The Indian auto component industry expects to grow by over four-fold to US$

113 billion by 2020, said Automotive Component Manufacturers' Association

(ACMA).

The total passenger car production in the country will jump four times to reach
9 million cars in the next ten years, the industry body said in its forecast report.
Although a major chunk of this will come from the fast growing domestic
market, exports are likely to form around 35 per cent of the total market by
2020.

"India would be among the top-five vehicle producing countries in the world by
2020," said Vinnie Mehta, Executive Director, ACMA.

As per a report by ACMA, the turnover of the auto component industry is being
estimated at around US$ 26 billion in 2010-11, up 18 per cent from US$ 22
billion in 2009-10. The report states that 40 per cent of the auto component
industry was dominated by body and structural products in 2009, 20 per cent
by engines and exhaust, and 10 per cent each by suspension and braking
parts, transmission and steering parts, electronics a d electrical and interiors.
By 2015, body and structural will account for 35 per cent of the auto
component industry, engines and exhaust 20 per cent, suspension and braking
parts, transmission and steering parts and electronics and electrical will
account for 13 per cent each and interiors 9 per cent.

The potential compounded annual growth rate (CAGR) of the auto component
industry is likely to be around 18 per cent in the period 2010-11. Exports from
the auto component industry are estimated to be worth US$ 5 billion in 2010-
11, according to the ACMA report.

Europe is likely to account for 36.9 per cent of India's auto components exports
in 2010-11, followed by Asia with 28.1 per cent and North America with 24 per
cent. The industry has witnessed a shift in the composition of exports over the
years. Investments in the auto component industry are estimated at US$ 12
billion in 2010-11, according to ACMA.

Destination India

India is turning out to be an attractive destination as a global outsourcing hub

and manufacturing base for original equipment manufacturers (OEMs),
especially after the global economic downturn.

With the finalisation of the Automotive Mission Plan (AMP) India is expected to
become a preferred destination for design and manufacture of automobile. The
plan envisaged an investment of US$ 40 billion and provided a road map to
help transform India into a global automobile player. The AMP proposed a 25-
point plan that included making India a manufacturing and export hub for small
cars, multiutility vehicles, two and three-wheelers, tractors and components.

Investments

Auto component maker, Ashok Minda Group has completed the acquisition of
specialist composite moulding manufacturer Aksys Koengen of Germany. After
the acquisition, Aksys has been renamed Minda Schenk Plastic Solutions
GmbH, Plant Koengen. The plant is a major supplier of components to Daimler,
VW Group, Renault, PSA and GM.

Motherson Sumi Systems Ltd (MSSL) would invest US$ 86.38 million-US$ 108
million this fiscal on capacity expansion and new plants. Out of the total, US$
64.78 million will be invested in India.
JK Tyre & Industries Ltd has signed a memorandum of understanding (MoU)
with the Government of Tamil Nadu for setting up US$ 325.74 million greenfield
facility at Sriperumbudur. The facility would generate US$ 43.43 million every
year for the exchequer and create 1,000 skilled jobs, said Raghupati Singhania,
Vice Chairman and Managing Director of the company.

Toyota Kirloskar Motor (TKM) will invest US$ 107 million to make engines and
gearboxes for Toyota's new small car, Etios, which is expected to be launched
by year-end. TKM subsidiary, Toyota Kirloskar Auto Parts (TKAP), would set up
the plant with an annual capacity to produce 52,000 engines and 170,000
gearboxes, which would also be exported to Thailand and Argentina.

Australian auto component firm, MtM is exploring the possibility of setting up a

manufacturing facility in India to meet the growing demand for automatic
transmissions. The company recently started supplying automatic gear boxes
for the Mahindra Scorpio SUVs to be exported to the US.

Finnish firm KWH Mirka Ltd, maker of abrasives used in automotive sector and
for other industrial applications, has announced the setup of a fully-owned
subsidiary in India. With a base in New Delhi, the company has already tied up
with 10 distributors and appointed 100 distributors across the country. It has
also obtained approval from several automotive OEMs such as Maruti Suzuki,
Honda, Toyota, Nissan, Mahindra & Mahindra and Swaraj Mazda.

