The Need for Total Asset Visibility
Sep 06, 2004
Today's supply chain limitations
Across the world, most supply chains have significant inefficiencies and evidence of mismanagement. That is not to say that it is always caused by negligence on the part of the logistics providers, but rather that in many cases we are hitting the limitations of today's standard practices and technologies.
To take one example, a major automobile manufacturer conveys chassis from one supplier to its plants using expensive engine cradle racks. The company is constantly running out of racks and has no idea where they are. The company also suspects that the rail company that transports the racks is running inefficiently but it has no evidence to confirm this. In another example, Chep lost 15 million of its 200 million pallets in 2002 alone. When a fire at a Philips semiconductor plant ruined the supply of microchips for cellphones in 2000, one manufacturer of phones reportedly lost over $400 million in revenue by realising too late and failing to take timely, informed action.
Examples of supply chain failings
The following are further examples of the inefficient and dangerously insecure situation of many of the world's supply chains and the malign effects which reach deep into society.
- According to the World Health Organisation WHO, 32 million children under five years of age die of food poisoning related illnesses each year. Supply chains are a major cause of this.
- In the developed world, food poisoning is on the increase partly driven by eating out and mismanagement of convenience foods. Already 20 per cent of meals are eaten in cars in the USA. CDC of Atlanta estimates there are 80 million food borne infections and 5,000 deaths yearly from food poisoning in the US alone. Cost to the US health care system is up to $6 billion yearly.
- According to MIT, 75 per cent of the cost of a retail product is getting it there.
- IBM report $50billion in overstocking in retail supply.
- Up to 20 per cent of perishable foods are discarded due to spoilage through the supply chain according to the US Food and Drug Administration.
- Stockouts at retailers, where, for example, the customer leaves empty handed because the retailer cannot find the correct size of apparel in time, are typically 6 per cent of sales. That means major loss of profit and unhappy customers. According to Steve David, chief information officer of Procter & Gamble, one third of stockouts at retail involve products available in the retailer's distribution centre.
- The global logistics system is at times negligent and wasteful. Delicate products are tilted or dropped when they should not be. Vaccines, blood and ice-cream are overheated without knowledge of the end user, retailer or other interested parties. Lives are lost and costs escalate.
- Today's packaging lets in air or moisture when it should not and often the sinister result is unanticipated because no one knows it has happened.
- With medical consumables and tools, it is often unclear whether they have been adequately sterilised and whether they remain safe. Unsafe reuse of disposable items occurs without record or remedy.
- Traffic congestion is now at chronic levels in most advanced countries. There is only limited scope for building new roads yet the number of vehicles is doubling in the next twenty years and they will be powered largely by fuel from a small number of unstable countries. Few notice that at least 50 per cent of trucks on these roads are totally or partially empty, or are returning with expired or unwanted product.
- Grey markets, otherwise known as product diversion are rampant and they cost suppliers money. Where smuggling is involved, they cost governments lost taxes as well. Diverted goods may cripple sales channels having to provide after sales service to products they did not sell. Diverted goods may be dangerous or illegal to use at their destination due to different voltages, radiation or other regulations. The pharmaceuticals industry has a massive problem now that its tiny products are given away in parts of Africa but command a high price elsewhere. Already, large numbers are being illegally resold in Europe.
- The global Fast Moving Consumer Goods FMCG industry ships about three trillion dollars of products yearly, of which Europe ships about $820 billion. Of the global figure, shrinkage takes about $60 billion yearly, the figure for Europe being $18 billion according to industry initiative Efficient Consumer Response ECR Europe. Shrinkage is loss of product before it reaches the customer. It is caused by staff or customer theft, damage, expiry and product mislaid. In the US, staff theft and third party theft before display at the retailer now exceeds theft by customers.
- A GAO study has determined that the direct and indirect costs of cargo theft total between $20 and $60 billion every year. This figure includes the cost of filing, investigating and paying claims but does not include all law enforcement and security technology expenses. In addition to the value of stolen goods, costs are passed along to the consumer and taxpayer in the form of increased insurance premiums and supplementary law enforcement.
The promise of Total Asset Visibility (TAV)
The prudent use of RFID technologies and systems offer hope of improving these supply chain failings. Even today the most forward thinking companies are seeing huge benefits as they upgrade their operations to include these emerging tools. To quote Kevin Ashton, the founder of the Auto-ID Center, which was set up in 1999 to kick-start the use of RFID technologies particular in retail supply chains: "We shall switch the lights on!"