A Revolution in the Supply Chain

On Thursday morning, Kevin Ashton, executive director of the Auto-ID Center, opened the day with a lecture entitled A Revolution in the Supply Chain: From Concept to Reality. Ashton presented the Auto-ID Center's vision for creating a world where all goods are tracked using an Electronic Product Code stored on an RFID tag (Ashton did not give permission for us to post his presentation). He explained how, as a brand manager at Procter & Gamble, he was in charge of launching a new type of lipstick. He found it wasn't available in four of ten stores at any one time, but the company had 200-plus days of inventory in warehouses. "That's a painful problem for a company like P&G," Ashton said.

Ashton says small is better

The problem, the company determined, was information. The retailers and P&G didn't know where the product was. Ashton realized that if they had that information, they could keep the products on the shelf, solve other problems and find other opportunities. He explained that computers are only good at recognizing and talking to other computers. So the way to be able to track objects was turn them into wirelessly networked computers by embedding RFID tags in them.

"The challenge that [Auto-ID Center founders] P&G, Gillette and the UCC had in 1999 was, How do we create this incredibly low-cost, incredibly scalable system to join these products together and give it away for free, make it open?" he said. That's why it turned to MIT to create "this impossible dream."

He explained how the center addressed the challenge of cost. The main problem was that the cost of a silicon wafer was fairly constant. But by cutting the wafer into smaller and smaller chips, each chip becomes less expensive. He explained how one of the center's technology sponsors, Alien Technology, figured out a way to create very tiny chips that could be mass assembled into RFID tags. He showed a photograph of an ant walking over some Alien chips. "That's a real ant," he said. "It's not some very large ant we created at MIT."

Cost is critical, Ashton said, because the Auto-ID Center's end user sponsors put upwards of 500 billion items into the supply chain each year. Five hundred billion times any number is a very big number. He said that 2010, Wal-Mart would be handling 100 billion items a year. If the cost of each RFID tag were increased by 1 cent, that would cost Wal-Mart's customers and shareholders $1 billion annually.

The way to make the tags cheaper was to have them hold only a serial number. Data associated with a serial number could be stored in a database. He said adding 96 bits of additional data increased the price of the silicon by about a penny. "That will go down over time," he said, "but more memory will always cost more."

Ashton said the only way to get the cost down to 5 cents was by increasing the volumes of RFID tags made. He estimated that it would require annual purchases of 30 billion tags to get the cost down to 5 cents. "If you are thinking you will wait until the tag cost goes down to 5 cents, forget it," he said. "If everyone sits around waiting for the tag cost to go down, it ain't going to happen."

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