INDUSTRY REACTS TO AUTO-ID REPORTS

MICHAEL GARRY

NEW YORK -- Reaction of industry representatives to two studies released earlier this month on the financial benefits of Auto-ID technology ranges from cautious to buoyant.

One of the studies, which were released publicly on Sept. 4 by PricewaterhouseCoopers Consulting here, said retailers who apply Massachusetts Institute of Technology-developed product-ID technology to reduce out-of-stocks on their shelves stand to reap $98,000 per store annually.

In the two studies, PwC Consulting developed hypothetical business cases that estimate for the first time the potential financial gains and costs of the technology if implemented by retailers and consumer goods manufacturers. The papers were published in conjunction with the Auto-ID Center, the three-year-old, nonprofit group based at MIT, Cambridge, Mass., that developed the technology.

Wal-Mart, a participant in field tests of the technology as well as a sponsor of the Auto-ID Center, is taking a "conservative view" of the new studies, said Bill Wertz, a spokesman for the Bentonville, Ark.-based retail giant. "The technology is very promising and we want to be up to speed, but time will tell whether the costs and benefits [in the studies] pan out," he said.

Joy Nicholas of the Food Marketing Institute, while saying she couldn't "validate" the cost/benefit numbers presented in the PwC reports, observed that the numbers "didn't shock me based on the knowledge we have" about Auto-ID technology. Nicholas, vice president of research and emerging technologies for Washington-based FMI, is co-chairman of the EPC Alliance, a consortium of industry associations serving an educational and communications role.

Pamela Stegeman, vice president of industry affairs, Grocery Manufacturers of America, Washington, and the other co-chairman of the EPC Alliance, said the savings estimates made by PWC "are very reasonable and, in combination with savings from other parts of the supply chain, will justify the technology costs for most businesses." In fact, she added, "the savings estimated are just a fraction of the potential savings we could see in the overall supply chain."

Auto-ID has been touted as a revolutionary technology that, by tying product identification and tracking to the Internet, could one day replace the bar code and radically streamline the supply chain.

The two white papers can be viewed at no charge on www.pwcconsulting.com and on www.autoidcenter.org.

The $98,000-per-store benefit noted in the store study, titled "Focus on Retail: Applying Auto-ID to Improve Product Availability at the Retail Shelf," is based on an application of EPC (electronic product code) tags to cases of products with an average price per item of $1.75. The benefits consist of increases in gross margin attributed to better product availability, as well as reductions in labor.

EPC tags, comprised of a microchip and radio-frequency antenna, can also be applied to pallets, and ultimately, to individual products. The financial benefit of case and pallet tagging is far less than that of item tags. However, the implementation of pallet and case tagging would be much less costly than that of item tagging, which would involve many more tags.

The retail study cited an individual-store cost of $465,000 ($62,000 amortized across 800 stores) based on expected 2003 prices for the Auto-ID technology at the case level. The study assumes that tag costs, which constitute the biggest chunk of the investment, will be typically born by manufacturers.

The other study, titled "Focus on the Supply Chain: Applying Auto-ID within the Distribution Center," reports that retailers stand to reap annual savings in the range of $4 million at the pallet level and $23 million at the case level across five DCs.

The benefits at the DC were generated by reductions in labor, claims/returns, theft and inventory. A one-time reduction in transportation costs accrued at the case and item level. The study put the estimated cost of the technology in 2003 for one retail DC at $1.3 million.

Auto-ID technology will not become commercially available until October 2003, at the joint industry symposium, said an Auto-ID Center spokesman. Retailers or manufacturers interested in testing Auto-ID technology before then would need to join the Auto-ID Center as a sponsor, at a cost of $300,000, the spokesman said. The symposium is scheduled for Oct. 8-10, 2003, in Chicago.

FMI's Nicholas said that retailers will have to evaluate the reports' numbers individually. "We hope retailers read the reports and that the reports serve as a trigger for retailers to find out more," she said. "Retailers need to pay attention to the possibilities."