Silent Commerce
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Silent commerce is a new way of bringing compelling business benefits to the enterprise. By empowering physical objects to communicate with each other and to any enabled element in the value chain – from manufacturing, to distribution, to retailers, to consumers – silent commerce will enable highly practical, but previously unimagined, ways of increasing efficiency, improving sales and building customer loyalty.
At Accenture, we keep close tabs on the future, looking for companies that are implementing silent commerce technologies in both predictable and surprising ways. In this report, we take a close look at a number of companies (ExxonMobil, Figleaves.com, Ford Motor Company, Marks and Spencer, Shell and others) in a wide range of industries (automobile manufacturing, distribution, energy, retail, and others) that are currently using a core silent commerce technology, radio frequency identification (RFID). Our discussion gives executives a glimpse into what the years ahead will offer to organizations that think beyond quarterly earnings and position themselves for next-generation business capabilities. As our examples from Asia, Europe and the United States illustrate, many successful companies are finding innovative ways to use RFID technology and leverage the power of resulting information to meet and create customer demand. We believe that silent commerce will help companies around the world do the same. Here, we offer worthwhile examples to consider and, based on the best practices of leading companies, we also describe sensible steps forward, ones that will help your organization forge its own unique path in a business world where silent commerce will become the next competitive differentiator.
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What is Silent Commerce?
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Contents
04 07 11 Succeeding where others fail What is Silent Commerce?
Silent Commerce — A Mini Primer
Seizing the value of Silent Commerce
Delighting Customers Improving Operations Transforming the Supply Chain
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Looking into the future
Low-cost and open-standards-based systems Intelligent objects
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Where should companies begin?
Step One: Value targeting Step Two: Building pilots Step Three: Scaling to grow the benefits
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Conclusion References
www.accenture.com/silentcommerce
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Succeeding where others fail
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Succeeding where others fail
“...the answer lies in the innovative use of radio frequency identification (RFID) tags...”
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Succeeding where others fail
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In 2001, many famous Dot-Com companies flamed out. Figleaves.com, a British electronic retailer (or e-tailer) of lingerie, undergarments and swimwear, however, managed to do the opposite: it escaped the Dot-Com minefield, emerging larger, stronger and more capable. While many e-tailers of specialty products failed to scale fulfillment and distribution operations, Figleaves successfully expanded its product lines from 300 to more than18,000 distinct items. How did Figleaves manage dramatic growth without dramatic failure? In part, the answer lies in its innovative use of radio frequency identification (RFID) tags to measurably improve the accuracy of pick-and-pack operations, ensuring customers receive the right item at the right time.
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Ford Motor Company, too, has used RFID tags to improve manufacturing processes. At its Essex, Ontario factory, which produces more than two thousand engines per day, RFID tags attached to each engine assembly, store critical information about engines traveling through the manufacturing line. Since each type of engine may be installed in a wide range of vehicle models, Ford has had to manage complex manufacturing processes requiring unique parts and assembly procedures for each engine model and type. The tags play a vital role in this complex process by storing critical information on specific engines' manufacturing requirements and status1. By reading tag-based information at each manufacturing step, Ford has enhanced its control over the manufacturing process, ensuring that the right parts are placed in the right engine and used correctly. RFID tagging enables Ford to customize engine manufacturing in a just-in-time environment. Storing critical information about the engine on radio frequency tags also ensures that manufacturing lines can build complete engines even if servers and communications networks fail on the plant floor. Efficiencies from RFID-enabled manufacturing make it possible to use assets optimally and improve productivity, while making it easier for Ford to justify expanding RFID use across global manufacturing operations. From Figleaves to Ford, whether you're a start-up or a Fortune 500 company, a silent commerce revolution is under way. By uniting RFID tags and related technology infrastructure to produce intelligent, interactive objects, companies are employing silent commerce to create new value for customers and realize remarkable new operational efficiencies.
“...a silent commerce revolution is under way.”
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What is Silent Commerce?
Silent commerce creates and captures value by deploying intelligent, interactive objects and machines that communicate with one another without human intervention. Today, silent commerce is enabled by technologies ranging from global positioning systems (GPS) to radio frequency identification (RFID). RFID systems, a central silent commerce technology, identify objects with embedded or attached RFID tags, which combine an electronic chip, a radio frequency transponder and an antenna. Strategically placed tag readers (transceivers) retrieve information about objects without direct contact or sight lines by emitting a radio signal to query the RFID tags associated with each object.
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Currently, RFID tags and readers are widely available from various vendors, but the technology is fairly expensive. Today's least expensive RFID tags sell for approximately forty US cents each while the most economical readers cost between $300 and $500. In the near future, by 2006 according to some estimates, simple RFID tags may cost five US cents or less, making them a potential alternative to barcodes, that is, economical for widespread use. In combination with sensors built upon micro-electromechanical systems (MEMs), RFID tags will be able to track and confirm the state of any item as it moves through a value chain. Milk cartons equipped with RFID tags and sensors could offer benefits by communicating, for example, whether the milk is close to its expiration date or has been stored at temperatures that aren’t ideal for freshness.
While eCommerce transforms how people communicate within and across firms, the intelligent interaction enabled by silent commerce between machines, parts, assemblies — or any other item in any value chain — is potentially as revolutionary as the Internet and World Wide Web. This revolution is already taking place with many companies worldwide; they are leveraging proprietary RFID technologies to transform customer interactions or better manage assets. In addition, leading companies are supporting open standards and technology development efforts that promise to carry their industries forward into the next generation of silent commerce.
Leading consumer products manufacturers and retailers, in particular, are looking for the prices of core RFID technologies to drop dramatically. Significant price drops will make it feasible to tag the billions of consumer products produced each year while widespread technology adoption will enable new cross-company applications, driving down costs and increasing responsiveness across the value chain. These farsighted leaders are getting ready to seize the value — and competitive advantage — that silent commerce offers. Given the rapid evolution of new, open-standardsbased RFID systems that will support widespread adoption, it is imperative for every company to prepare for a silent commerce revolution.
“In the near future, by 2006 according to some estimates, simple RFID tags may cost five US cents or less, making them a potential alternative to barcodes, that is, economical for widespread use.”
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Silent Commerce: A Mini Primer
How silent commerce works
Silent commerce is the result of several converging technologies that make it possible for enabled objects to be information-rich, aware and even active in responding to their environment. RFID tags, sensors and micro-electromechanical devices, for example, make it possible for any object or device to be smart and contribute to silent-commerceenabled enterprise value chains. Anti-theft systems in stores use very simple passive tags that communicate with readers at doorways to indicate whether products leaving the store have been purchased.
Sensors and MEMs
Sensors can detect and store information about environments. Sensors and RFID combinations can transmit that information automatically, enabling systems or people to respond appropriately to changing conditions over time. Recent advances in manufacturing and engineering have produced sensors that are more precise, accurate and inexpensive than earlier versions. Technological advances have also given us micro-electromechanical systems (MEMs), a class of tiny sensors and actuator systems with both electrical and mechanical components. If sensors give objects a sense of feel, sight, smell and sound, then actuators call them to act on what they sense. The device that operates the air bag in automobiles is a micro-electromechanical device: an accelerometer (sensor) detects an automobile’s sudden deceleration and the MEMs activate the air bag. MEMs use the same fabrication technology as computer chips but can be adapted to sense and respond to many different physical phenomena.
RFID
RFID tags communicate by radio signals with RFID readers to form wireless networks. RFID tags can be as small as matchsticks, holding as little as a unit of basic identifying information, or as large as bricks, storing vast amounts of data. These tags and readers allow companies to track items as diverse as library books, roving animals and expensive hospital equipment. RFID tags may or may not have their own power source. Active tags have onboard batteries that can power sensors and increase the range at which their signals can be read. A well-known example is the batterypowered commuter transit pass that allows commuters to drive through freeway tollbooths, be billed toll fees automatically, and avoid line-ups that force them to stop and count out change. Passive tags use the power of the reader’s radio signal to process information and send back a response.
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Location-based capabilities
Many silent commerce applications require knowing precisely where an object is so that the object's movement can be tracked or so the object can respond appropriately to its surrounding environment. An object's location can be sensed in several ways, over varying distances. At close range, passive RFID tags can indicate their location by being read as they pass by well-placed RFID readers. Marathon runners, for example, now wear tagged shoes so that race officials can ensure individual runners have passed every station on the course. Active RFID tags can transmit their identity a bit further. Emerging wireless technologies, such as Bluetooth, let smart, RFID-enabled objects know when they're close to another smart object so communications can occur. Bluetooth-enabled vending machines, for example, would allow people to make purchases without fumbling for change. Consumers could walk up to vending machines, make selections and pay for soft drinks with a few quick keystrokes on their mobile phones. At intermediate distances (up to 250 meters), Real Time Locating Systems (RTLS) use an array of readers to triangulate signals from active RFID tags. By knowing the physical position of the readers — and recording when a signal from a particular tag was received by each reader — RTLS can locate individual tags within ten feet.
When distances are relatively large, more technology comes into play. Mobile phones, for example, communicate their identities on cellular networks, allowing them to be located according to the cell they're in, or via their triangulated position among several cells. For objects that move across even more substantial distances, locationtracking can be accomplished using the Global Positioning System (GPS), a worldwide satellite–based radio navigation system, long used by the military, in which radio signals are transmitted from satellites, triangulated by a receiver, and used for positioning and timing. The commercial potential of GPS results from a May 2000 US presidential directive that made the pinpoint accuracy of GPS fully available to companies and consumers alike.
Always-on connectivity
When we log on to the Internet or pick up a telephone, we’re preparing to transmit data for a finite length of time. Now, usage doesn’t have to be so limited. An increasing number of communication protocols, including the Internet itself and new broadband wireless standards such as 2.5G, allow devices to be always on. As a result, large numbers of devices, from mobile phones to MEMs, are continuously aware of their environment, ready to send and receive information whenever needed. All of these technologies, wellestablished or in development, are making it possible for everything to be continuously connected.
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Seizing the value of Silent Commerce
Many private and public sector organizations aren't waiting to seize the value of silent commerce. Many are already using silent commerce to create new value for customers, to improve the efficiency and performance of existing operations, and to transform the supply chain.
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Delighting Customers
As the following examples of ExxonMobil, Shell, Rehoboth Beach, Delaware and the Chicago Marathon demonstrate, silent commerce enables new ways to delight customers by providing real convenience, efficiency and trust.
