In a conference call on April, Yankee analysts said radio frequency identification (RFID) and data synchronization through the UCCnet (Uniform Code Council) Global Registry are on top of the IT to-do list for many companies in 2004. These technologies are crucial enablers of the business-to-business collaboration required to run complex supply chains that include many internal and external partners. “Companies are now focused on driving automation at the edges of the enterprise,” said Kosin Huang, a Yankee senior analyst. Simple supply chain management (SCM) has been replaced by “network supply management” (NSM), a much broader concept, sometimes referred to as “extended supply chain.” Suppliers must be able to communicate with retailers, for instance, electronically and in real time. RFID and UCCnet enable that type of interaction.
Yankee found clear evidence of the new trend when it asked 450 companies to prioritize their IT spending plans. “In every single bucket, other than the edge of the enterprise bucket, costs were reduced,” said senior analyst Michael Dominy. In 2003, 34 percent of IT budgets were allocated to the edge of the enterprise, the highest percentage of any IT spending category. Some 36 percent of the companies Yankee surveyed have no plans to buy any new enterprise resource planning (ERP) applications this year, and 43 percent have no plans to buy SCM applications. Dominy said companies have already bought SCM systems and are digesting them and learning how to leverage them via edge applications.
The consumer packaged goods (CPG) industry and government agencies, for example, plan to increase edge spending more than total IT spending. CPGs told Yankee that in 2003 and 2004 their overall IT spending will grow 13.6 percent while their edge spending will grow 21.3 percent. Government agencies reported overall IT spending growth of 3.7 percent and edge spending growth of 7.5 percent. They are investing in edge technologies to help their constituents do tasks, such as renew a driver’s license, in an automated way via the Web.
During the conference, the analysts offered insight into how companies can best make the transition to an RFID-enabled supply chain. And they explained how the UCCnet Global Registry can be a critical component of NSM systems. It’s an online hub for product data updates between manufacturers and their customers. RFID is gaining momentum as a result of some high-profile implementations and because companies want their supply chains to move faster and faster. To be competitive companies want the ability to track products from minute to minute, something RFID makes possible.
Early RFID adopters include Wal-Mart and its suppliers, Target, the Department of Defense, Procter & Gamble and Albertson’s in the U.S., and Metro and Tesco in Europe. Dominy said some companies are experimenting with RFID, but keeping it quiet because they see it as a competitive weapon and don’t want to reveal their strategies. Large food and beverage companies, at least one large aerospace company, a global retailer and several home improvement companies are all trying RFID, he said.
By 2008, Yankee predicts that companies will spend $4.2 billion on RFID technologies and services. RFID tags will make up 50 percent of the spending, and services, such as systems integration will make up another 40 to 45 percent.
Deployment strategies and benefits
Yankee suggests three possible RFID deployment strategies, which it calls compliance, conservative or committed. To deploy RFID in a fully committed, enterprise-wide way, Yankee says a company with $5 billion in revenue can expect to spend $30 million dollars. For a more conservative deployment, including five to seven distribution centers, that same company should expect to spend $7 to $10 million. For deployment in just one to three centers, the cost will be $1 to $2 million.
Yankee lists three major groups of benefits to RFID:
- Improvements to the internal supply chain, such as improved inventory and asset management.
- Improvements to the extended supply chain, such as better in-transit visibility.
- Improvements to collaborative planning and execution processes, what Dominy calls the holy grail of supply chain management, such as a reduction in product obsolescence and better on-shelf availability.
UCCnet hooks up trading partners
Much of the conference was dedicated to the UCCnet Global Registry and the importance of data synchronization to a successful NSM system. “Data synchronization will become a crucial underpinning of collaborative strategies,” Huang said. Today, many companies have big, costly problems with data synch that effect both manufacturers and retailers. Some 30 percent of manufacturers’ information contained in retailers’ product catalogs is in error. Each error costs $60 to $80 to fix. And 60 percent of all invoices have errors, each of which costs between $40 to $400 to fix.
The UCCnet Global Registry is an attempt to fix those errors, said Huang. It’s a centralized repository for data updates. Extensible markup language (XML) technology is the key to UCCnet’s ability to let customers and trading partners exchange information because it is application independent. UCCnet has 3,000 subscribers, significantly more than the 50 it had in 2002. But those subscribers aren’t yet using it actively, Huang said. Less than one percent of global sales use the network, despite its usefulness.
Dominy and Huang offered a set of recommendations for companies aiming deploy RFID or other edge applications to streamline and optimize their SCM systems into more comprehensive NSM systems. During 2004 they should clean up data, define a NSM strategy and conduct an RFID assessment. And between 2005 and 2008 they should move into the implementation of a full NSM system.