Rieter Nittoku Automotive Sound Proof Products India Pvt Ltd, a joint venture
(JV) between Rieter Group of Switzerland (51 per cent holding) and Nihon
Tokushu Toryo Co Ltd of Japan (49 per cent holding), has invested US$ 15
million in a new facility at Oragadam, near Chennai.

Germany-based auto parts maker, Continental Automotive has shortlisted India

as one of its key growth drivers and is looking at setting up a plant in India to
manufacture complete diesel injection systems and another one for making
sensors for air bags.

German auto component major and industry technology provider Bosch Group
has made an upward revision in its Indian investment programme for 2010-
2012 on the back of booming domestic auto market. VK Viswanathan,
President,Bosch India said the group had decided to increase its investment
quantum to US$ 517.5 million from the proposed US$ 450 million. The group
will utilise this investment for its six separate entities in India.

Policy Initiatives

The Government has taken many initiatives to promote foreign direct

investment (FDI) in the industry:

Automatic approval for foreign equity investment up to 100 per cent of

 manufacture of automobiles and components is permitted
The automobile industry is delicensed
Import of components is freely allowed
The Ministry of Heavy Industries and Public Enterprises has envisaged the
Automotive Mission Plan 2006-2016 to promote growth in the sector. It targets
to:

Increase turnover to US$ 122 billion–US$ 159 billion by 2016 from US$ 34
billion in 2006
Increase export revenue to US$ 35 billion by 2016
Provide employment to additional 25 million people by 2016

The Basics
Radio Frequency Identification (RFID) refers to devices attached to
objects that store data and are able to transmit that data to an RFID
receiver. These devices can be large pieces of hardware the size of a
small book, such as those attached to ocean containers, or they can be
very small devices inserted into a label on a package (commonly known
as smart labels).

A little RFID vocabulary:

Active tags are RFID tags that contain their own power source
(battery) and have longer read ranges.
Passive tags are powered by the signal generated from the
reader device.
Read/write tags can have their data changed.
Read only tags are programmed once and their data cannot be
changed.
EPC (electronic product code) is a set of standards designed
to utilize RFID technology for the tracking of individual items, as
well as cases and pallets. EPC is similar to UPC used for bar code
tracking of consumer goods.
GTAG (global tag) is an international RFID standard that can be
used for general asset tracking.
RFID Reader, also known as an interrogator, is a device that
reads RFID tags.
Smartlabels are labels with integrated RFID chips. The idea is
that you would continue to produce labels (probably with bar
codes) as you currently do, but you would also be programming
the RFID chip embedded in the label. This would provide all
current functionality (human and machine readable text and bar
codes) as well as adding RFID functionality.
Slap-and-ship describes an approach to complying with
customer requirements for physical identification of shipped
 goods. Most recently, slap-an-ship has been used to describe
complying with RFID requirements (such as those from Wal-Mart),
however, it is also applicable to any compliance labeling
requirement (such as compliance bar code labels). Slap-and-ship
implies you are meeting the customer's requirement by applying
the bar code labels or RFID tags, but are not utilizing the
technology internally.

Comparisons to Bar Codes.

It’s difficult to describe the potential applications (and misapplications)
for RFID without using bar codes as a point of comparison. So here goes:
Advantages.
RFID technology does not require line-of-sight reading. Unlike a
bar code, an RFID tag can be read through other materials (though some
materials may cause problems). Theoretically, this means that you could
take a pallet of mixed products, all of which contain individual RFID tags,
and have an RFID reader read all the tags within the palletized load
without having to physically move any of the materials or open any
cases.
RFID tags can hold more data than bar codes. The operative word
here is “can”. As the data storage capacity of RFID tags increase, so does
the cost of the tags. Therefore, you will likely find that many RFID tags
will not hold any more data than a bar code.
RFID tag data can be changed or added to as a tag passes
through specific operations. Once again, cost comes into play here,
as read-only tags are much less expensive than read/write tags.
Therefore, you will likely see limited use of this functionality.
RFID tags are more effective in harsh environments where bar
code labels have problems. RFID tags can be sealed within a plastic
enclosure eliminating many of the problems that plague bar codes in
harsh environments where they are exposed to chemicals, heat,
abrasion, dirt and grease buildup, etc.
A large number of RFID tags can be read almost instantaneously.
This brings us back to the palletized load scenario where the load
contains a large quantity of products, each with its own RFID tag. Though
it may seem as though the tags are all read at once, they are actually
read sequentially (one at a time), however, this happens so fast that it is
virtually imperceptible.