ExxonMobil
ExxonMobil is one of the world's largest energy companies. In 1996, Mobil Oil introduced Speedpass2, an RFID-based system for payment. Customers subscribe to Speedpass for free and provide a credit card number for making gasoline purchases. In return, they receive a small transponder attached to a key ring3. When a customer swipes the transponder in front of the gas pump, it authorizes the pump to release gasoline and charges the customer's credit card. Speedpass creates a number of conveniences for customers. First, Speedpass gasoline purchases take about fifteen percent less time than credit card purchases. Second, Speedpass purchases are more reliable: magnetic credit card stripes are prone to damage which can make purchasing inconvenient for customers whose damaged cards can’t be read by gas station terminals. Speedpass goes even further, allowing easier checkout at gas station convenience stores and now at McDonalds' outlets in and around Chicago, where — after a successful pilot in 2001 — the company
is currently rolling out the Speedpass system to four hundred stores. For ExxonMobil, there are important benefits. Speedpass subscribers, on average, visit Mobil gas stations one more time each month and spend two to three percent more each month than other customers. The company also notes that incremental revenues from Speedpass easily justify the $15,000 that service station operators must invest to implement Speedpass scanners at their Mobil stations.
of sale and use EasyPass wherever Shell builds the appropriate partnership arrangements. (As an aside, ExxonMobil is also considering a watch transponder and will be conducting a pilot test with Timex in the United States.6)
Rehoboth Beach, Delaware
Silent commerce can also delight customers with relevant information, reducing their uncertainties and increasing their sense of trust and comfort. In transportation, for example, surveys have shown that despite the posting of schedules at bus stops, waiting commuters often feel angst and frustration about when their buses will arrive. Using silent commerce to provide customers with accurate information greatly relieves the traveling public’s anxiety. In Rehoboth Beach, Delaware, the bus company equipped buses running along its scenic beach route with a GPS-enabled unit7 that identifies the location of the bus at any time. Using this information, computers calculate when a given bus will arrive at its next scheduled stop.
Shell4
Shell, another of the world's major energy companies, has introduced EasyPass to bring speed and convenience to its customers in Europe and North America. EasyPass5 also supports existing customer loyalty programs such as AirMiles, which enable customers to earn points with gasoline purchases, deepening customer relationships. What is more, Shell’s innovative thinking has led to a partnership with Swatch, which is embedding EasyPass transponders in their watches, enabling customers to purchase spontaneously at the point
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“Shell has introduced EasyPass to bring speed and convenience to its customers... it also supports existing customer loyalty programs... which enable customers to earn points with gasoline purchases, deepening customer relationships.”
Expected arrival times are then posted on the Internet and on electronic displays at key stops. Now, even though fewer buses are in service and the company has never in its history had more than a three percent annual increase in riders, the newly installed system is being credited with boosting the number of riders by thirteen and a half percent, generating on an annualized basis an additional $75,000 in revenue8. Chicago Marathon’s previous practices, staff guided all runners who successfully crossed the finish line into chutes where race numbers and elapsed times were recorded by officials. When runners completed the race very close to one another, these chutes would sometimes get backed up, making it difficult for officials to record runners’ times accurately (or at all), causing frustration for race participants and staff alike. Enter the ChampionChip, an RFID tag attached to the running shoes of all race participants. With a few readers strategically placed along the route, Chicago Marathon10 staff can now record the precise start, finish and split times of each runner, giving them an accurate account of their performance. What’s more, readers along the route ensure that all runners follow the correct course, dissuading those who might be tempted to cheat. In the Chicago Marathon’s case, silent commerce also had a surprising, unintended benefit: ChampionChip reduces the need for post-race medical services. How? Before ChampionChip, runners who had completed the race sometimes suffered from cramps while they waited in the chutes for official finishing times, an experience that led many to visit medical tents. With the RFID system in place, however, runners don't have to wait in finishing chutes and can begin cooling down immediately, leading fewer runners to experience medical problems after the race and allowing the Chicago Marathon to use its medical resources more efficiently. Another beneficial silent commerce service offered by the Chicago Marathon is MarathonMessenger, an e-mail service that provides its subscribers with information on split and completion times, allowing friends, family and marathon fans who aren't attending to stay abreast of events. It appears to be a popular service: in its first year of use, MarathonMessenger sent sixty thousand updates on runner times to fifteen thousand subscribers. By providing new, meaningful conveniences, silent commerce can delight and surprise customers, delivering increased sales and efficiencies for organizations.
The Chicago Marathon9
The possibilities of silent commerce can inspire unique applications of RFID technologies. At the Chicago Marathon, an event with more than thirty-seven thousand runners in 2002, it used to be difficult to track runners over the race course and provide them with accurate running times. Why? At typical marathons, many thousands of runners stand behind each other at the starting line. When the starter’s pistol signals a race’s beginning, only a few runners cross the starting line in synch with the timekeeper. This means that these few runners, the race leaders, are the only ones who receive accurate split and finishing times. Under the
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Improving Operations
While some applications touch the customer, most silent commerce initiatives occur invisibly within the company, improving operational performance and efficiency.
Figleaves.com11
As a start-up, Figleaves.com had high customer acquisition costs and, as such, couldn’t afford customer dissatisfaction and loss because of incorrect product delivery. Further downstream, it was also businesscritical that Figleaves avoided the high costs of handling returned products. To resolve these challenges, Figleaves implemented an RFID order fulfillment system12. Pickers in a Figleaves warehouse use trolleys equipped with touch-screen computers that map out which items to pick from warehouse shelves, enabling them to fill as many as twenty-four orders at a time. Pickers check off collected items on the touch screens and then place them in slots on one of three totes. Each tote holds up to eight distinct orders in different slots. To ensure
accurate picking and packing, Figleaves tags each of the totes with an RFID tag. Readers scan RFID tags on the trolleys, associating specific orders with each of the eight distinct slots in the tote. To ensure that pickers place the right item(s) in the right slots, readercollected information is automatically transferred to the touch screens. At packing stations, more readers ensure that the right labels are printed for each order in a tote, reducing errors and ensuring that customers get exactly what they've ordered. This enables Figleaves to increase the efficiency of the pickand-pack process and has helped them reduce picking errors to fewer than one in ten thousand.
A major consumer products company
Companies across a wide range of industries are using silent commerce to improve safety and control access, improve asset utilization, boost quality and enable process efficiency, effectiveness and quality. At a major consumer products company, for example, paper placards that identified ingredient containers in the production process sometimes fell into factory feeders and assembly machines, fouling up machinery and large product batches. With each machine creating $40,000 worth of product every hour — and requiring three hours to repair — twelve contamination incidents in 2001 created three to four million dollars in costs from lost capacity — along with the significant investment required for product recalls and recycling. And there were other expensive incidents: incorrect ingredient blends were sometimes mixed during product making, leading to product recalls. When incorrect ingredients were mixed for two hours, for example, recall costs were as high as $250,000.
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“Enhanced, RFID-enabled process control will help avoid costly blending and contamination errors and is expected to save millions of dollars each year.”
Given the losses, the company changed tack, aiming to stop errors and accidents in the first place. To do so, the company invested approximately $600,000, modifying its processes and systems using RFID. Here's how the proactive cost-cutting plan works: RFID tags are attached to all the critical ingredient containers and on key locations on the floor of the factory. The company attached RFID readers to forklifts and filling stations where ingredients were deposited for blending into final products. When forklifts fill containers with a particular ingredient, container tags are initialized with information indicating correct product contents. Forklift operators use touch-screen displays with instructions on which containers to collect and move to particular feeders. Finally, RFID tags on the floor verify that forklifts are moved toward the correct feeder while tag readers verify that containers are filled with the right ingredient. All in all, enhanced, RFIDenabled process control will help this company avoid costly blending and contamination errors and is expected to save millions of dollars each year.
Associated Food Stores (AFS)13
Making objects smart and visible also enables better asset utilization, increased efficiency and asset optimization. Associated Food Stores (AFS), based in Salt Lake City, Utah, is a major wholesale distributor of groceries cooperatively owned by member supermarkets and stores. It operates a one-million-square-foot warehouse and a one-square-mile distribution center that serves more than six hundred supermarkets in an eight-state region in the western United States. AFS uses silent commerce to dramatically improve the use of assets and improve efficiency. In August 2001, as part of its silent commerce initiative, AFS incorporated a Real Time Locating System (RTLS) into its operations. The RTLS includes RFID tags and readers to monitor each of its tractors, trailers and dollies in the yard located at its distribution center. Because AFS manages four to five hundred of these assets per day and organizes thirty-two kinds of trailers
that must be matched to product type and retailer infrastructure (a loading bay may require a trailer with a side door, for example), it's important for company workers to know what they need and where to find it. To enable this real-time asset location, various tags flash status reports to nineteen antennae installed in a grid across the distribution yard every four minutes. Operating in real time, the grid of antennae allows yard managers to know the location of each asset within ten feet at all times, a vast improvement over processes for manual inventories that can take an hour and still yield inaccurate results. In addition to reducing time required for equipment searches, the RTLS enables a location-based status monitoring system: drivers park their vehicles in different areas in the yard depending on whether the equipment is ready for turnaround or needs washing or other maintenance, allowing crews to immediately begin appropriate work on each vehicle. Combined with an automatic
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“Checking incoming shipments manually can take several days. With an RFID system, however, shipping checks can be completed in under an hour, reducing labor requirements by an order of magnitude.”
RFID check-in at the gate, the RTLS has increased yard throughput dramatically, enabling AFS to receive additional benefits from streamline programs (financial incentives given by consumer goods manufacturers to distribution centers that meet stringent goals for just-intime delivery). Having precise information on an item, its location and history of use also helps AFS better optimize its asset use. A separate truck-based system, for example, allows the company to know the exact location of trucks on delivery routes. Over approximately eighteen months, the company has increased asset optimization by reducing the number of drivers from 123 to 83 and tractors from 92 to 62. Trailer utilization has also improved with this new system, but in a different way: even though AFS still needs its entire fleet of trailers for its three peak months during the summer, the company can rely on its primary fleet (twenty percent of the trailers) for the other three-quarters of the year. During the non-peak periods, AFS places its secondary fleet on a backlist with insurance and maintenance contracts based on actual miles driven (zero during off-peak periods), reducing insurance and maintenance costs, saving the company an estimated $22,000 to $30,000 each year. AFS has also encountered other benefits from silent commerce. Spoilage is reduced because sensors in refrigerated trucks notify the central distribution center about temperatures in different food compartments, fuel levels inside refrigeration units, and whether refrigerator doors are open or closed. When any truck sensors indicate any problem, a person can be rapidly dispatched to examine and fix it. Silent commerce also enables the distribution center to recover more efficiently from other problems such as system-wide power outages. Before the RTLS system, it could take an entire week to fully recover from a major power outage. With the RTLS system in place, however, the distribution center recovered from a recent outage in just two days. The wide variety of advantages enabled break-even benefits to accrue to AFS within one year of RFID implementation.
