RFID: Wireless Innovations in Inventory Monitoring and Accounting

By Stambaugh, Clyde T.; Carpenter, Floyd W. | Strategic Finance, December 2009 | Go to article overview

RFID: Wireless Innovations in Inventory Monitoring and Accounting


Stambaugh, Clyde T., Carpenter, Floyd W., Strategic Finance


A soldier falls injured behind enemy lines and can't be located, his life hanging in the balance. A newborn is abducted from a hospital--her parents, law enforcement, and medical personnel are searching frantically for her. A traveler's suitcase, containing family heirlooms, goes missing at an international airport. Can it be recovered, or is it lost forever? A relatively untapped technology--radio-frequency identification (RFID)--can provide a good outcome in each of these scenarios, as well as in many others.

RFID systems are rapidly replacing many UPC (Universal Product Code) and manual systems to monitor and account for inventories. The primary motivating factor for this change is the potential for greater efficiency and lower costs. For many companies, RFID promises highly automated, paperless inventory systems with significant benefits, profoundly affecting the way business is conducted. RFID isn't without its disadvantages, however, and actually increases some risks.

This article will examine the pros and cons of radio-frequency identification and will offer suggestions for companies that are considering reengineering their legacy inventory systems.

Managing Inventories: A Brief History

Methods of managing and accounting for inventories have changed dramatically over the ages. Around 2,000 years ago, shepherds accounted for their flocks of sheep using simple approaches such as tying knots in strips of leather. During those early centuries, inventory systems developed very slowly. Eventually, advances in manufacturing techniques and the Industrial Revolution impelled the development of more-sophisticated methods of costing and accounting for inventories.

As time passed, better information technology, maturation of markets, and increases in global competition demanded even greater accuracy in product costing and timelier accountability. With increasing worldwide competition, automating manual processes and adopting more-efficient systems became increasingly more important to the survival of companies with relatively high labor costs. Automation helped.

Although the key idea to electronically tabulate data may have arisen from John Shaw Billings (creator of the National Library of Medicine and the first director of the New York Public Library), Herman Hollerith developed the first mechanism in the late 1880s. Officials used his famous Hollerith cards to count the 1890 census in a single year compared to the eight years it took to tabulate the results of the 1880 census.

Following Hollerith's lead, several inventors developed and patented coding schemes, as well as mechanical and electrical equipment, to exploit the potential associated with automating inventory and point-of-sale systems. The evolution of these coding schemes led to the UPC systems that are now immensely popular and have broad commercial use. Yet the first retail application of a UPC didn't occur until 1974--a 10-pack of Wrigley's Juicy Fruit gum sold in a supermarket in Troy, Ohio.

Radio-frequency identification's exact birth date isn't clear, nor can a single party receive sole credit for its invention. In fact, RFID is really just a more advanced, wireless application of the earlier electronic tabulation systems. Some attribute its roots to an espionage tool, developed for the Soviet Union in 1946, that retransmitted radio waves with audio information. Others assert that RFID emerged from research in the United Kingdom to develop transponders for distinguishing friendly from hostile aircraft during World War II. In any event, it wasn't until 1973 that the first passive radio transponder containing memory was patented in the United States by Mario Cardullo.

RFID vs. UPC Systems

RFID uses radio-frequency tags to enable the physical tracing of goods through the receiving process, raw material stores, production, finished goods inventory, and shipping. It does so without the "line-of-sight" proximity that systems using legacy UPC technology require. …

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