Disadvantages.
Cost, Cost, Cost. This is the biggest hurdle to RFID tags replacing bar
codes for item-level tracking of low-cost products. You can produce a bar
code on an item for less than 1 cent, yet the most optimistic proponents
of RFID are still “hoping” for 5 or 10-cent RFID tags sometime in the
future (this may be years away). And even if we get 5-cent tags, that is
still a significant cost to add to the manufactured cost of low-cost
consumer goods. And even with higher-cost products, or case and pallet
level tracking, the benefits of RFID must be greater than this additional
cost.
RFID signals may have problems with some materials. Metals and
liquids can cause problems when trying to read RFID tags. Tag placement
is becoming a science in and of itself since — depending on the product
— even a case-level RFID tag may have to be placed in a specific
location on the case and cases stacked in a specific orientation to get a
consistent read. When you get back to the mixed-pallet scenario, it is
unclear whether or not you can be assured that you have read all the
tags on the pallet.
Though RFID does not require of line-of-sight, it is also not
restricted by it. With the proper bar code equipment, I can selectively
read a single bar coded case on a shelf more than ten feet away. I can’t
do that with RFID since an RFID reader will read all tags within its range.
Even though you can get directional RFID readers, they are still not as
selective as a visual device (bar code scanner). There are still many
warehouse applications that require this line-of-site capability.
RFID tags can fail. Yes I know, bar code labels can fail as well. The
unique issue with RFID failure is the automated nature of RFID optimized
processes. If you have a pallet of materials with RFID tags and one of the
RFID tags is damaged, how will you know that you did not read all the
tags. And, what happened to your system data when this occurred.
RFID programming speed. The smartlabel scenario (using labels with
integrated RFID chips) seems to be the most likely one for mass
utilization of RFID for case and unit tracking of inventory. Unfortunately,
it takes more time to print, program, and verify an RFID enabled label
than to simply print a bar code label. In addition, RFID smartlabels seem
to have some serious quality problems. I have been hearing of average
failure rates (inability to properly program and read the tag) of anywhere
from 10% to 30%. For automated print-and-apply applications, this could
be a serious problem.
RFID standards are still being developed. You don’t want to invest
in an RFID system that is based on soon-to-be obsolete specs. Most RFID
systems currently in place are based upon proprietary technology where
the readers are designed to only read RFID tags from a specific
manufacturer. When compared to bar code technology, where standards
have been in place for decades, most bar code scanners are designed to
read all standard bar code symbologies.
General advice:
As a general recommendation, RFID is not yet practical for most
businesses looking to automate their inventory related transactions
(though it does work for other applications such as with returnable
containers and asset tracking). Despite the hype over RFID, bar codes
are not becoming obsolete and are still very effective at quickly and
accurately identifying products, locations, and documents. Unless you
have an application where bar codes simply don’t work, or where RFID
offers a significant advantage over bar codes, use bar codes. Duh! Even
if you have an application that cries out for RFID, you may want to
consider waiting (if possible) as the cost of the technology comes down.
In the next few years, standards will be finalized, hardware prices will
drop, software will become more readily available, and, more
importantly, the bugs will be worked out of these systems. Let the Wal--
Marts and other big companies pay the initial development costs and
bear the brunt of the pain related to early adoption.
More information on utilizing RFID for inventory tracking is available at
http://accuracybook.com/RFIDUpdate.htm

Return to Top
What is EPC and why is it so important?
EPC (electronic product code) is an emerging RFID standard developed
by the AutoID center. It is the RFID version of the UPC barcode standard
(you know, that bar code on just about everything you buy). Like UPC,
EPC is intended to be used for specific product identification as well as
case and pallet identification. However, EPC goes beyond UPC by not
only identifying the product as an SKU, but also providing access to
additional data (via the EPC Network) about the origin and history of the
specific units. The EPC tag itself identifies the manufacturer, product,
version, and serial number. It's the serial number that takes EPC to the
next level by providing the key to data related to specific
lots/batches/units. It potentially allows you to track the specific unit's
history as it moves through the supply chain. This unit-level data is
stored somewhere else (the internet or other network) but a standardized
architecture allows you to access the data much like you would access a
web page (though this would be happening automatically behind the
scenes). This architecture is known as the EPC Network.
EPC has become increasingly important because it is the standard being
utilized by Wal-Mart and the Department of Defense in their upcoming
RFID mandates. Well, sort of. In reality, Wal-Mart and the DOD will likely
modify the standard to suit their needs.