Adam Opel AG
Silent commerce can also improve operations by enabling greater safety and access control. RFID based cards are already widely used to access buildings. Now they're increasingly being used to authenticate users and their privileges for using or modifying equipment on production lines. At Adam Opel AG's Russelsheim factory in Germany, the car manufacturer uses silent commerce for process control, but also as a central element in its safety system14. All employees are equipped with a glass-encased transponder attached to key chains. Transponders authorize different levels of access to control panels and equipment in different parts of the manufacturing process. If a code isn't authorized, access is denied, reducing the possibility for individuals to use equipment unsafely or make operating errors.
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Transforming the Supply Chain
While companies have used silent commerce to delight customers and improve operations within the company, silent commerce shows tremendous promise for transforming the supply chain across organizations. It promises to increase transparency and visibility into the flow of material from suppliers and distributors, improve asset productivity, and reduce waste and delay in the supply chain.
Goldwin Sportswear Europe
Goldwin Sportswear Europe, the European branch of one of the largest branded sportswear companies in Japan, leverages greater supply-chain visibility to track and monitor products from the warehouse to the store to speed up shipments, and reduce shrinkage and distribution into unauthorized geographical areas or "grey markets"15. During garment production, RFID tags are sewn under normal labels and encoded with their unique information including product ID, batch number, color and size. At the distribution center in China, pick lists incorporate the product ID, helping workers correctly choose items for each order, while a final scan of each shipment confirms that all individual orders have been correctly assembled. On arrival in the European distribution center in Italy, shipments are scanned again, verifying that they are correct and complete and that no shrinkage has occurred. Checking incoming shipments manually can take several days. With an RFID system, however, shipping checks can be completed in under an hour, reducing labor requirements by an order of magnitude. Tagging individual garments also allows Goldwin to know which distributors receive particular products and where they're distributing them. The initial RFID pilot quickly identified a distributor that marketed Goldwin products outside its authorized region. This data allowed Goldwin to contact the distributor, make its displeasure known and correct the transgression.
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Marks and Spencer
In contrast to proprietary applications at Goldwin Sportswear Europe, most cross-supply-chain applications operate across entire firms, and require value-chain partners to conform to technology standards and deploy readers inside their companies. Silent commerce promises to improve supply chain visibility while reducing efforts required to take stock of inventory and shipments. The fact that RFID tags are reusable, for example, can make the technology more cost-effective than traditional item-tracking methods. As materials flow from company to company in supply chains, orders must be checked against items delivered while payments and settlement must be reconciled numerous times. Marks and Spencer, a major European retailer with annual sales of more than 4.5 billion Euro, is undergoing an evolutionary shift, migrating from using barcodes to implementing silent commerce and RFIDs so that it can improve control over its food products supply chain16. Marks and Spencer food products are made to specification by suppliers and sold under the company’s brand. Of the 120 million cases of food products delivered to stores, eightyfive million are sold in returnable plastic trays that suppliers deliver to six distribution depots. The trays are carried in interconnectable plastic dollies, paired together at depots and split into singles when they arrive at stores.
Before silent commerce pilot testing, Marks and Spencer required its suppliers to attach a unique barcode to each tray, using specialized software and printers. To track inventory and control materials flow, the trays would then be scanned by readers at important areas in the distribution channel — when they were dispatched by suppliers or arrived at depots, for example. Marks and Spencer has discovered new efficiencies in its silent commerce pilot projects. It saves money on printing labels, reduces labor costs related to attaching and reading labels, and has overcome various barcode-related inefficiencies. Keith Mahoney, logistics controller for the food division, notes that for a retailer with four hundred stores, eight distribution centers and three hundred suppliers with a just-in-time policy, these savings can be significant.
Adding silent-commerce-enabled RFID read/write tags for Marks and Spencer's food products operations, however, is far less than current barcode-related costs. The capital cost for using RFID read/write tags for three million containers, which would be used repeatedly and depreciated over ten years, is about three million euros, in other words just one-tenth of Marks and Spencer's annual costs for the creation of their individual barcode labels. Given these internal estimates — and the success of Marks and Spencer's pilot projects in silent commerce — the company's decision to scale up the use of silent commerce is self-explanatory.
CHEP
CHEP, a provider of reusable pallets and containers, has also run pilot tests of silent commerce in the supply chain. Working with a major supermarket chain in the United Kingdom and chilled ready meals manufacturer linked together by a distribution chain, CHEP estimates that tagging trays led to overall distribution-chain savings of more than fourteen percent, equaling twenty-five percent of the total profit in the value chain. CHEP attributes the majority of these benefits to reduced spoilage and product waste along with higher sales caused by increased on-shelf product availability.
Mahoney estimates that annual fixed costs for their current barcode-related inefficiencies are approximately:
Cost (in Euro): 3,000,000 Required for: 300 million individual barcode labels, using on-site printers and variable data such as best before dates and other relevant information, at ten Euro per thousand Labor to affix labels, at a rate of twenty per minute and eight Euro per hour 300 million individual barcode scans Inventory and accounts payable errors due to defaced or non-readable labels Replacement of damaged labels Total
2,000,000
2,000,000 500,000
250,000 7,750,000
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Delighting Customers
ExxonMobil’s Speedpass
• Gasoline purchases take about 15% less time than credit card purchases • Subscribers visit Mobil gas stations 1 more time each month and spend
2–3% more each month than other customers
Bus Company at Rehoboth Beach, Delaware
• Boosted the number of riders by 13% • Additional annualized revenue of $75,000
Improving Operations
Figleaves.com
• RFID order fulfillment system increased efficiency of the pick-and-pack process • Helped Figleaves reduce picking errors to fewer than 1 in 10,000
Associated Food Stores
• Over 18 months, increased asset optimization by reducing the number
of drivers from 123 to 83 and tractors from 92 to 62
Transforming the Supply Chain
Marks and Spencer
• Capital costs for using RFID read/write tags for 3 million containers is just
1/10
of costs for the retailer’s barcode labels
CHEP
• Tagging trays led to overall distribution-chain savings of 14.1%, equaling
25% of the total profit in the value chain
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Looking into the future
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Looking into the future
Two areas of innovation will drive increased benefits from silent commerce. Contributing factors include the development of a low-cost, openstandards, RFID-based automatic identification (Auto-ID) system, and the coupling of RFIDs with sensors enabled by micro-electromechanical systems (MEMs). A standard Auto-ID system will stimulate further widespread adoption of silent commerce while coupling RFIDs with sensors and other technologies will enable objects to interact more effectively with their environment. Development of these systems is well under way, and RFIDs have already been combined with sensors for selective commercial use.
Low-cost and open-standards-based systems
A low-cost, open-standards, RFID-based Auto-ID system is being developed by the Auto-ID Center, a research collaboration between MIT in Boston, Cambridge University in the United Kingdom, and Adelaide University in Australia, with the support of over forty leading companies across several industries. Initially sponsored by large consumer products companies and retailers, the Center envisions a system that can tag and identify individual items as they're produced and track them through the value chain to the retail store shelf and out the door. This kind of silent commerce system would enable efficiency benefits for individual processes at various points along the value chain, but it would also provide a new level of visibility into product location and movement that would reduce uncertainty across the value chain. This more accurate and timely information would allow companies to become more responsive
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“As sensors and RFID tags are further miniaturized, we expect groundbreaking applications...”
to demand while at the same time reducing safety stocks and attendant inventory carrying costs. The Center is in the process of piloting the technology with the cooperation of several key consumer goods and retail companies, and estimates that widespread adoption could occur as early as 2006. Several hurdles remain to achieving the Auto-ID Center’s vision, and companies considering the benefits of an Auto-ID system should pay attention to efforts being made to overcome these challenges: • Cost — Today, the least expensive RFID tags are about forty US cents each, far above the penny-level cost of barcodes. With improvements in manufacturing technology, currently being demonstrated, and increased scale with widespread adoption, the Center believes that the cost per tag can be brought down to five US cents or less. As the price of RFID tags drops, different applications become economically viable. Highercost tags, for example, are fine for reusable objects (such as shipping
pallets) or high-value items (such as sportswear), but low-cost tags are necessary for applications involving most consumer packaged goods such as laundry detergent or food. • Standards — Today’s RFID technologies are proprietary and, except for systems from a few cooperating vendors, will not work with other vendors’ products. If an RFID-based Auto-ID system is to work across the value chain in many different companies, systems within those companies must be compatible. At one level, this means that tags put on products by manufacturers must be readable by the RFID systems used by logistics providers and retailers. At another level, the data identifying individual items must be standardized so that every company shares a common understanding of what the information means. The Center is addressing both of these issues: it is developing open standard specifications for RFID tags and readers that any vendor can use, and it is working with the Uniform Code Council (UCC) to develop the Electronic Product Code (EPC).
The EPC is similar to the Universal Product Code (UPC) in that it can identify not product categories and types, but contains enough data bits to uniquely identify all individual consumer items produced for the foreseeable future. • Software — Widespread adoption of the Center’s Auto-ID system will produce (by orders of magnitude) more information about product location and movement throughout industry value chains. Managing this information across company boundaries and integrating it with legacy applications will be extremely complex. The Center is working with sponsors to develop an information services infrastructure that will scale efficiently, but individual software vendors will likely need to develop interfaces to link the infrastructure to ERP systems and other business software. New applications to take advantage of the rich Auto-ID data will also need to be developed.
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Intelligent objects
RFID technologies allow objects to communicate automatically with their environment. Combining RFID tags with embedded algorithms or sensors allows objects to interact with a degree of intelligence. As noted earlier in this report, for example, Associated Food Stores uses sensors linked to RFIDs to track the cooling of its refrigerated trucks and signal for human intervention when the temperature gets too high. To date, most of these applications have been used exclusively in high-value commercial situations because they have required sensors to be built alongside customized RFID technologies and have required custom integration of sensor and RF technologies. As these technologies reduce in cost, however, they will become ubiquitous, proliferating to a wide set of commercial applications aimed at consumers.
