The Tipping Point

It doesn’t require very smart bunch of grey cells to tickle to make one understand that this blog speaks about RFID and its business impact, just to give a small brief, RFID or Radio Frequency Identification is not a new or disruptive technology, RFID was developed in 1969 and patented in 1973. So why is everyone is talking about RFID, RFID tagging and all sorts of impacts that it carries with it, what started this discussion. This article basically is all about that tipping point that kick started all this discussion that hovers around RFID. In 2003 out of the blue WalMart the biggest player in retail in the world, asked it 100 most celebrated suppliers to comply with its demand of have all their products radio tagged. So what was the order that WalMart came out with --- “In June 2003 Wal-Mart first announced its plan to implement RFID technology in its supply chain by January 2005; this caught many of the suppliers unawares. Though the plans envisaged compliance from the top 100 suppliers, around 129 suppliers jumped into the fray, afraid of being left behind in the race”. Following the footsteps of WalMart other US and European retail companies started similar RFID initiatives, including Albertsons, Carrefour, Metro, Target and Tesco. To add more salt to the whole story The US Department of Defence issued a similar directive. The technology came out of thin air and before anyone could possibly pant and take a fresh look, thousands of companies, suppliers, resellers, retail companies, sales, courier companies fell under some kind unsaid but compliant RFID initiative.

Okay, Fair enough, everyone’s on the RFID bandwagon, but now not one but two question arise; first, Why Did These Companies get served with a mandate? Second what was wrong with the prevalent bar coding system? What was so compelling about this technology that companies were ready for a risk in the disruption of their supply chains? RFID tagging and labelling was not just another tag on case or a pallet, it required phenomenal amount of re-jig in the company’s operations.

Companies were required to have

·         System in place to serialize the tags

·         System to read, track and leverage value out of all the data

·         Systems to synchronise data-driven processes within the supply chain.

That’s too much of a significant change to bring about.

The basic premise at that time, I mean circa 2003 was is RFID actually a revolutionary technology or is it just like another of that cost burdening technology. As someone posted a cartoon on some newspaper that I happen to read some time ago, the cartoon depicted a person under a swarm of paper and files, while an overseer was basking in the glory that they needed to increase the paperwork because they wanted their organisation to go lean so they may reduce paperwork, “more paperwork to attain less paperwork” What we can today say with much surety, just like the personal computer, the fax machine, the internet and bar codes in their inception, RFID has the potential to transform commerce. RFID promised to take people out of the identification and data collection loop. A study by IBM showed that RFID reduce labour involved in the receipt of goods by 60 to 90 percent. Proctor & Gamble reduced the number of forklift drivers at a manufacturing plant.

Labour savings is not where the bigger benefits of RFID lie. Rather bigger benefits come from RFID’s potential for solving a data-availability problem. 

RFID improves product availability at the retail level without adding inventory by helping companies better track, automate the flow of and understand the condition of goods in the supply chain. 

a study by Grocery Manufacturers of America found that consumers cannot find the product they are looking for 8 percent of time. Advertised products face out-of-stock problem twice as frequently as non advertised products. When shoppers are unable to track the product of their choice, buying decision is generally postponed or they shop the product elsewhere. This puts around $6 Billion dollars of sales in limbo. WalMart estimates that RFID will allow recapturing one percent of revenue by improving out-of-stock. This translates into about $2.5 billion.  We have discussed how RFID can help in maintaining inventory and helping us ward off out-of-stock problem, the flipside problem is of excess inventory. According to various estimates 30% of inventory is buffer stock which exists just because of the fact that the supply and demand information is not precise.