EPC myths and misconceptions.

Misconception #1, EPC is strictly an RFID standard. Granted, RFID
is part of EPC, but there is a lot more to EPC when you look under the
hood. Most notably is the EPC network, which is where all the data
related to EPC will exist. This is a significant change in item-based data
management and should not be taken lightly.
Misconception #2, the use of RFID for EPC tags will allow them
to hold more data than bar codes. This is simply not true. RFID tags
could hold more data than a bar code, but under the EPC standard, they
will not. The data in the EPC RFID tag simply acts as an address to the
rest of the data and works similarly to the way a URL provides access to
a web page. The EPC network essentially takes the concept of the
internet and applies it to inventory data. When an RFID reader reads a
tag, it will pass this address to your software which can then access the
additional data residing on servers that could exist anywhere in the
world.
So what kind of data will exist on the EPC network? Just about anything
related to the item or container. For example, detailed item information
such as description, ingredients, size, weight, cost; manufacturing
information about the specific lot such as when and where it was
produced and expiration dates; and distribution information about where
it has been including addresses, dates and times. The data could be as
detailed as including environmental factors such as temperatures during
manufacturing or storage. This data flexibility is accomplished through
the use of a new computer language called Physical Markup Language
(PML) which is essentially a variation of the more commonly known
Extensible Markup Language (XML).
This finally brings me to Misconception #3, whereby data in the tags
will be changed as they pass through the supply chain. Once
again, RFID technology is capable of this functionality, but the EPC
standard is not utilizing it. Data will only be written to the tag once under
the EPC standard. Any changes in status or other update information will
be written to the EPC network, not the tag.
I should mention that I am not criticizing the EPC standard for not fully
utilizing the capabilities of RFID. These were conscious decisions made in
an effort to keep costs down.
So is there value in knowing that a specific item on your shelf was stored
in a warehouse in Chicago for two weeks prior to being shipped to you? It
could easily be argued that most of the physical tracking aspects of EPC
are only necessary because the processes are flawed. Lean philosophy
would strongly push towards fixing the process rather than adding more
to it. Since I occasionally find myself on the other side of this argument,
I’ll refrain from pushing this point too far.
I guess what I’m really trying to say here is that EPC consists of several
technologies that are being packaged together into a larger solution that
addresses a variety of issues. I could suggest that if the functionality you
were most interested in was related to accessing the data on the EPC
network, you could scan a bar code rather than an RFID tag and the EPC
network would not know the difference. Alternately, if you were looking
for the productivity advantages of RFID technology for receipt and
tracking of materials through your enterprise, you could use RFID tags to
facilitate automated data collection using your current UPC-based
databases and EDI technology. I’ll admit these alternate solutions do not
provide the complete functionality of the EPC solution, but maybe you
don’t need all that functionality.
Misconception #3, the use of RFID for EPC tags will allow them
be more durable than bar codes. Probably not. While more expensive
RFID tags encased in a plastic shell are more durable than bar codes in
harsh environments, the lower cost unprotected RFID circuits glued to a
paper label that are more likely to be used do not share these durability
characteristics. My guess is that these tags will prove be less durable
than bar codes in many applications.