CookTek17
CookTek, a manufacturer of induction cooking and heated delivery systems, uses RFID technology to make smart pizza delivery bags. An RFID tag embedded in every bag’s heating disk uses a heat and time algorithm to calculate when it should tell a base unit to stop charging the disk. A thermal switch connected to the RFID tag provides an additional fail-safe stop to the timing algorithm. This intelligence has allowed CookTek to replace metallic heating disks with ones made from a new, non-metallic material. The change has made the pizza bags fifty percent lighter, sixty percent quicker to heat, and significantly less expensive — literally better, faster and cheaper.
iGlassware
Consider iGlassware, a project developed by Paul Dietz, a researcher at Mitsubishi Electric Research Labs (MERL) in Cambridge, Massachusetts. This technology provides a very clever way of sensing the level of liquid in a glass and using an attached RFID to communicate information to restaurant staff so that they know when a glass is almost empty and requires a refill of water, wine or any other beverage. Given the potential sales lift and the fact that beverages are high-margin restaurant items, beverage manufacturers and vendors have already expressed an interest in the technology. As sensors and RFID tags are further miniaturized, we expect groundbreaking applications — in security, healthcare and entertainment, for example — that promise to improve interactions between consumers, machines and their business, leisure and social environments.
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Where should companies begin?
Silent commerce and RFID technologies have been proven in commercial settings. The technology is advancing rapidly to make very inexpensive RFID tags and electronic product codes (EPC) a reality. Just as data networks and the Internet connected internal business applications, companies, and consumers to create the eCommerce ecosystem, falling costs and emerging standards for RFID tags and EPCs will enable greater connectivity and applications that extend this ecosystem to physical objects.
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We suggest the following threestep process:
Figure 1 below, maps the examples cited in this report onto an opportunity curve based on connectivity and potential value, but the real picture is not quite so static: the McDonalds’ pilot of ExxonMobil’s Speedpass, for example, is clearly a move toward creating a wider RFID payment network. Many of the other companies are likewise looking to capture additional value by extending the reach and capabilities of their current RFID applications. Current value opportunities and the rapidly developing infrastructure for widespread adoption make it imperative for executives to assess the potential benefits their companies can achieve through silent commerce right now and to prepare for the next stage of the silent commerce revolution.
1:
Value targeting
The first step is to identify opportunities for realizing value from silent commerce in your company and industry through a value-targeting exercise. The sidebar, which includes Table 1 on page 26, provides a framework developed by Accenture that helps identify silent commerce opportunities in the value chain from a consumer goods manufacturer to retailer. This framework can be adapted to other industries to categorize and identify the most promising types of potential applications and benefits from RFID tags and emerging EPC technologies. For specific applications, it's important to develop a more detailed cost-benefit analysis and business case. In retail, for example, these may include applications to reduce shrinkage, monitor counterfeiting, and accurately track stock to reduce stock levels and improve the effectiveness of merchandising strategies and promotions. Effective value targeting requires detailed data-driven analyses that generate clear hypotheses about how companies can realize value from specific applications.
•
CHEP
Value of Application
Chicago Marathon • CookTek • iGlassware • Opel
•
• • • •
AFS Figleaves.com Ford Rehoboth Beach
ExxonMobil Goldwin • Marks and Spencer • Shell
• •
Stand Alone
Single Organization
Single Value Chains
Multiple Value Chains
Figure 1
Degree of Connectivity
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2: 3:
Building pilots
The second step toward the deployment of systems is to build a pilot application to test and refine hypotheses about benefits, costs and work processes after implementation. As managers at CHEP and Marks and Spencer note, pilot applications provide vital, realistic assessments of any given application's potential benefits along with key process changes required for implementation. A number of companies are already undertaking pilot implementations before low-cost RFID and EPC tags and readers are available so they can explore how the technology will improve processes and identify requirements for integrating silent commerce technologies with legacy applications and processes. Pilots are critical for learning how to effectively realize value from silent commerce. When conducted early, pilots offer companies insight into issues such as categories most frequently out-of-stock or ways of improving specific operations and processes. This learning, which occurs before full-scale deployment, allows companies to refine business cases for specific applications, select the most productive applications, and lower overall implementation costs.
Scaling to grow the benefits
If pilot tests show great promise, the third step is to scale the deployment of the application across the company and, if appropriate, with key buyers or suppliers. As illustrated by many of the examples in this report, we expect companies will initially roll out proprietary applications to delight the customer or improve operations. As the costs of deploying silent commerce solutions fall, companies will implement industry-wide applications. We believe that most of these supply-chain initiatives will be implemented two years from now, as technical and business uncertainties surrounding widespread deployment of silent commerce technologies are resolved. To prepare for this supply-chain revolution, companies should develop pilots, participate in forums that develop industry-wide standards, and develop architectures that can easily take advantage of technological innovation. As we have noted, leading companies are already undertaking silent commerce initiatives, moving their enterprises closer to implementation and the resulting first-mover advantages.
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Table 1 Function/Activity Potential Benefits Reader Requirement Tags P C I
Cross-Supply Chain Demand planning Reduced or eliminated out-of-stocks Decreased order lead time Automated planning tied to consumer purchases Increased inventory turns Decreased safety stock Reduced sale of counterfeit products Increased compliance w/distribution contracts Increased product quality Decreased unauthorized access to facilities Decreased chances for product tampering F,S,M l m
Item/batch/lot tracking Security
F,S,M
l
Manufacturing Procurement & materials storage Production Reduced order lead time Increased raw material availability Higher capacity utilization Higher capacity utilization Reduced order cycle time Increased quality S,M m m
S
s
l
An Accenture team analyzed the opportunities for using silent commerce in the consumer goods value chain. The opposite table categorizes different application areas and the types of benefits companies can expect. The table also illustrates the different level of tagging required to implement value-creating applications. Cases generally require nearly 40 times the number of tags required of pallets, and item-level tagging generally requires 40 times the number of tags required of cases. The opposite table can be adapted for use in nearly every industry and be used to identify potential silent commerce applications and conduct a focused value-targeting exercise.
Warehousing Receiving Order selection Exception product location Loss prevention Transportation Asset management Increased productivity of assets Reduced loss of assets Pricing based on actual use of assets Increased productivity of assets Increased visibility of drop shipments Decreased exceptions management Increased customer satisfaction Dynamic routing F,S l l Decreased unloading times Increased accuracy of accepted shipments Increased accuracy of orders Increased order fill rate Fewer misplaced items Decreased time to locate specific items Reduced shrink F S,M M F,S,M s s s l l l s s s
m s
Yard management Contract compliance Routing Store operations Receiving Store planning & planogramming Exception merchandise Loss prevention Checkout
F,S F,S S
m m m m m m
Decreased unloading times Increased accuracy of accepted shipments Increased margin Increased goods on shelf Reduced theft Increased accuracy of checkout Increased productivity of checkers Reduction in numbers of checkers (w/self checkout) Increased accuracy of returns acceptance Increased accuracy of refund amounts More efficient disposal Increased warranty compliance Faster warranty and repairs processing
F M F,M F,M S
s
l s l
m l l l
Returns & reverse logistics Post-sales service
F,S
l
F
l
Reader Requirements F–Few (e.g., at doors) S–Some (e.g., at workstations) M–Many (e.g., on shelves) Level P–Pallet C–Case I–Item
Tags Marginal Benefits s–Small m–Medium l–Large
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Conclusion
The silent commerce revolution is already under way. Its applications and impact promise to expand dramatically as RFID and sensor technologies become standards-based and drop in price. Executives should act immediately to gain the competitive advantages silent commerce offers. In addition, they should begin value-targeting, developing business cases and deploying pilots to help their companies determine the most effective ways to leverage these rapidly-maturing technologies.
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References
1
Sharp, Kevin. "Lessons From the Front." Technology Edge, May 1999. http://www.idsystems.com/reader/1999_05/less0599.htm Hammond, Keith. "Pay as you go." Fast Company Online, November 2001. http://www.fastcompany.com/online/52/speedpass.html Krakow, Gary. "Credit on your key ring." MSNBC Home Page, July 17 2001. http://www.msnbc.com/news/600159.asp Interview with J. R. Bibb, Innovation Advisor, Shell on May 1, 2002.
2
3
4 5
Shell Press Release, February 26, 2001. "Shell first to launch fast, simple and convenient cardless payment technology at the pumps." http://www.shell.ca/code/library/news/2001/01nr_feb26_cardless.html ExxonMobil Press Release, February 27, 2002. "Just released in test, Timex watch first ever to feature revolutionary Speedpass system." http://www2.exxonmobil.com/Corporate/Newsroom/Newsreleases/xom_nr_270202.asp Nextbus Press Release, December 27, 2001. "Beach bus shows a 13.5% increase in ridership after installation of Nextbus system." http://www.nextbus.com/corporate/press/releases.htm#beachBusIncrease
8 9 10 7 6
Interview with Bill Hickox, Operations Director, Delaware Department of Transportation on May 22, 2001. Interview with Elizabeth Stapleton, Information Technology Director, Chicago Marathon on April 9, 2002. Marousis, Kostas. "2001 LaSalle Bank Chicago Marathon: Mobility Solutions." http://www.diamondcluster.com/Work/cases/case23.asp Interview with Daniel Nabarro, Chairman and Founder, Figleaves.com on April 12, 2002. "Software…., Hardware…., Underwear…., Everywhere….!." Microlise Case Study. http://www.microlise.com/logistics/case/figleaves.htm Interview with Tim Van de Merwe, Logistics Controller, Associated Food Stores on April 19, 2002. Texas Instruments Press Release, March 27, 2002. "Opel enhances smart production safety." http://www.ti.com/tiris/docs/news/news_releases/rel3-27-02.htm
11 12
13 14
Texas Instruments Press Release, March 20, 2001. "TI's RFID Smart Labels Track Leading Brand Sportswear Through Production, Shipping, and Distribution - and Reduce Shrinkage and 'Grey' Importing." http://www.ti.com/tiris/docs/news/news_releases/rel3-20-01.htm Mahoney, Keith. "Opportunities for RFID in the supply chain — A Marks and Spencer case study." Intellident Ltd Case Study, April 2002. http://www.intellident.co.uk/Solutions/SupplyChainDistribution/MSRollOut/
17 16
15
Interview with Patricia Cleary, Director of Marketing, CookTek on April 17, 2002.
