The agreement on a widely accepted RFID standard in the automotive industry could suddenly trigger a domino effect and would, as such, define the tipping-point of a large-scale RFID introduction in the automotive industry.
The automotive industry operates in an environment with strong global competition. While on one hand new car sales have remained static in the triad markets for ten years, on the other hand the vehicle manufacturers (VM) have increased the number of different models and variants of their brands. This has resulted in a decrease in the economies of scale on the production side. Consequently, vehicle manufacturers and their suppliers are struggling to save costs.
At the same time, the automotive industry, which is facing new regulations and constantly changing automotive markets, is investing in new technologies like Radio Frequency Identification (RFID):
The ELV regulates the take-back and recycling of used cars, costing the vehicle manufacturer about 4,000 EUR for a single car, which is close to the average return on a new car sale. As currently investigated by a EU research project (PROMISE) RFID could be used to identify the used materials and parts in a vehicle to advance the decomposition of a car and to save money.
The BER replaces the former quota arrangements between VMs and parts suppliers. Suppliers are allowed to sell spare parts as “original parts” in the free market today, which makes it more difficult for the VMs to differentiate between the “branded parts” and the parts supplied by the licensed dealer network.
The industry has to satisfy emerging demands from their customers for new and more value added services such as telematics, entertainment, vehicle financing and faster after sales service etc., in order to retain their loyalty. But often the focus of vehicle manufacturers is not clearly in line with the end customers or the automotive aftermarket. The OEMs focusing on optimizing their supply chain on the production side are consequently neglecting entering the aftermarket. The European spare parts market itself has a volume of 44 billion EUR at consumer prices. Today, the free spare parts and wholesale market excellently use this strategic misperception of vehicle manufacturers. Bearing in mind that the average life span of personal cars in the market is still increasing (at the moment the average life span is about 7 years in Europe), there will be a much higher demand for spare parts, repair and service in the next few years. While an MIT study shows that for every 1,000 vehicles produced, there is an average of 10 million USD of revenues in spare parts sales, new car sales are decreasing hand in hand with an over production of cars worldwide.
From our perspective, vehicle manufactures and suppliers are facing six strategic challenges to their supply chains:
Consequently, there is a demand for more real-time information about processes and products, accurate data, handling efficiency, unique identification and the elimination of manual handling in the supply chain.
RFID technology will help collecting accurate and reliable data and therefore enables the producers to have a supply chain with higher transparency. One outstanding result will be the elimination of the “Bullwhip Effect” (build up of inventory because of uncertainty). Additional benefits of RFID in the automotive supply chain are:
In the closed loop systems (possibility of multiple use of a single tag) RFID is already in use. The well-known example of container tracking and management clearly shows the value of RFID applications for the automotive supply chain. The payback period is less than one year and a positive return on investment of more than 350% is generated within three years of implementation (Soreon Research). For closed loop systems, there is no initial need for an open and global standard. For the use of RFID in internal operations and 1:1 relationships with suppliers, the number of users/participants is small enough for the automotive industry to develop its own data structures to manage the number range for their applications.
In contrast to closed loop systems, RFID applications in open loop systems such as the automotive aftermarket require an open and global standard in order to guarantee interoperability on a global scale. To meet the demands of the emerging laws and regulations (e.g. the European Commission), the vehicle manufacturers will have to establish an open standard. In addition to that, while an open and global standard like the EPC already exists, the huge number of users, associations and manufacturers present all over the world make it unreasonable an costly to develop and manage a proprietary standard.
The use of an open and global standard in open loop systems will lead to decrease in costs of hardware and software (tags, readers, etc.) supporting the selected standard. From a mid-term perspective, it would then be reasonable to use the same equipment, and possibly use the same standard (because subscription/license fees are already paid) for closed loop systems. This would save additional costs for RFID adoptions.
A path-breaking approach was made by the Automotive Industry Action Group (AIAG) (USA) in cooperation with EPCglobal and ISO with a strong involvement of Michelin. Known as B11, this standard allows managing tire information while enabling two distinct numbering formats, either EPC or ISO based, using a single RFID tag and a single data-structure. This solution could work for other automotive applications as well, such as the spare parts market (existence of licensed dealer network and retail), where the coexistence of various numbering formats is important, but only one technical implementation can be afforded.
Today, RFID applications in the automotive industry are still rare and primarily focused on closed loop systems. In order to unlock the benefits of RFID in open loop systems, such as establishing more efficient aftermarket services, interoperability among various players of the industry has to be enabled through a standard. The agreement on a widely accepted RFID standard in the automotive industry could suddenly trigger a domino effect and would, as such, define the tipping-point of a large-scale RFID introduction in the automotive industry.