Though the EPC standard (like all standards) is very specific, recent hype
has confused the issue and left many believing the terms RFID and EPC
can be used synonymously. EPC has a lot of extra stuff in it and it’s
important for decision-makers to understand what all this other stuff is
and whether or not it will benefit their industry or just be more stuff. In
addition, RFID has capabilities beyond the RFID capabilities of EPC, and
you can expect to see many RFID applications in the future that have
nothing to do with EPC.
Return to Top
The Wal-Mart Mandate.
Wal-Mart is planning on implementing an RFID-based pallet and case-
level tracking system by 2005. They are starting by requiring their top
100 suppliers to start supplying products with RFID tags on cases and
pallets. Because of the enormity of Wal-Mart's supply chain, this
implementation is having a significant impact on RFID and it's
transference from an "emerging technology" to a more mainstream
technology. What that means to the rest of us is unclear, but will likely
result in lower cost RFID tags, more readily available RFID equipment,
acceptance of RFID standards, and resolutions of integration and
operational issues related to the technology. Though this announcement
is only related to pallet and case tracking, this is still a significant step.
And though Wal-Mart is utilizing the EPC standard, it looks like they are
creating their own version of EPC. No doubt, the Wal-Mart version of EPC
will have a significant impact on changing the existing EPC standard.
Probably the most significant anxiety related to EPC is being felt by those
suppliers that may be required to implement the technology (as in the
WalMart mandate). Their biggest concern is obviously related to cost and
resource requirements to implement the technologies. Once again, it’s
important to understand the entire scope of EPC as well as determine the
level of compliance that will be required. I think it’s easiest to break the
technology into several categories: the physical EPC tags, technology to
initialize the EPC tags, technology to utilize the EPC tags, and technology
related to the EPC network.
The cost of the physical EPC tags could range from a negligible cost at
the pallet level to a potentially devastating cost at the unit level
depending on the type of product. I am extremely doubtful that we will
see widespread use of EPC at the unit level for quite some time, so cost
at the case-level will likely be your biggest concern. Though these costs
could be significant, they are at least relatively easy to calculate once
you know the case-level requirements and the cost per tag.
When it comes to the technology required to initialize the tags, I think
you’ll find that the investment here will likely not be as significant as you
may have feared. By the time the mandate nears, I would expect to see
many affordable solutions for this. Waiting as long as possible here will
likely save you money. [Update: Upon attending DC Expo in Chicago in
May, 2004, it was evident that most major bar code printer
manufacturers have incorporated RFID smartlabel (labels with integrated
RFID chips) writer capabilities into their printers. In addition, major bar
code label software companies are adding RFID capabilities to their
products. These tools will make producing EPC labels almost as simple
(though a bit more expensive) as bar code labels.The biggest wildcard
here is related to the ability of the tag manufacturers to provide better
tags. I have been hearing of failure rates of between 10% and 30% for
tags embedded in labels. Ouch!!!]
Technology to utilize the EPC tags through your own processes could be
significantly more expensive. The good news is it is unlikely you will need
to do this. If it provides an advantage to your operations, go ahead and
invest in this technology, otherwise just continue using bar codes or
whatever technology you currently have. Despite some of the hype
related to RFID, bar codes will be around for quite some time.
I think the biggest uncertainty is related to costs associated with the EPC
network. The EPC network is an ambitious concept and is a dramatic
change from the way inventory data is currently handled. I am doubtful
that the full vision of the EPC network can be achieved within the next
few years so expect to see some compromising here. This is certainly an
area to watch closely. Currently (December, 2003) I do not beleive Wal-
Mart is intending to utilize the EPC network in its original theoretical
form. My guess is that they will probably continue utilizing their current
EDI structure and their internal databases.
Whether or not you are immediately affected by the upcoming EPC
mandates, there are a several things you should be thinking about. You
should gain an adequate understanding of the technology so that should
it become a requirement for you, you are at least minimally prepared.
You should also watch the technology to see if there are advantages of
using it within your operation or industry (especially as costs drop). But
finally, you should realize that despite the term “mandate” being used
related to EPC, the fact is this is still a test (though a significant one). The
EPC vision is a bold one and there are still many technological and
financial hurdles to overcome. Though I don’t want to be too pessimistic
here, there is the possibility that it may simply not work as well in the
real world as it does in the theoretical world. Hey, someone had to say it.
 Return to Top
Why are retailers and consumer goods suppliers so
interested in RFID?
Despite the frequent references to “supply chain efficiencies” that would
lead you to believe there are enormous amounts of money to be saved
by replacing bar codes with RFID chips, I think the reality is somewhat
less momentous. Certainly RFID does have some advantages over bar
codes that can increase efficiency and provide higher levels of visibility
as products move throughout the supply chain. But I’m having a hard
time believing these efficiencies are great enough to justify all the added
costs associated with RFID. The fact is, the retail industry has already
made significant gains in efficiency through the use of bar codes, EDI,
and advanced shipment notifications (ASNs). The incremental gains by
RFID are simply not that significant.
The larger benefits to RFID (and the EPC network) are associated with a
couple of issues that have been plaguing the retail and consumer goods
industries for decades. That is, theft and product counterfeiting. Theft, in
the form of shoplifting as well as larger scale theft occurring during
transport and storage, is costing retailers and suppliers billions of dollars
each year. On top of that, product counterfeiting is costing suppliers
billions more.
The costs of theft are not limited to the product loss alone. When theft is
an ongoing problem (as with shoplifting), planning systems are crippled
because the inventory numbers are always suspect. In addition,
shortages created by theft often result in lost sales because consumers
can’t buy what is not on the shelf. The obvious use of RFID would be to
have readers at the exits (as is currently used for higher priced products)
to catch shoplifters. But, even if you don’t do that (or shoplifters find a
way to disable the chips) the ability to utilize a “smart shelf” or other in-
store RFID reading technology to tell you that the product is no longer on
the shelf allows you to plan correctly and avoid the out of stock condition
(as well as the frequent physical inventory counts currently necessary).
The ability to quickly perform detailed reads of cargo as it moves through
the supply chain is another way RFID could help to prevent theft. This
would allow you to more easily narrow down the source of the theft (to a
physical location). In addition, it would make it much more difficult to sell
the stolen product since it could be more easily identified (since each
product would have a unique ID).
Similarly, counterfeit products would be easier to identify. If counterfeit
products make their way into a legitimate retailer’s inventory (as is
sometimes the case) the EPC network database would be able to identify
them. In addition, all you would need is a portable computer and an RFID
reader, and you could walk down the aisles of a suspect retailer and ID
counterfeit or stolen merchandise.
Unfortunately, some of these benefits will not be realized without unit
level RFID tracking. Case level tracking could provide some help with
large-scale theft and some counterfeiting, but unit level tracking
ultimately shows the most benefit. So why is unit level tracking not part
of the upcoming Wal-Mart mandate? In my opinion (I have no inside info
on Wal-Mart) Wal-Mart is taking the first step of a larger plan that will
ultimately include unit level tracking, and that is where they expect to
see the payoff. Despite their claims, I don’t believe the payoff exists in
their currently stated plan. In fact, I think the significant payoff is so far
down the road that I am still amazed this Wal-Mart RFID thing is
happening at all. Either they have an exceptionally strong commitment
to the future or someone sold them a very optimistic ROI calculation.
EPC Reduces Out-of-Stocks at Wal-Mart
A study by the University of Arkansas found the retailer was able to
reduce out-of-stocks by 16 percent through the use of Electronic
Product Code RFID tags on cases of goods from suppliers.
By Mark Roberti