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Silent commerce is a new way of bringing compelling business benefits to the enterprise. By empowering physical objects to communicate with each other and to any enabled element in the value chain – from manufacturing, to distribution, to retailers, to consumers – silent commerce will enable highly practical, but previously unimagined, ways of increasing efficiency, improving sales and building customer loyalty.
At Accenture, we keep close tabs on the future, looking for companies that are implementing silent commerce technologies in both predictable and surprising ways. In this report, we take a close look at a number of companies (ExxonMobil, Figleaves.com, Ford Motor Company, Marks and Spencer, Shell and others) in a wide range of industries (automobile manufacturing, distribution, energy, retail, and others) that are currently using a core silent commerce technology, radio frequency identification (RFID). Our discussion gives executives a glimpse into what the years ahead will offer to organizations that think beyond quarterly earnings and position themselves for next-generation business capabilities. As our examples from Asia, Europe and the United States illustrate, many successful companies are finding innovative ways to use RFID technology and leverage the power of resulting information to meet and create customer demand. We believe that silent commerce will help companies around the world do the same. Here, we offer worthwhile examples to consider and, based on the best practices of leading companies, we also describe sensible steps forward, ones that will help your organization forge its own unique path in a business world where silent commerce will become the next competitive differentiator.
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What is Silent Commerce?
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Contents
04 07 11 Succeeding where others fail What is Silent Commerce?
Silent Commerce — A Mini Primer
Seizing the value of Silent Commerce
Delighting Customers Improving Operations Transforming the Supply Chain
20
Looking into the future
Low-cost and open-standards-based systems Intelligent objects
23
Where should companies begin?
Step One: Value targeting Step Two: Building pilots Step Three: Scaling to grow the benefits
27 28
Conclusion References
www.accenture.com/silentcommerce
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Succeeding where others fail
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Succeeding where others fail
“...the answer lies in the innovative use of radio frequency identification (RFID) tags...”
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Succeeding where others fail
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In 2001, many famous Dot-Com companies flamed out. Figleaves.com, a British electronic retailer (or e-tailer) of lingerie, undergarments and swimwear, however, managed to do the opposite: it escaped the Dot-Com minefield, emerging larger, stronger and more capable. While many e-tailers of specialty products failed to scale fulfillment and distribution operations, Figleaves successfully expanded its product lines from 300 to more than18,000 distinct items. How did Figleaves manage dramatic growth without dramatic failure? In part, the answer lies in its innovative use of radio frequency identification (RFID) tags to measurably improve the accuracy of pick-and-pack operations, ensuring customers receive the right item at the right time.
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Ford Motor Company, too, has used RFID tags to improve manufacturing processes. At its Essex, Ontario factory, which produces more than two thousand engines per day, RFID tags attached to each engine assembly, store critical information about engines traveling through the manufacturing line. Since each type of engine may be installed in a wide range of vehicle models, Ford has had to manage complex manufacturing processes requiring unique parts and assembly procedures for each engine model and type. The tags play a vital role in this complex process by storing critical information on specific engines' manufacturing requirements and status1. By reading tag-based information at each manufacturing step, Ford has enhanced its control over the manufacturing process, ensuring that the right parts are placed in the right engine and used correctly. RFID tagging enables Ford to customize engine manufacturing in a just-in-time environment. Storing critical information about the engine on radio frequency tags also ensures that manufacturing lines can build complete engines even if servers and communications networks fail on the plant floor. Efficiencies from RFID-enabled manufacturing make it possible to use assets optimally and improve productivity, while making it easier for Ford to justify expanding RFID use across global manufacturing operations. From Figleaves to Ford, whether you're a start-up or a Fortune 500 company, a silent commerce revolution is under way. By uniting RFID tags and related technology infrastructure to produce intelligent, interactive objects, companies are employing silent commerce to create new value for customers and realize remarkable new operational efficiencies.
“...a silent commerce revolution is under way.”
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What is Silent Commerce?
Silent commerce creates and captures value by deploying intelligent, interactive objects and machines that communicate with one another without human intervention. Today, silent commerce is enabled by technologies ranging from global positioning systems (GPS) to radio frequency identification (RFID). RFID systems, a central silent commerce technology, identify objects with embedded or attached RFID tags, which combine an electronic chip, a radio frequency transponder and an antenna. Strategically placed tag readers (transceivers) retrieve information about objects without direct contact or sight lines by emitting a radio signal to query the RFID tags associated with each object.
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Currently, RFID tags and readers are widely available from various vendors, but the technology is fairly expensive. Today's least expensive RFID tags sell for approximately forty US cents each while the most economical readers cost between $300 and $500. In the near future, by 2006 according to some estimates, simple RFID tags may cost five US cents or less, making them a potential alternative to barcodes, that is, economical for widespread use. In combination with sensors built upon micro-electromechanical systems (MEMs), RFID tags will be able to track and confirm the state of any item as it moves through a value chain. Milk cartons equipped with RFID tags and sensors could offer benefits by communicating, for example, whether the milk is close to its expiration date or has been stored at temperatures that aren’t ideal for freshness.
While eCommerce transforms how people communicate within and across firms, the intelligent interaction enabled by silent commerce between machines, parts, assemblies — or any other item in any value chain — is potentially as revolutionary as the Internet and World Wide Web. This revolution is already taking place with many companies worldwide; they are leveraging proprietary RFID technologies to transform customer interactions or better manage assets. In addition, leading companies are supporting open standards and technology development efforts that promise to carry their industries forward into the next generation of silent commerce.
Leading consumer products manufacturers and retailers, in particular, are looking for the prices of core RFID technologies to drop dramatically. Significant price drops will make it feasible to tag the billions of consumer products produced each year while widespread technology adoption will enable new cross-company applications, driving down costs and increasing responsiveness across the value chain. These farsighted leaders are getting ready to seize the value — and competitive advantage — that silent commerce offers. Given the rapid evolution of new, open-standardsbased RFID systems that will support widespread adoption, it is imperative for every company to prepare for a silent commerce revolution.
“In the near future, by 2006 according to some estimates, simple RFID tags may cost five US cents or less, making them a potential alternative to barcodes, that is, economical for widespread use.”
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Silent Commerce: A Mini Primer
How silent commerce works
Silent commerce is the result of several converging technologies that make it possible for enabled objects to be information-rich, aware and even active in responding to their environment. RFID tags, sensors and micro-electromechanical devices, for example, make it possible for any object or device to be smart and contribute to silent-commerceenabled enterprise value chains. Anti-theft systems in stores use very simple passive tags that communicate with readers at doorways to indicate whether products leaving the store have been purchased.
Sensors and MEMs
Sensors can detect and store information about environments. Sensors and RFID combinations can transmit that information automatically, enabling systems or people to respond appropriately to changing conditions over time. Recent advances in manufacturing and engineering have produced sensors that are more precise, accurate and inexpensive than earlier versions. Technological advances have also given us micro-electromechanical systems (MEMs), a class of tiny sensors and actuator systems with both electrical and mechanical components. If sensors give objects a sense of feel, sight, smell and sound, then actuators call them to act on what they sense. The device that operates the air bag in automobiles is a micro-electromechanical device: an accelerometer (sensor) detects an automobile’s sudden deceleration and the MEMs activate the air bag. MEMs use the same fabrication technology as computer chips but can be adapted to sense and respond to many different physical phenomena.
RFID
RFID tags communicate by radio signals with RFID readers to form wireless networks. RFID tags can be as small as matchsticks, holding as little as a unit of basic identifying information, or as large as bricks, storing vast amounts of data. These tags and readers allow companies to track items as diverse as library books, roving animals and expensive hospital equipment. RFID tags may or may not have their own power source. Active tags have onboard batteries that can power sensors and increase the range at which their signals can be read. A well-known example is the batterypowered commuter transit pass that allows commuters to drive through freeway tollbooths, be billed toll fees automatically, and avoid line-ups that force them to stop and count out change. Passive tags use the power of the reader’s radio signal to process information and send back a response.
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Location-based capabilities
Many silent commerce applications require knowing precisely where an object is so that the object's movement can be tracked or so the object can respond appropriately to its surrounding environment. An object's location can be sensed in several ways, over varying distances. At close range, passive RFID tags can indicate their location by being read as they pass by well-placed RFID readers. Marathon runners, for example, now wear tagged shoes so that race officials can ensure individual runners have passed every station on the course. Active RFID tags can transmit their identity a bit further. Emerging wireless technologies, such as Bluetooth, let smart, RFID-enabled objects know when they're close to another smart object so communications can occur. Bluetooth-enabled vending machines, for example, would allow people to make purchases without fumbling for change. Consumers could walk up to vending machines, make selections and pay for soft drinks with a few quick keystrokes on their mobile phones. At intermediate distances (up to 250 meters), Real Time Locating Systems (RTLS) use an array of readers to triangulate signals from active RFID tags. By knowing the physical position of the readers — and recording when a signal from a particular tag was received by each reader — RTLS can locate individual tags within ten feet.
When distances are relatively large, more technology comes into play. Mobile phones, for example, communicate their identities on cellular networks, allowing them to be located according to the cell they're in, or via their triangulated position among several cells. For objects that move across even more substantial distances, locationtracking can be accomplished using the Global Positioning System (GPS), a worldwide satellite–based radio navigation system, long used by the military, in which radio signals are transmitted from satellites, triangulated by a receiver, and used for positioning and timing. The commercial potential of GPS results from a May 2000 US presidential directive that made the pinpoint accuracy of GPS fully available to companies and consumers alike.
Always-on connectivity
When we log on to the Internet or pick up a telephone, we’re preparing to transmit data for a finite length of time. Now, usage doesn’t have to be so limited. An increasing number of communication protocols, including the Internet itself and new broadband wireless standards such as 2.5G, allow devices to be always on. As a result, large numbers of devices, from mobile phones to MEMs, are continuously aware of their environment, ready to send and receive information whenever needed. All of these technologies, wellestablished or in development, are making it possible for everything to be continuously connected.
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Seizing the value of Silent Commerce
Many private and public sector organizations aren't waiting to seize the value of silent commerce. Many are already using silent commerce to create new value for customers, to improve the efficiency and performance of existing operations, and to transform the supply chain.
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Delighting Customers
As the following examples of ExxonMobil, Shell, Rehoboth Beach, Delaware and the Chicago Marathon demonstrate, silent commerce enables new ways to delight customers by providing real convenience, efficiency and trust.
