Had a Chat with Your Refrigerator Lately? Radio Frequency Identification (RFID) Technology Has the Potential to Transform the Supply Chain and Allow Retailers to Concentrate More Time and Attention on Consumers

By Almirall, Esteve; Sachon, Marc | European Business Forum, Spring 2004 | Go to article overview

Had a Chat with Your Refrigerator Lately? Radio Frequency Identification (RFID) Technology Has the Potential to Transform the Supply Chain and Allow Retailers to Concentrate More Time and Attention on Consumers


Almirall, Esteve, Sachon, Marc, European Business Forum


Consumers don't realise it, but today's major retail chains are drowning in complexity. Large supermarkets can carry upwards of 8,000 different SKUs (Stock Keeping Units), all of which have to be managed, and detailed tasks such as ordering, order reception, payment, inventory management, and promotion planning must be performed efficiently and accurately.

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Thirty years ago bar codes and universal product codes (UPC) were introduced in response to this challenge, allowing the identification of a product's manufacturer and its product type (e.g. The Coca-Cola Company and a 0.331 can of Coca-Cola). At different positions in the supply and distribution chain bar codes allow information about a product to be read and entered into the corporate information system. In this way companies can collect data at selected points in their supply and distribution networks and 'see' down to the SKU level.

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The manual labour involved, however, is just one of the problems with bar code technology. Another is its inability to differentiate between units of the same SKU. This is especially relevant with perishable goods, such as lactose products with a limited shelf life. A bottle of milk with a bar code that has just arrived in the supermarket is identical to one that arrived four days ago and still sits on the shelf. If retailers were able to distinguish between these two bottles they could lower the price for the one closer to its 'use-by' date, generating enough demand to ensure that it was sold in time.

Another challenge for retail chains is inventory management. In a recent study, Professor Ananth Raman of Harvard Business School discovered that inventory records were wrong for over 70 per cent of SKUs in a store belonging to a leading US retailer with more than $1bn in annual sales and a reputation as a leader in using IT systems. Fortunately, a technological replacement to bar codes, the Radio Frequency Identification (RFID) tag, is on the brink of being introduced to retailing on a major scale, bringing the promise that these issues can be resolved in the future and providing management with better and more reliable data for its decision-making. With RFID, companies will be able to collect information in real time (instead of sporadically) and will be able to distinguish between items of SKUs (that is, distinguish one can of soft drink from the can next to it, even though to the eye they seem identical). The implications of this technology are profound, not least the opportunity it offers to streamline supply chain management (that is, reduce costs and increase efficiency) while offering more convenience to the consumer (such as, faster check-outs).

RFID Technology

There are four crucial components of RFID technology: tags, scanners, networks and software.

RFID tags are small chips (they can be smaller than a grain of sand) with an antenna. The chip can hold small amounts of data (the same amount as a wristwatch with a memory for appointments). The tags are small, usually flat in shape and resemble the anti-theft tags currently used in bookstores. When RFID tags are exposed to the electromagnetic pulses of an RFID scanner, they use this electromagnetic energy to power themselves up and send their data to the scanner (if they were addressed). The range of these tags is limited to a few metres but there is an active version (with a battery) which has a longer range. Using current reader technology, approximately 300 tags per second can be read.

The format of the data contained in the chip has not yet been standardised. One of the leading research centres in this field, the AutoID Center at MIT*, proposes the use of a 64- or 96-bit code, called electronic Product Code (ePC). This code will be stored in the RFID tag. Once the tag is read, the code is used to query a database where all information is stored. …

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