Oct. 14, 2005—Wal-Mart announced today that an independent study by the

University of Arkansas has concluded that Wal-Mart has been able to reduce
out-of-stocks by 16 percent by tracking cases of goods with radio frequency
identification tags carrying Electronic Product Codes (EPCs). The study, which
Wal-Mart commissioned, also showed that out-of-stock items with EPCs were
replenished more quickly than comparable items in cases labeled only with bar
codes, and Wal-Mart saw a reduction in manual orders and excess inventory
within the RFID-enabled stores.

"We're pleased with the results so far," says Simon Langford, Wal-Mart's
manager of RFID strategy. "There has been great anticipation about what
difference RFID is making. This is the most in-depth analysis of our RFID project
so far. It was done independently, and it shows that there are benefits."

Bill Hardgrave, University of Arkansas

During the 29-week study, which ended in mid-September, researchers from
the university analyzed the out-of-stock rate on a little less than 4,000 stock-
keeping units (SKUs) at 12 pilot stores equipped with RFID technology and 12
control stores without the technology. All Wal-Mart formats—Supercenters,
Discount Stores and Neighborhood Markets—were included in the study.
This study is the first to compare the impact of EPCs on merchandise
availability in functioning stores. Researchers chose specific SKUs being
outfitted with tags at the case and pallet level by Wal-Mart's top suppliers, and
analyzed the effect of tagging on these products. More SKUs were tagged as
the study went on. However, the researchers—led by Bill Hardgrave, director of
the university’s RFID Research Center and executive director of the Information
Technology Research Institute (ITRI)--only analyzed the effect only on those
items tagged at the start of the study to ensure their data was consistent.