ExxonMobil
ExxonMobil is one of the world's largest energy companies. In 1996, Mobil Oil introduced Speedpass2, an RFID-based system for payment. Customers subscribe to Speedpass for free and provide a credit card number for making gasoline purchases. In return, they receive a small transponder attached to a key ring3. When a customer swipes the transponder in front of the gas pump, it authorizes the pump to release gasoline and charges the customer's credit card. Speedpass creates a number of conveniences for customers. First, Speedpass gasoline purchases take about fifteen percent less time than credit card purchases. Second, Speedpass purchases are more reliable: magnetic credit card stripes are prone to damage which can make purchasing inconvenient for customers whose damaged cards can’t be read by gas station terminals. Speedpass goes even further, allowing easier checkout at gas station convenience stores and now at McDonalds' outlets in and around Chicago, where — after a successful pilot in 2001 — the company
is currently rolling out the Speedpass system to four hundred stores. For ExxonMobil, there are important benefits. Speedpass subscribers, on average, visit Mobil gas stations one more time each month and spend two to three percent more each month than other customers. The company also notes that incremental revenues from Speedpass easily justify the $15,000 that service station operators must invest to implement Speedpass scanners at their Mobil stations.
of sale and use EasyPass wherever Shell builds the appropriate partnership arrangements. (As an aside, ExxonMobil is also considering a watch transponder and will be conducting a pilot test with Timex in the United States.6)
Rehoboth Beach, Delaware
Silent commerce can also delight customers with relevant information, reducing their uncertainties and increasing their sense of trust and comfort. In transportation, for example, surveys have shown that despite the posting of schedules at bus stops, waiting commuters often feel angst and frustration about when their buses will arrive. Using silent commerce to provide customers with accurate information greatly relieves the traveling public’s anxiety. In Rehoboth Beach, Delaware, the bus company equipped buses running along its scenic beach route with a GPS-enabled unit7 that identifies the location of the bus at any time. Using this information, computers calculate when a given bus will arrive at its next scheduled stop.
Shell4
Shell, another of the world's major energy companies, has introduced EasyPass to bring speed and convenience to its customers in Europe and North America. EasyPass5 also supports existing customer loyalty programs such as AirMiles, which enable customers to earn points with gasoline purchases, deepening customer relationships. What is more, Shell’s innovative thinking has led to a partnership with Swatch, which is embedding EasyPass transponders in their watches, enabling customers to purchase spontaneously at the point
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“Shell has introduced EasyPass to bring speed and convenience to its customers... it also supports existing customer loyalty programs... which enable customers to earn points with gasoline purchases, deepening customer relationships.”
Expected arrival times are then posted on the Internet and on electronic displays at key stops. Now, even though fewer buses are in service and the company has never in its history had more than a three percent annual increase in riders, the newly installed system is being credited with boosting the number of riders by thirteen and a half percent, generating on an annualized basis an additional $75,000 in revenue8. Chicago Marathon’s previous practices, staff guided all runners who successfully crossed the finish line into chutes where race numbers and elapsed times were recorded by officials. When runners completed the race very close to one another, these chutes would sometimes get backed up, making it difficult for officials to record runners’ times accurately (or at all), causing frustration for race participants and staff alike. Enter the ChampionChip, an RFID tag attached to the running shoes of all race participants. With a few readers strategically placed along the route, Chicago Marathon10 staff can now record the precise start, finish and split times of each runner, giving them an accurate account of their performance. What’s more, readers along the route ensure that all runners follow the correct course, dissuading those who might be tempted to cheat. In the Chicago Marathon’s case, silent commerce also had a surprising, unintended benefit: ChampionChip reduces the need for post-race medical services. How? Before ChampionChip, runners who had completed the race sometimes suffered from cramps while they waited in the chutes for official finishing times, an experience that led many to visit medical tents. With the RFID system in place, however, runners don't have to wait in finishing chutes and can begin cooling down immediately, leading fewer runners to experience medical problems after the race and allowing the Chicago Marathon to use its medical resources more efficiently. Another beneficial silent commerce service offered by the Chicago Marathon is MarathonMessenger, an e-mail service that provides its subscribers with information on split and completion times, allowing friends, family and marathon fans who aren't attending to stay abreast of events. It appears to be a popular service: in its first year of use, MarathonMessenger sent sixty thousand updates on runner times to fifteen thousand subscribers. By providing new, meaningful conveniences, silent commerce can delight and surprise customers, delivering increased sales and efficiencies for organizations.
The Chicago Marathon9
The possibilities of silent commerce can inspire unique applications of RFID technologies. At the Chicago Marathon, an event with more than thirty-seven thousand runners in 2002, it used to be difficult to track runners over the race course and provide them with accurate running times. Why? At typical marathons, many thousands of runners stand behind each other at the starting line. When the starter’s pistol signals a race’s beginning, only a few runners cross the starting line in synch with the timekeeper. This means that these few runners, the race leaders, are the only ones who receive accurate split and finishing times. Under the
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Improving Operations
While some applications touch the customer, most silent commerce initiatives occur invisibly within the company, improving operational performance and efficiency.
Figleaves.com11
As a start-up, Figleaves.com had high customer acquisition costs and, as such, couldn’t afford customer dissatisfaction and loss because of incorrect product delivery. Further downstream, it was also businesscritical that Figleaves avoided the high costs of handling returned products. To resolve these challenges, Figleaves implemented an RFID order fulfillment system12. Pickers in a Figleaves warehouse use trolleys equipped with touch-screen computers that map out which items to pick from warehouse shelves, enabling them to fill as many as twenty-four orders at a time. Pickers check off collected items on the touch screens and then place them in slots on one of three totes. Each tote holds up to eight distinct orders in different slots. To ensure
accurate picking and packing, Figleaves tags each of the totes with an RFID tag. Readers scan RFID tags on the trolleys, associating specific orders with each of the eight distinct slots in the tote. To ensure that pickers place the right item(s) in the right slots, readercollected information is automatically transferred to the touch screens. At packing stations, more readers ensure that the right labels are printed for each order in a tote, reducing errors and ensuring that customers get exactly what they've ordered. This enables Figleaves to increase the efficiency of the pickand-pack process and has helped them reduce picking errors to fewer than one in ten thousand.
A major consumer products company
Companies across a wide range of industries are using silent commerce to improve safety and control access, improve asset utilization, boost quality and enable process efficiency, effectiveness and quality. At a major consumer products company, for example, paper placards that identified ingredient containers in the production process sometimes fell into factory feeders and assembly machines, fouling up machinery and large product batches. With each machine creating $40,000 worth of product every hour — and requiring three hours to repair — twelve contamination incidents in 2001 created three to four million dollars in costs from lost capacity — along with the significant investment required for product recalls and recycling. And there were other expensive incidents: incorrect ingredient blends were sometimes mixed during product making, leading to product recalls. When incorrect ingredients were mixed for two hours, for example, recall costs were as high as $250,000.
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“Enhanced, RFID-enabled process control will help avoid costly blending and contamination errors and is expected to save millions of dollars each year.”
Given the losses, the company changed tack, aiming to stop errors and accidents in the first place. To do so, the company invested approximately $600,000, modifying its processes and systems using RFID. Here's how the proactive cost-cutting plan works: RFID tags are attached to all the critical ingredient containers and on key locations on the floor of the factory. The company attached RFID readers to forklifts and filling stations where ingredients were deposited for blending into final products. When forklifts fill containers with a particular ingredient, container tags are initialized with information indicating correct product contents. Forklift operators use touch-screen displays with instructions on which containers to collect and move to particular feeders. Finally, RFID tags on the floor verify that forklifts are moved toward the correct feeder while tag readers verify that containers are filled with the right ingredient. All in all, enhanced, RFIDenabled process control will help this company avoid costly blending and contamination errors and is expected to save millions of dollars each year.
Associated Food Stores (AFS)13
Making objects smart and visible also enables better asset utilization, increased efficiency and asset optimization. Associated Food Stores (AFS), based in Salt Lake City, Utah, is a major wholesale distributor of groceries cooperatively owned by member supermarkets and stores. It operates a one-million-square-foot warehouse and a one-square-mile distribution center that serves more than six hundred supermarkets in an eight-state region in the western United States. AFS uses silent commerce to dramatically improve the use of assets and improve efficiency. In August 2001, as part of its silent commerce initiative, AFS incorporated a Real Time Locating System (RTLS) into its operations. The RTLS includes RFID tags and readers to monitor each of its tractors, trailers and dollies in the yard located at its distribution center. Because AFS manages four to five hundred of these assets per day and organizes thirty-two kinds of trailers
that must be matched to product type and retailer infrastructure (a loading bay may require a trailer with a side door, for example), it's important for company workers to know what they need and where to find it. To enable this real-time asset location, various tags flash status reports to nineteen antennae installed in a grid across the distribution yard every four minutes. Operating in real time, the grid of antennae allows yard managers to know the location of each asset within ten feet at all times, a vast improvement over processes for manual inventories that can take an hour and still yield inaccurate results. In addition to reducing time required for equipment searches, the RTLS enables a location-based status monitoring system: drivers park their vehicles in different areas in the yard depending on whether the equipment is ready for turnaround or needs washing or other maintenance, allowing crews to immediately begin appropriate work on each vehicle. Combined with an automatic
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“Checking incoming shipments manually can take several days. With an RFID system, however, shipping checks can be completed in under an hour, reducing labor requirements by an order of magnitude.”
RFID check-in at the gate, the RTLS has increased yard throughput dramatically, enabling AFS to receive additional benefits from streamline programs (financial incentives given by consumer goods manufacturers to distribution centers that meet stringent goals for just-intime delivery). Having precise information on an item, its location and history of use also helps AFS better optimize its asset use. A separate truck-based system, for example, allows the company to know the exact location of trucks on delivery routes. Over approximately eighteen months, the company has increased asset optimization by reducing the number of drivers from 123 to 83 and tractors from 92 to 62. Trailer utilization has also improved with this new system, but in a different way: even though AFS still needs its entire fleet of trailers for its three peak months during the summer, the company can rely on its primary fleet (twenty percent of the trailers) for the other three-quarters of the year. During the non-peak periods, AFS places its secondary fleet on a backlist with insurance and maintenance contracts based on actual miles driven (zero during off-peak periods), reducing insurance and maintenance costs, saving the company an estimated $22,000 to $30,000 each year. AFS has also encountered other benefits from silent commerce. Spoilage is reduced because sensors in refrigerated trucks notify the central distribution center about temperatures in different food compartments, fuel levels inside refrigeration units, and whether refrigerator doors are open or closed. When any truck sensors indicate any problem, a person can be rapidly dispatched to examine and fix it. Silent commerce also enables the distribution center to recover more efficiently from other problems such as system-wide power outages. Before the RTLS system, it could take an entire week to fully recover from a major power outage. With the RTLS system in place, however, the distribution center recovered from a recent outage in just two days. The wide variety of advantages enabled break-even benefits to accrue to AFS within one year of RFID implementation.
