by David C. Wyld

The Spring-Summer 2006 issue of Reverse Logistics Magazine, provided an overview of RFID (Radio Frequency Identification), which is fast proving to be the one of the most exciting and disruptive new technologies to enter the realm of retail and supply chain management in many a year. Part 2 will examine RFID uses as applied to reverse logistics.

In a nutshell, the technology involves using radio waves to identify objects to which small (and increasingly inexpensive) RFID tags are attached. These tags can be used on pallets and cases of goods, and even individual retail items or parts. And, unlike bar coding, which is an optical technology, RFID allows for the immediate (and even constant, if necessary) reading of hundreds of items simultaneously.

Why are big retailers like Wal-Mart, Best Buy, and Target in the United States and Metro and Tesco in Europe, so excited about RFID? Why is the U.S. Defense Department mandating that RFID be used throughout its global supply network? In short, it is because of the visibility that RFID gives to organizations—visibility that is needed, and expected—in today’s increasingly fast-paced, interconnected and competitive world.

From a strategic perspective, we increasingly live in what this professor likes to term a “Google Earth” world. To draw upon this analogy, think about how much our own lives have been transformed by the power of information. A decade or so ago, if we were looking for a specific address in an unfamiliar area, how would we find it? Well, it would most certainly be done in a low-tech manner, likely by calling for directions or stopping at a gas station or a convenience store to ask for directions (note, the latter option never applied to men). Five years ago, we began to use MapQuest and, to a lesser extent, other web-based navigation tools. Now, it became possible to leave our homes with a print-out that had complete, turn-by-turn directions from any point A to any point B. Then, we began to see in-car navigation systems like OnStar come of age, and we can see graphical directions and even hear voice prompts telling us which road to take and where to exit, turn, and stop. Today, we can sit at our desktop or view a laptop propped on the passenger seat to use Google Earth and view incredibly detailed photos from the sky of exactly what we will see on the ground, enabling us to zoom in on the exact parking space of the building at the address to which we are heading. Thus, everywhere we could physically go on the planet—from Boise to Baghdad—we can now expect to have incredible visibility and real-time information.

The same is becoming true, and necessary, in today’s retail supply chains. With the global supply chains necessary to stock Target’s store shelves in Wichita Falls or the Best Buy in Memphis stretching back to Hong Kong, Managua and other far-flung locales, major retailers must seek to have global business intelligence systems in place, managing movements of goods from manufacture through shipment to their distribution center to the stock room to the store shelf through check-out. But bar codes present a crucial limitation, in that they can only identify a class of items (as detailed in the initial article, bar codes can only identify a type of box of cereal as opposed to RFID, which can uniquely identify the specific box of that cereal that you are holding at the moment or the dozen on the store shelf). The promise of RFID in retail is to provide ROI through increased sales, increased inventory availability, reduced stock-outs and labor cost savings and the ultimate “retail nirvana,” still probably a decade or so away,where every item is tagged with RFID and the “smart store,”with interactive shelves and “roll through” checkouts. All this is made possible through the increased visibility that RFID brings and the imagination to use this data to better manage retail operations.

Take a simple example—in-store promotions. Let’s say that for Super Bowl XLI, a major retailer and a major snack food supplier are cooperating on a promotion for tortilla chips and salsa. For the big game, the supplier had stocked the products in four different locations in the store: the snack food aisle, the middle of a major traffic aisle, a special display set-up on the adult beverage aisle, and point-of-purchase displays in the check-out aisles. In today’s present environment, with bags of chips and jars of hot sauce being identified through bar codes, while it would be possible to gauge the overall effectiveness of the campaign (i.e., sales were up X% over last year at the same time and Y% over a “normal” weekend), it would be impossible to really assess the true, operational-level results of the Super Bowl promotion. Fast forward to the near future when the products are RFID tagged and uniquely identifiable, the retailer and the snack food company could dig into far deeper and richer sets of data to ascertain, with great precision,the campaign’s effectiveness. For instance, both parties could discover previously undiscoverable consumer behavior insights (i.e., from which display the items were purchased, which combinations of items were bought (sizes, flavors, etc.), which promotional items were bought with other non-promotional items, etc.).Thus, from this simple exampleone can only imagine how the increased visibility can be used by retailers (and their supplychain and logistics partners) to create new ways of managing the entire extended enterprise.