To establish a pre-study baseline, and to measure the impact of RFID,

researchers combed the shelves at the 24 stores and recorded out-of-stocks
throughout the study period by using handheld devices to capture the data.
Other than having EPCs and RFID technology introduced into their operations,
the stores continued to operate normally. Researchers also factored out
reductions in out-of-stocks at both the control and RFID-enabled stores that
resulted from any process improvements unrelated to RFID.

Researchers compared out-of-stock rates in the RFID-enabled stores against

the baseline data established at the start of the study, as well as the out-of-
stock rates at the control stores and those of SKUs not tracked with RFID at the
RFID-enabled stores. Ultimately, they determined that RFID reduced out-of-
stocks by 16 percent.

To put the 16 percent reduction in perspective, the industry average for out-of-
stocks has remained stubbornly at about 8 percent, despite numerous efforts
by manufacturers and retailers to bring it down, such as collaborative planning,
forecasting and replenishment (CPFR). If RFID were applied across the retail
industry, and the same 16 percent improvement were achieved, the out-of-
stock rate would fall to 6.7 percent. The study did not measure what effect the
improvement in on-shelf availability had on sales.

"We continuously saw improvements as the study went along," says Hardgrave.
"As Wal-Mart made changes to its business processes, we would see that
reflected in the data."

The RFID-enabled stores receive SKUs tagged at the case and pallet level from
either Wal-Mart's own distribution centers or directly from suppliers. The
improvement in out-of-stocks comes from using RFID to monitor how many
cases have arrived at the store and how many have been brought out to the
shelves, then comparing that information with how many items from those
cases have been sold (Wal-Mart uses conventional point-of-sale data to
determine sales).

For example, if each case of Pantene shampoo holds 24 bottles and the shelf
can hold 48 bottles, Wal-Mart can determine that a shelf is close to being out of
stock when 40 bottles or so have been sold. Pantene shampoo is then
automatically added to a list of SKUs that must be picked from the back room
and brought out to the shelves, or "merchandised." (The processes involved in
detail in a case study published in the March/April 2005 issue of RFID Journal
magazine, which is available online to premium content subscribers. See Wal-
Mart Tackles Out-of-Stocks.)

The study found that automatically creating these pick lists, rather than having
associates walk around and add items whenever they found an empty shelf,
resulted in SKUs tagged at the case level being replenished three times more
often than untagged SKUs. Moreover, it reduced in-store inventory by reducing
the number of times an associate placed an order for more cases when cases
were already somewhere in the back room.

"With the RFID-enabled stores, we alert them to the fact that there is product in
the back room, and that they should merchandise that first before ordering
more product," Langford says. That process change resulted in a 10 percent
reduction in manual orders placed by store associates. The reduction in
inventory in stores was not quantified, but the improvement in on-shelf
availability is visible.

"One of my colleagues was down in Dallas this week," says Langford. "He was
speaking to one of the store managers down there and asked how it was going.
She walked to the side counter and said, 'Look, this is tagged, this is tagged
and this is tagged. This isn't tagged.' The items she was saying were tagged
were all on the shelf, and the one that wasn't tagged was out of stock. You can
see physically that the system is working."

Wal-Mart is expanding its rollout of RFID technology within stores and

distribution centers around the country (see Wal-Mart to Expand RFID Tagging
Requirements). It also plans to continue to improve processes within the stores
that have already been RFID-enabled to further reduce out-of-stocks.

"We knew that RFID would have an effect [on out-of-stocks]," says Langford.
"The results demonstrated in the research study are in line with our
expectations, but that's just the start. We are developing new tools for store
managers to try to achieve even further reductions in out-of-stocks."

"The results of the study are extremely encouraging," says Hardgrave. "Sixteen
percent improvement is a major improvement when you consider all the
products Wal-Mart runs through its system in a day."