Adam Opel AG
Silent commerce can also improve operations by enabling greater safety and access control. RFID based cards are already widely used to access buildings. Now they're increasingly being used to authenticate users and their privileges for using or modifying equipment on production lines. At Adam Opel AG's Russelsheim factory in Germany, the car manufacturer uses silent commerce for process control, but also as a central element in its safety system14. All employees are equipped with a glass-encased transponder attached to key chains. Transponders authorize different levels of access to control panels and equipment in different parts of the manufacturing process. If a code isn't authorized, access is denied, reducing the possibility for individuals to use equipment unsafely or make operating errors.
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Transforming the Supply Chain
While companies have used silent commerce to delight customers and improve operations within the company, silent commerce shows tremendous promise for transforming the supply chain across organizations. It promises to increase transparency and visibility into the flow of material from suppliers and distributors, improve asset productivity, and reduce waste and delay in the supply chain.
Goldwin Sportswear Europe
Goldwin Sportswear Europe, the European branch of one of the largest branded sportswear companies in Japan, leverages greater supply-chain visibility to track and monitor products from the warehouse to the store to speed up shipments, and reduce shrinkage and distribution into unauthorized geographical areas or "grey markets"15. During garment production, RFID tags are sewn under normal labels and encoded with their unique information including product ID, batch number, color and size. At the distribution center in China, pick lists incorporate the product ID, helping workers correctly choose items for each order, while a final scan of each shipment confirms that all individual orders have been correctly assembled. On arrival in the European distribution center in Italy, shipments are scanned again, verifying that they are correct and complete and that no shrinkage has occurred. Checking incoming shipments manually can take several days. With an RFID system, however, shipping checks can be completed in under an hour, reducing labor requirements by an order of magnitude. Tagging individual garments also allows Goldwin to know which distributors receive particular products and where they're distributing them. The initial RFID pilot quickly identified a distributor that marketed Goldwin products outside its authorized region. This data allowed Goldwin to contact the distributor, make its displeasure known and correct the transgression.
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Marks and Spencer
In contrast to proprietary applications at Goldwin Sportswear Europe, most cross-supply-chain applications operate across entire firms, and require value-chain partners to conform to technology standards and deploy readers inside their companies. Silent commerce promises to improve supply chain visibility while reducing efforts required to take stock of inventory and shipments. The fact that RFID tags are reusable, for example, can make the technology more cost-effective than traditional item-tracking methods. As materials flow from company to company in supply chains, orders must be checked against items delivered while payments and settlement must be reconciled numerous times. Marks and Spencer, a major European retailer with annual sales of more than 4.5 billion Euro, is undergoing an evolutionary shift, migrating from using barcodes to implementing silent commerce and RFIDs so that it can improve control over its food products supply chain16. Marks and Spencer food products are made to specification by suppliers and sold under the company’s brand. Of the 120 million cases of food products delivered to stores, eightyfive million are sold in returnable plastic trays that suppliers deliver to six distribution depots. The trays are carried in interconnectable plastic dollies, paired together at depots and split into singles when they arrive at stores.
Before silent commerce pilot testing, Marks and Spencer required its suppliers to attach a unique barcode to each tray, using specialized software and printers. To track inventory and control materials flow, the trays would then be scanned by readers at important areas in the distribution channel — when they were dispatched by suppliers or arrived at depots, for example. Marks and Spencer has discovered new efficiencies in its silent commerce pilot projects. It saves money on printing labels, reduces labor costs related to attaching and reading labels, and has overcome various barcode-related inefficiencies. Keith Mahoney, logistics controller for the food division, notes that for a retailer with four hundred stores, eight distribution centers and three hundred suppliers with a just-in-time policy, these savings can be significant.
Adding silent-commerce-enabled RFID read/write tags for Marks and Spencer's food products operations, however, is far less than current barcode-related costs. The capital cost for using RFID read/write tags for three million containers, which would be used repeatedly and depreciated over ten years, is about three million euros, in other words just one-tenth of Marks and Spencer's annual costs for the creation of their individual barcode labels. Given these internal estimates — and the success of Marks and Spencer's pilot projects in silent commerce — the company's decision to scale up the use of silent commerce is self-explanatory.
CHEP
CHEP, a provider of reusable pallets and containers, has also run pilot tests of silent commerce in the supply chain. Working with a major supermarket chain in the United Kingdom and chilled ready meals manufacturer linked together by a distribution chain, CHEP estimates that tagging trays led to overall distribution-chain savings of more than fourteen percent, equaling twenty-five percent of the total profit in the value chain. CHEP attributes the majority of these benefits to reduced spoilage and product waste along with higher sales caused by increased on-shelf product availability.
Mahoney estimates that annual fixed costs for their current barcode-related inefficiencies are approximately:
Cost (in Euro): 3,000,000 Required for: 300 million individual barcode labels, using on-site printers and variable data such as best before dates and other relevant information, at ten Euro per thousand Labor to affix labels, at a rate of twenty per minute and eight Euro per hour 300 million individual barcode scans Inventory and accounts payable errors due to defaced or non-readable labels Replacement of damaged labels Total
2,000,000
2,000,000 500,000
250,000 7,750,000
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Delighting Customers
ExxonMobil’s Speedpass
• Gasoline purchases take about 15% less time than credit card purchases • Subscribers visit Mobil gas stations 1 more time each month and spend
2–3% more each month than other customers
Bus Company at Rehoboth Beach, Delaware
• Boosted the number of riders by 13% • Additional annualized revenue of $75,000
Improving Operations
Figleaves.com
• RFID order fulfillment system increased efficiency of the pick-and-pack process • Helped Figleaves reduce picking errors to fewer than 1 in 10,000
Associated Food Stores
• Over 18 months, increased asset optimization by reducing the number
of drivers from 123 to 83 and tractors from 92 to 62
Transforming the Supply Chain
Marks and Spencer
• Capital costs for using RFID read/write tags for 3 million containers is just
1/10
of costs for the retailer’s barcode labels
CHEP
• Tagging trays led to overall distribution-chain savings of 14.1%, equaling
25% of the total profit in the value chain
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Looking into the future
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Looking into the future
Two areas of innovation will drive increased benefits from silent commerce. Contributing factors include the development of a low-cost, openstandards, RFID-based automatic identification (Auto-ID) system, and the coupling of RFIDs with sensors enabled by micro-electromechanical systems (MEMs). A standard Auto-ID system will stimulate further widespread adoption of silent commerce while coupling RFIDs with sensors and other technologies will enable objects to interact more effectively with their environment. Development of these systems is well under way, and RFIDs have already been combined with sensors for selective commercial use.
Low-cost and open-standards-based systems
A low-cost, open-standards, RFID-based Auto-ID system is being developed by the Auto-ID Center, a research collaboration between MIT in Boston, Cambridge University in the United Kingdom, and Adelaide University in Australia, with the support of over forty leading companies across several industries. Initially sponsored by large consumer products companies and retailers, the Center envisions a system that can tag and identify individual items as they're produced and track them through the value chain to the retail store shelf and out the door. This kind of silent commerce system would enable efficiency benefits for individual processes at various points along the value chain, but it would also provide a new level of visibility into product location and movement that would reduce uncertainty across the value chain. This more accurate and timely information would allow companies to become more responsive
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“As sensors and RFID tags are further miniaturized, we expect groundbreaking applications...”
to demand while at the same time reducing safety stocks and attendant inventory carrying costs. The Center is in the process of piloting the technology with the cooperation of several key consumer goods and retail companies, and estimates that widespread adoption could occur as early as 2006. Several hurdles remain to achieving the Auto-ID Center’s vision, and companies considering the benefits of an Auto-ID system should pay attention to efforts being made to overcome these challenges: • Cost — Today, the least expensive RFID tags are about forty US cents each, far above the penny-level cost of barcodes. With improvements in manufacturing technology, currently being demonstrated, and increased scale with widespread adoption, the Center believes that the cost per tag can be brought down to five US cents or less. As the price of RFID tags drops, different applications become economically viable. Highercost tags, for example, are fine for reusable objects (such as shipping
pallets) or high-value items (such as sportswear), but low-cost tags are necessary for applications involving most consumer packaged goods such as laundry detergent or food. • Standards — Today’s RFID technologies are proprietary and, except for systems from a few cooperating vendors, will not work with other vendors’ products. If an RFID-based Auto-ID system is to work across the value chain in many different companies, systems within those companies must be compatible. At one level, this means that tags put on products by manufacturers must be readable by the RFID systems used by logistics providers and retailers. At another level, the data identifying individual items must be standardized so that every company shares a common understanding of what the information means. The Center is addressing both of these issues: it is developing open standard specifications for RFID tags and readers that any vendor can use, and it is working with the Uniform Code Council (UCC) to develop the Electronic Product Code (EPC).
The EPC is similar to the Universal Product Code (UPC) in that it can identify not product categories and types, but contains enough data bits to uniquely identify all individual consumer items produced for the foreseeable future. • Software — Widespread adoption of the Center’s Auto-ID system will produce (by orders of magnitude) more information about product location and movement throughout industry value chains. Managing this information across company boundaries and integrating it with legacy applications will be extremely complex. The Center is working with sponsors to develop an information services infrastructure that will scale efficiently, but individual software vendors will likely need to develop interfaces to link the infrastructure to ERP systems and other business software. New applications to take advantage of the rich Auto-ID data will also need to be developed.
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Intelligent objects
RFID technologies allow objects to communicate automatically with their environment. Combining RFID tags with embedded algorithms or sensors allows objects to interact with a degree of intelligence. As noted earlier in this report, for example, Associated Food Stores uses sensors linked to RFIDs to track the cooling of its refrigerated trucks and signal for human intervention when the temperature gets too high. To date, most of these applications have been used exclusively in high-value commercial situations because they have required sensors to be built alongside customized RFID technologies and have required custom integration of sensor and RF technologies. As these technologies reduce in cost, however, they will become ubiquitous, proliferating to a wide set of commercial applications aimed at consumers.