For all the excitement about the advantages that RFID will bring to the forward retail supply chain, the really untold story regards the benefits that the technology will bring to the reverse supply chain. How so? Let’s start at the store level. With each item individually identifiable, the reverse logistics operation can begin with far greater intelligence. Shelves and stock rooms can be scanned to locate expired items that should be discarded and unsold stock that should be returned to the manufacturer for credit and/or shipped to a reseller. Likewise, when an item is returned by a customer, the retailer can track the specific purchase history of the item (where, when, how it was bought). Thus, retailers should be able to immediately spot a fraudulent return, and in time, eliminate that problem, which costs retailers billions annually. In the same way, when an item is returned for warranty work, the specific history of that item can be compiled. For both the retailer and the manufacturer, this will add an “early warning system” for problem items with high return and defect rates, enabling them to pinpoint such concerns far more effectively and quickly than today’s return data.

Perhaps the most important reverse logistics benefit will be in the area of recalls. Today, when products are recalled, it’s a matter of recalling way, way more than necessary—just to be safe. The quintessential example of this is the 2000 recall of Bridgestone/Firestone SUV tires, which involved the recall and replacement of over 6 million tires on Ford Explorers and other like models. If RFID tagging had been in place, rather than the mass recall, and mass hysteria that resulted from it, Bridgestone/Firestone could have been much more precise in its recall and replacement effort, since the problem was deduced to be specific production runs on specific days at its plant in Decatur, Illinois. This would have enabled the company to replace perhaps thousands of tires rather than millions, saving it and Ford immeasurable losses in the marketplace from their damaged brands and reputations. The recall could have been made even more effective by focusing more on the South and West, where warmer temperatures were correlated to higher failure rates for the problem tires.

Thus, in the future, when recalls happen, whether it be for pharmaceuticals (as with the recent Perrigo recall of store-branded acetaminophen) or suspect food items, the recalls can be accomplished with far more precision and speed than in the past, thanks to RFID tagging. Retailers can quickly separate cartons and individual units of recalled items from their retail shelves, stockrooms, and distribution centers, eliminating the need for hand searching for the suspect lots of goods. Manufacturers can also be more certain as to the overall completeness and effectiveness of their recall efforts, with new metrics and abilities to analyze the incoming items.

In the end then, the newfound visibility that RFID will provide will create new opportunities for growth and new ways of doing business for retailers and their forward and reverse supply chain partners. We will see exciting developments at all points in the movement of goods to, and from, retailers and consumers. Today, the projections are that by 2010 we will begin to see widespread use of RFID at the wholesale level, affecting pallets and cases of goods, and by 2015 we will see in individual item-level tagging become the norm. How soon until RFID becomes the de facto standard for product identification? That day may be farther down the road, as while simple tags will rapidly decline from the approximate 20-25 cents today in bulk to pennies a tag in the next 5-10 years, even at that price, it will be impractical to tag everything. In retail, I use the “99 cent store test,” as the danger is that even a penny tag will be too high for retailers to bear on low cost items. There is also the privacy aspect to be considered, for consumer reaction to RFID and the potential for increased monitoring often brings to mind images of Big Brother and the biblical “Mark of the Beast.” Thus, it is incumbent on retailers and manufacturers to work with organizations like EPCGlobal ( to educate consumers as to the workings and benefits of RFID technology. Certainly though, it can not be a one-sided equation, with all benefits going purely to manufacturers, retailers, and shippers, without touting the very real benefits that the technology offers to consumers with very little downside, once it is understood.

For all of us, RFID thus represents one of those “game-changing” technologies—like the Internet, cell phones, and bar coding itself three decades ago. Billions and billions of dollars are being invested in companies that are developing and marketing RFID hardware, software, tags and reading devices for them and hawking their RFID consulting services. The RFID market is today a free-wheeling affair, as despite some recent acquisition activity, the marketplace is not dominated by a Microsoft, IBM or Sun, even though all are highly involved with the development of the technology. Fortunes will be made by these innovative, largely small and medium-sized firms who can find ways to profitably leverage the visibility made possible by RFID-enabling enterprises and entire supply chains. Likewise, end-user companies will find competitive advantage through their ability to implement and use RFID technology effectively in their own operations and in tandem with their supply chain partners.

Thus, in today’s environment, owing to the famous scene in the movie, The Graduate, when Dustin Hoffman was given a one word, can’t miss business tip— “plastics,” the one word advice for today in business is actually an acronym, “RFID.”

David C. Wyld () is the Maurin Professor of Management and Director of the Strategic e-Commerce/e-Government Initiative at SoutheasternLouisianaUniversity in Hammond, Louisiana. He is the author of the recent research report, “RFID: The Right Frequency for Government,” to be issued by the IBMCenter for the Business of Government. The complete report can be downloaded from the IBMCenter’s website at: