Automotive, Electronics Industries Losing up to $9 Billion a Year in Communications Costs

Lack of data standardization costs industry billions

Automotive, electronics industries losing up to $9 billion a year in communications costs

Frontline Solutions Jul 20, 2004

Poor data integration in the supply chain is costing manufacturers billions of dollars year. According to a study published by the National Institute of Standards and Technology (NIST), a lack of standardized data formats and reliance on manual processes in sharing information with supply chain partners are the primary culprits.

The study, conducted by RTI international, Research Triangle Park, N.C., found that the automotive industry is losing $5 billion per year because of inadequate integration, and the electronics industry is losing $3.9 billion per year, or about 1.2% of the value of shipments in each industry.

Almost all of these costs could be eliminated with optimally integrated systems for exchanging information throughout supply chains, the study said.

An underlying problem, according to the study, is the lack of universally accepted standards for the format and content of messages that flow between supply chain partners. Most companies use a mix of phone, fax, electronic data interchange (EDI) and Internet-based systems, often resulting in manual data entry and redundant efforts.

Companies often have to support multiple communications systems to meet industry and customer requirements.

Symptoms of this integration disconnect include:

Manual data entry is widespread, even when machine sources are available; critical information is often manually reentered at many points in the chain.
Interventions from purchasing clerks, order processors and expediters are required to maintain supply-chain information flows.
The use of translators to convert data from one format to another is almost universal, even between systems that are nominally compliant with established protocols.
Organizations of all sizes and across industry tiers use "informed" estimates rather than actual or production plan data in scheduling, materials management and expediting.

In the automotive industry, for example, while around 45% of companies use EDI to communicate with suppliers and customers, almost one-third still rely on paper and fax. Most use a mix of EDI, fax and XML/Internet-based solutions.

RTI defined excessive costs for several categories of logistics and accounting information flows, and used case studies and Internet surveys to determine costs per occurrence for each category. These results then were combined with secondary data on sales, employment and wage rates to estimate industry-level impacts.

The study is part of NIST's strategic planning process for implementing the 2002 Enterprise Integration Act, which authorizes the Institute to help industry improve supply chain integration.

Under the bill, NIST will work with industry to develop road maps for electronic integration. NIST will help develop voluntary consensus standards and protocols for information exchange, and provide assistance to conduct pilot projects to support the initiative. Congress gave the program $10 million in 2003, and has budgeted an additional $35 million for 2004 and 2005.