CookTek17
CookTek, a manufacturer of induction cooking and heated delivery systems, uses RFID technology to make smart pizza delivery bags. An RFID tag embedded in every bag’s heating disk uses a heat and time algorithm to calculate when it should tell a base unit to stop charging the disk. A thermal switch connected to the RFID tag provides an additional fail-safe stop to the timing algorithm. This intelligence has allowed CookTek to replace metallic heating disks with ones made from a new, non-metallic material. The change has made the pizza bags fifty percent lighter, sixty percent quicker to heat, and significantly less expensive — literally better, faster and cheaper.
iGlassware
Consider iGlassware, a project developed by Paul Dietz, a researcher at Mitsubishi Electric Research Labs (MERL) in Cambridge, Massachusetts. This technology provides a very clever way of sensing the level of liquid in a glass and using an attached RFID to communicate information to restaurant staff so that they know when a glass is almost empty and requires a refill of water, wine or any other beverage. Given the potential sales lift and the fact that beverages are high-margin restaurant items, beverage manufacturers and vendors have already expressed an interest in the technology. As sensors and RFID tags are further miniaturized, we expect groundbreaking applications — in security, healthcare and entertainment, for example — that promise to improve interactions between consumers, machines and their business, leisure and social environments.
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Where should companies begin?
Silent commerce and RFID technologies have been proven in commercial settings. The technology is advancing rapidly to make very inexpensive RFID tags and electronic product codes (EPC) a reality. Just as data networks and the Internet connected internal business applications, companies, and consumers to create the eCommerce ecosystem, falling costs and emerging standards for RFID tags and EPCs will enable greater connectivity and applications that extend this ecosystem to physical objects.
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We suggest the following threestep process:
Figure 1 below, maps the examples cited in this report onto an opportunity curve based on connectivity and potential value, but the real picture is not quite so static: the McDonalds’ pilot of ExxonMobil’s Speedpass, for example, is clearly a move toward creating a wider RFID payment network. Many of the other companies are likewise looking to capture additional value by extending the reach and capabilities of their current RFID applications. Current value opportunities and the rapidly developing infrastructure for widespread adoption make it imperative for executives to assess the potential benefits their companies can achieve through silent commerce right now and to prepare for the next stage of the silent commerce revolution.
1:
Value targeting
The first step is to identify opportunities for realizing value from silent commerce in your company and industry through a value-targeting exercise. The sidebar, which includes Table 1 on page 26, provides a framework developed by Accenture that helps identify silent commerce opportunities in the value chain from a consumer goods manufacturer to retailer. This framework can be adapted to other industries to categorize and identify the most promising types of potential applications and benefits from RFID tags and emerging EPC technologies. For specific applications, it's important to develop a more detailed cost-benefit analysis and business case. In retail, for example, these may include applications to reduce shrinkage, monitor counterfeiting, and accurately track stock to reduce stock levels and improve the effectiveness of merchandising strategies and promotions. Effective value targeting requires detailed data-driven analyses that generate clear hypotheses about how companies can realize value from specific applications.
•
CHEP
Value of Application
Chicago Marathon • CookTek • iGlassware • Opel
•
• • • •
AFS Figleaves.com Ford Rehoboth Beach
ExxonMobil Goldwin • Marks and Spencer • Shell
• •
Stand Alone
Single Organization
Single Value Chains
Multiple Value Chains
Figure 1
Degree of Connectivity
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2: 3:
Building pilots
The second step toward the deployment of systems is to build a pilot application to test and refine hypotheses about benefits, costs and work processes after implementation. As managers at CHEP and Marks and Spencer note, pilot applications provide vital, realistic assessments of any given application's potential benefits along with key process changes required for implementation. A number of companies are already undertaking pilot implementations before low-cost RFID and EPC tags and readers are available so they can explore how the technology will improve processes and identify requirements for integrating silent commerce technologies with legacy applications and processes. Pilots are critical for learning how to effectively realize value from silent commerce. When conducted early, pilots offer companies insight into issues such as categories most frequently out-of-stock or ways of improving specific operations and processes. This learning, which occurs before full-scale deployment, allows companies to refine business cases for specific applications, select the most productive applications, and lower overall implementation costs.
Scaling to grow the benefits
If pilot tests show great promise, the third step is to scale the deployment of the application across the company and, if appropriate, with key buyers or suppliers. As illustrated by many of the examples in this report, we expect companies will initially roll out proprietary applications to delight the customer or improve operations. As the costs of deploying silent commerce solutions fall, companies will implement industry-wide applications. We believe that most of these supply-chain initiatives will be implemented two years from now, as technical and business uncertainties surrounding widespread deployment of silent commerce technologies are resolved. To prepare for this supply-chain revolution, companies should develop pilots, participate in forums that develop industry-wide standards, and develop architectures that can easily take advantage of technological innovation. As we have noted, leading companies are already undertaking silent commerce initiatives, moving their enterprises closer to implementation and the resulting first-mover advantages.
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Table 1 Function/Activity Potential Benefits Reader Requirement Tags P C I
Cross-Supply Chain Demand planning Reduced or eliminated out-of-stocks Decreased order lead time Automated planning tied to consumer purchases Increased inventory turns Decreased safety stock Reduced sale of counterfeit products Increased compliance w/distribution contracts Increased product quality Decreased unauthorized access to facilities Decreased chances for product tampering F,S,M l m
Item/batch/lot tracking Security
F,S,M
l
Manufacturing Procurement & materials storage Production Reduced order lead time Increased raw material availability Higher capacity utilization Higher capacity utilization Reduced order cycle time Increased quality S,M m m
S
s
l
An Accenture team analyzed the opportunities for using silent commerce in the consumer goods value chain. The opposite table categorizes different application areas and the types of benefits companies can expect. The table also illustrates the different level of tagging required to implement value-creating applications. Cases generally require nearly 40 times the number of tags required of pallets, and item-level tagging generally requires 40 times the number of tags required of cases. The opposite table can be adapted for use in nearly every industry and be used to identify potential silent commerce applications and conduct a focused value-targeting exercise.
Warehousing Receiving Order selection Exception product location Loss prevention Transportation Asset management Increased productivity of assets Reduced loss of assets Pricing based on actual use of assets Increased productivity of assets Increased visibility of drop shipments Decreased exceptions management Increased customer satisfaction Dynamic routing F,S l l Decreased unloading times Increased accuracy of accepted shipments Increased accuracy of orders Increased order fill rate Fewer misplaced items Decreased time to locate specific items Reduced shrink F S,M M F,S,M s s s l l l s s s
m s
Yard management Contract compliance Routing Store operations Receiving Store planning & planogramming Exception merchandise Loss prevention Checkout
F,S F,S S
m m m m m m
Decreased unloading times Increased accuracy of accepted shipments Increased margin Increased goods on shelf Reduced theft Increased accuracy of checkout Increased productivity of checkers Reduction in numbers of checkers (w/self checkout) Increased accuracy of returns acceptance Increased accuracy of refund amounts More efficient disposal Increased warranty compliance Faster warranty and repairs processing
F M F,M F,M S
s
l s l
m l l l
Returns & reverse logistics Post-sales service
F,S
l
F
l
Reader Requirements F–Few (e.g., at doors) S–Some (e.g., at workstations) M–Many (e.g., on shelves) Level P–Pallet C–Case I–Item
Tags Marginal Benefits s–Small m–Medium l–Large
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Conclusion
The silent commerce revolution is already under way. Its applications and impact promise to expand dramatically as RFID and sensor technologies become standards-based and drop in price. Executives should act immediately to gain the competitive advantages silent commerce offers. In addition, they should begin value-targeting, developing business cases and deploying pilots to help their companies determine the most effective ways to leverage these rapidly-maturing technologies.
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References
1
Sharp, Kevin. "Lessons From the Front." Technology Edge, May 1999. http://www.idsystems.com/reader/1999_05/less0599.htm Hammond, Keith. "Pay as you go." Fast Company Online, November 2001. http://www.fastcompany.com/online/52/speedpass.html Krakow, Gary. "Credit on your key ring." MSNBC Home Page, July 17 2001. http://www.msnbc.com/news/600159.asp Interview with J. R. Bibb, Innovation Advisor, Shell on May 1, 2002.
2
3
4 5
Shell Press Release, February 26, 2001. "Shell first to launch fast, simple and convenient cardless payment technology at the pumps." http://www.shell.ca/code/library/news/2001/01nr_feb26_cardless.html ExxonMobil Press Release, February 27, 2002. "Just released in test, Timex watch first ever to feature revolutionary Speedpass system." http://www2.exxonmobil.com/Corporate/Newsroom/Newsreleases/xom_nr_270202.asp Nextbus Press Release, December 27, 2001. "Beach bus shows a 13.5% increase in ridership after installation of Nextbus system." http://www.nextbus.com/corporate/press/releases.htm#beachBusIncrease
8 9 10 7 6
Interview with Bill Hickox, Operations Director, Delaware Department of Transportation on May 22, 2001. Interview with Elizabeth Stapleton, Information Technology Director, Chicago Marathon on April 9, 2002. Marousis, Kostas. "2001 LaSalle Bank Chicago Marathon: Mobility Solutions." http://www.diamondcluster.com/Work/cases/case23.asp Interview with Daniel Nabarro, Chairman and Founder, Figleaves.com on April 12, 2002. "Software…., Hardware…., Underwear…., Everywhere….!." Microlise Case Study. http://www.microlise.com/logistics/case/figleaves.htm Interview with Tim Van de Merwe, Logistics Controller, Associated Food Stores on April 19, 2002. Texas Instruments Press Release, March 27, 2002. "Opel enhances smart production safety." http://www.ti.com/tiris/docs/news/news_releases/rel3-27-02.htm
11 12
13 14
Texas Instruments Press Release, March 20, 2001. "TI's RFID Smart Labels Track Leading Brand Sportswear Through Production, Shipping, and Distribution - and Reduce Shrinkage and 'Grey' Importing." http://www.ti.com/tiris/docs/news/news_releases/rel3-20-01.htm Mahoney, Keith. "Opportunities for RFID in the supply chain — A Marks and Spencer case study." Intellident Ltd Case Study, April 2002. http://www.intellident.co.uk/Solutions/SupplyChainDistribution/MSRollOut/
17 16
15
Interview with Patricia Cleary, Director of Marketing, CookTek on April 17, 2002.
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