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Strategy

Streamlining costs and statistics pay off

Grace Segran |

When the economy is in a tailspin, companies look for ways to trim costs as well as to grow. Grace Segran in London discovered the truth in bar codes and forecasting.

You see them on most of your purchases as bar codes – from airline tickets to a can of tomatoes to toll tags for your car and corporate ID badges. But they’re known in the trade as Radio Frequency Identification (RFID). And these days, as trimming costs is the corporate mantra, bar codes are hot.

RFID takes information and puts it in an electronic format and makes the information versatile and accessible. This helps to automate and drives efficiencies in supply chain logistics. In short, it can prevent you from having a huge inventory buildup to dump at an eventual potential loss. It’s a big market - especially for retailers - and a lot of money can hang in the balance, but the companies that provide the tools to manage this are not all that big.

Zebra Technologies Corporation is one such RFID company. The company - with revenues of US$250m and a market capitalisation of US$2.33 billion - provides tracking devices for everything from blue jeans to hospital patients to cars on assembly lines and recently reported its best results ever: Third quarter results showed a 23% increase in revenue, while profits doubled. “It was our best quarter ever,” CEO, Anders Gustafsson, told INSEAD Knowledge at the Bloomberg Businessweek European Leadership Forum in London in November 2010.

The reason? Zebra’s technology is useful: it tells businesses where they stand in real-time, minute-to-minute, without guesswork, right down to an individual article on the sales floor. “In 2010, we saw a lot of movement on the shop floor. Itemised tagging for garments, for example, gives retailers a better sense of the sort of inventory they have on the shop floor and where the item is located,” says Gustafsson. “If you go into a large department store and try to find a pair of blue jeans, how do you find your size in a pile of 50 pairs? The code can help the shopper do this and enhance the shopping experience.”

Zebra takes the guesswork out of inventorying stock. “Historically, once a week people would go down to the floors and count the goods. It wasn't very accurate and it took a long time,” he says. “Today stores can identify the items within a minute and have 95% accuracy. The risk of a stockout is reduced. RFID drives efficiencies in the supply chain and enhances the customer's shopping experience.”

It’s not all about retail

In healthcare, RFID tracks expensive equipment from intravenous pumps to patients’ beds. By combining RFID with barcode technology, patients themselves can be tracked from admission through to the procedure stage and finally through to discharge using a wristband to which different records are also tied.

“At the moment of care, an authorised caregiver can read the wristband on the patient and see his medication to make sure the right patient gets the right medication and right dose at the right time. By reducing errors in healthcare, malpractice lawsuits go down,” Gustafsson adds. “Patients benefit as RFID tracks different medications and ensures that there is no duplication in charges. Hospitals are able to produce an integrated bill efficiently."

The technology could move to the forefront of the sustainability discussion. With more efficiencies in the supply chain, there should be less waste and better utilisation of assets.

Efficiencies in Emerging Markets?

Zebra is investing aggressively in emerging markets such as China, India, South East Asia, the Middle East, Turkey and Brazil. "We have put sales professionals into these markets ahead of revenue in the expectation of being able to achieve a bigger presence for our brand and company and to grow the business,” says Gustafsson, who is also developing specific products for these new markets.

“Usually our products are fairly global in nature, but for us to be really competitive these days we need to do this, particularly in China where local markets have slightly different product requirements,” he says. “We released three new products at the beginning of 2010 specifically addressing market requirements, taking on some of our local competitors head on.”

Forecasting in the Age of No-Visibiity

While Zebra Technologies focuses on the smallest of factors, IHS looks to the clouds, providing critical information and forecasts in five domains: energy, economics, geopolitical risk, sustainability, and design and supply chain management.

Says Jerre Stead, IHS’s Chairman and CEO, “The volatile world we live in today is not good for the world but it’s good for our business. We provide the kind of insight that helps our customers make the best decisions on a long-term basis. Our company grew 35% over the last two years including acquisitions.”

IHS sells information, not data, says Stead. “Data is available to everybody. At IHS, we bring data up into our three critical information development centres – two in India and one in North America - and go through the process of making sure that the quality, timeliness and ability to understand the information is the best in the world. We then update it by the minute, by the day, and by the month on an ongoing basis and get feedback from customers of their perception of how good and helpful it is.”

In what sort of situation might a company look to IHS to provide clarity? Stead cites a recent meeting of 40 of the largest energy executives in Houston where IHS was invited as an independent partner. IHS was then tasked with providing information on what is going on in the Gulf of Mexico from the energy, economic and environment standpoints, and to do it on behalf of the countries and companies and populations that have been affected.

The company has people working in more than 35 countries speaking 50 languages and does business in over 180 countries. Its business growth strategy to meet customer needs is: BBP - Build, Buy or Partner.

Outlook for the global economy

It’s irresistible asking a company that tracks on average 20 economic indices in some 200 geographical areas on a daily basis what its outlook is for the global economy.

“We’ve talked consistently about two-speed recovery with Asia Pacific particularly China, South East Asia and India moving very well, and Greater Europe and North America having a slower recovery, as Ireland and Greece struggle with ongoing debt issues,” Stead told INSEAD Knowledge. “We’ve just reduced our forecast of a double dip to less than 20%, so that’s good news. We are more optimistic forecasting today than in the last two years. It’s hard to believe that it was only in September 2008 that Lehman Brothers went bankrupt and all this exploded. We feel better today than we’ve been in some time.”

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