition from low-cost Asian manufacturers has intensified. Car manufacturers also have had to cope with new government regulations, requiring the tracking of parts for recall and recycling.

In addition, the auto-industry supply chain is growing more complex. More than 64 million vehicles were manufactured in 2005, requiring up to 10,000 parts each, in assembly plants around the world that take up as much acreage as the average neighborhood. After assembly, tens of thousands of vehicles are stored in massive yards and then shipped over land, sea and rail to distribution centers, where they are customized with sunroofs, leather upholstery and other accessories before being transported to dealerships.

The world's leading automakers are finding new ways to use RFID.

Many of the world's largest auto manufacturers are turning to radio frequency identification technology as one way to cut costs and squeeze out profits. They're testing or deploying closed-loop RFID applications to track parts within their own supply chains, replenish workstations, move closer to a just-in-time inventory and better track completed cars. Meanwhile, automakers in Asia—primarily Japan, but to a lesser extent South Korea, China and India—are using growing profit margins to fund investment in new technologies, including RFID, while positioning themselves to make gains in the lucrative North American and European markets.

The automotive industry was one of the earliest adopters of RFID. Industry stalwarts such as Ford and General Motors were using RFID in the 1980s to track vehicles through the assembly process. When rfid journal examined the auto industry in 2004, RFID technology was also starting to help automakers gain more visibility into their inventory, make vehicle customization more efficient and accurate, and help manufacturers locate specific cars or trucks in distribution lots.

The technology has helped cut costs, analysts say, and that is why many manufacturers are extending their RFID tests and implementations to other closed-loop applications. The auto industry could further increase efficiencies and cut costs by instituting open-loop RFID tracking to reduce the amount of parts inventory needed at assembly plants, automate the receipt of supplies, prevent counterfeiting and theft, and improve the ability to pinpoint vehicles involved in recalls due to faulty parts. But so far, the industry has been reluctant to commit to tracking parts between partners in the supply chain, because some parts suppliers are in a precarious economic situation and can't take on the additional burden of tagging parts, and auto manufacturers that are being forced to restructure don't have the funds to invest in new IT infrastructure.

Still, spending in automotive manufacturing RFID applications is expected to grow from $200 million in 2006 to $662 million in 2011, according to ABI Research. And a consortium of auto-industry associations from Asia, Europe and North America has joined together under the guise of the Joint Automotive Industry (JAI) to promote a global dialogue on RFID issues.
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