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RFID: Yesterday's blockchain
A cautionary and hopeful tale
Image: Shutterstock Much of this seems oddly familiar: a new technology that will revolutionize supply chains through improved visibility, data reliability and productivity. It is reminiscent of the advent of RFID (radio frequency identification) about 15 years ago.
The comparisons go further than excited predictions or retailers like Walmart making headlines with pilot implementations. Just as RFID was beset by competing standards for hardware, software and data management, blockchain today has a variety of platforms coming online, each hoping to win the battle of becoming the universal standard. We look back to a time when RFID was the technology of the supply chain future, explore what really transpired and reflect on the lessons for today.
RFID origins
RFID began attracting attention in the early 2000s. It offered the promise of significant benefits in productivity and visibility, mostly as a replacement to bar codes. The Economist hailed RFID as the “the best thing since the bar code” while others proclaimed it “the biggest thing since Y2K.”
RFID tags could be read without having a line of sight on the bar code and the information on the tags could evolve at different stages in the supply chain. This would provide item-level accuracy with considerably less effort and more precision. Advocates promoted the potential to improve demand planning and on-shelf availability, dampen the bullwhip effect, and lower inventories, costs and stock outs.
RFID in retail supply chains
Recently, we toured of the flagship store of a luxury retailer. The retailer was investing heavily in digitalization to enable an omni-channel supply chain. But in the backroom we observed store receipts executed by scanning a classic bar code, and even then, the bar codes were a recent implementation. We expected something more cutting-edge. Something like RFID, perhaps.
The retailer explained that they had looked at RFID, but the volume was so low that the productivity gains would be very small – certainly too small to justify investing in the hardware to scan the tags. While store inventory counts would be quicker, his luxury merchandise is so valuable that great care is taken at every step to account for stock, including security cameras, so RFID had little to offer in terms of improving inventory accuracy.
But if hard luxury retailers did not have the volumes to warrant investing in RFID, then it stands to reason that high-volume actors like mass retail chains would find RFID attractive.
RFID in consumer mass retail
Despite previous missteps over privacy concerns, it was in the mass channel that RFID had its most prominent splash. Walmart garnered attention and surprise when it announced in 2003 that its top 100 suppliers would have to use RFID tags. Observers believed that the heft of Walmart would drive others to adopt the same initiative. “Other U.S. retailers will likely follow Walmart’s lead” was a commonly held conviction at the time.
Walmart insisted that RFID would improve the visibility of product movements from the backroom to the shelf. It argued that the improved visibility would help suppliers improve their demand planning, be more responsive and lower inventory. Not everyone agreed with this assessment.
Walmart also claimed RFID improved logistics efficiency, estimating their own gains at USD $8 billion. However Walmart refused to share any of the productivity savings due to RFID with its suppliers. Nor did it offer to help defray the costs of RFID implementation or tags. It reasoned that suppliers should find benefits from RFID within their own supply chains. Yet suppliers did not see a need to track case and pallet-level movements by RFID when the tags were often placed right before shipment. Many prominent analysts, like Forrester, supported the suppliers’ skepticism about the benefits. To the suppliers, the only gains were with Walmart, who refused to share, even though supplier integrations cost estimates ranged from $13 million to $23 million per supplier.
Not surprisingly, the effort faltered and eventually petered out. Almost every supplier failed to meet the target date, and RFID faded from the conversation. The high volumes of mass retail should have made RFID attractive. But no agreement was reached for sharing the costs and benefits even though the overall chain would be more efficient. The RFID tags simply represented too high a share of the cost of the underlying product. As the suppliers would pay but not benefit, they refused, and the initiative stalled.
Looking forward
RFID has become a useful part of the supply chain toolbox while not being the revolution it was once promised to be. It can serve as a both a cautionary and a hopeful tale for blockchain. Many of the elements of the RFID experience provide keys to the future construction of a blockchain ‘sweet spot’ while avoiding the temptation to do so now.
Our hope is that by looking back on RFID and examining its history in comparison to the expectations, practitioners can begin looking for the blockchain sweet spot today, and not be caught out by applying blockchain indiscriminately at the risk of souring the supply chain community on the technology.
Ralf W. Seifert is Professor of Operations Management at IMD. He directs IMD’s new Digital Supply Chain Management program, which addresses both traditional supply chain strategy and implementation issues as well as digitalization trends and new technologies.
Richard Markoff is a supply chain researcher, consultant, coach and lecturer. He has worked in supply chain for L’Oréal for 22 years, in Canada, the US and France, spanning the entire value chain from manufacturing to customer collaboration.
[This article has been reproduced with permission from IMD, a leading business school based in Switzerland. http://www.imd.org]
