SCDigest Editorial Staff
The News: Just two weeks after the Wall Street Journal’s negative story on Wal-Mart’s RFID rollout, and the resulting uproar on both sides of the issue, the Journal (just coincidentally, we believe) published an article from two MIT professor’s evaluating the state of the RFID business case. (See SCDigest’s RFID Program at Wal-Mart Going Slow, Wall Street Journal Says; Xterprise CEO Rebuts Negative WSJ Article; Wall Street Journal Gets at Least Part of RFID Story Wrong; Investment Company RW Baird Says WSJ Article on RFID Slowdown at Wal-Mart Part Right, Part Wrong).
The Impact: The authors, Sunil Chopra and ManMohan S. Sodhi from MIT, paint a positive but somewhat mixed picture on RFID benefits. While listing the potential benefits in many application categories, supported by some real user stories, we found it difficult to draw a direct line from the primary conclusion – that the clearest business cases was for tracking goods into retail stores - with the rest of the article.
The authors do cite some areas of clear benefit (e.g., receiving processes using RFID for high value, complex parts, as in the aerospace industry). We believe their perspective, while certainly worth a read, has issues in two areas:
(1) It is always a challenge with this type of article to talk about “RFID” as one thing when the use cases, basic technology and other attributes very tremendously from application to application vary significantly. For example the authors appear to cite the potential benefits of real-time inventory visibility in the warehouse – which would either require “active” tags that proactively communicate their location, or a very dense reader network – a much different proposition than most consumer goods to retail supply chains are realistically exploring at this point.
(2) We all agree that if RFID was free and worked great it would be better than what we have. While the article pays occasional nod to the cost-benefit trade off, it doesn’t fundamentally address the issue, which is the heart of the question.
The Story: We believe the timing of this article, in a special supplement to the Wall Street Journal, was probably a just a coincidence with the timing of the Wal-Mart piece two weeks before, but the authors do make a couple of indirect references to that piece.
In looking at RFID across a number of industries and applications, the authors conclude: “Upstream in the supply chain, we found low risks and low rewards when manufacturers slap electronic tags on pallets at their plants. Downstream, we found potentially high rewards, but also high risks and costs, when retailers use the tags to track individual products such as DVDs on store shelves. In between, we found that companies can cut receiving, handling and storage expenses, without incurring big costs or risks, when the tags are used to track cases of merchandise moving into stores. The business case for RFID is clearest at this point.”
Unfortunately, the authors don’t provide a lot of real detail or back up for the last assertion, and in some respects several of the other use cases described, such as improved receiving of high-value parts in manufacturing using RFID reads, actually seem clearer.
Below is a summary table of the authors’ perspectives on RFID across a variety of supply chain processes:
Stage |
RFID's Impact for Suppliers and Retailers |
Level of Tagging Needed to Extract Most of the Value |
Benefit Relative to Existing Technology |
Primary
Beneficiary |
Planning |
Improved forecasting |
Case |
Small |
Manufacturer |
Procurement |
Faster receiving; faster reconciliation of gap between receipts and invoice; accuracy of storage |
Case |
Large |
Retailer |
Manufacturing |
Custom manufacturing, but not applicable to consumer packaged-goods industry; useful for maintenance and repair |
Item / Case |
Small to medium |
Manufacturer |
Delivering |
Better tracking of shipments; faster receipts; faster pick-and-pack in warehouse operations |
Case |
Small to medium |
Supplier, Carrier, Retailer |
Returning |
Better tracking of returns |
Item |
Small |
Retailer |
In-store operations |
Ensuring shelf availability of items in the back room; reducing loss due to theft |
Item / Case |
Medium to large |
Retailer |
Source: Sunil Chopra and ManMohan S. Sodhi, MIT in the Wall Street Journal
RFID Risks
The authors do a nice job listing a variety of risks related to RFID adopting. While again these risks vary dramatically in importance based on the use case and application, the list is worth remembering:
- Lack of clear global standards
- Many small and midsize RFID vendors who may not make it or get acquired
- Lack of organizational preparedness for moving to RFID-based systems
- System “maintenance” costs and manageability. For example, reader incompatibilities as technology changes.
- Risk that implementing a “parallel” RFID system with current ones will jut keep using old processes instead of embracing the new ones.
- With tags and readers technology not yet fool proof, risk that “junk data” will lead to junk decisions. Next-generation technology promises to reduce the likelihood of data errors.
- As a young technology, RFID will evolve. Investments today can be made obsolete by technology evolution.
- There is still some risk that a third party, whether commercially or otherwise motivated, could get access to proprietary data by breaking through RFID password protections.
While we feel the business case logic could have been tighter, this article presents a nice overview of the uses and potential benefits of RFID across many areas.
If you would like a copy of the article, email us at the feedback button below.
What is your take on this article’s conclusions? What would you add or comment on? Let us know your thoughts.
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