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Building on Retail's RFID Foundation

Companies that have deployed RFID to improve inventory accuracy can now use the technology to gain a competitive advantage.
By Bill Hardgrave
Aug 26, 2014

In 2007, the RFID Research Center identified and began promoting what we call the four foundational use cases for RFID in retail: inventory accuracy, out-of-stocks, product location and loss detection. All retailers face these issues, and RFID addresses each of the issues head-on. By 2009, inventory accuracy, which affects the other foundational use cases, had become the silver bullet for RFID adoption. That's why, in my first column for RFID Journal magazine, in 2012, I wrote that any retailer not actively considering tagging and tracking items to improve inventory accuracy had better "get in the game" (see Tracking Your Competitors).

Today, it is hard to find a retailer that is not aware of RFID's ability to improve inventory accuracy, which, in turn, leads to better replenishment practices, significantly reducing out-of-stocks. With RFID, we know where things are in the store and, if deployed properly, the technology can serve as a loss-detection device.

Recently, I've had conversations with several retailers that have deployed RFID. None of them asked whether RFID could deliver on the promise of inventory accuracy. They already knew the answer to that question. Instead, they all wanted to know what other benefits they could achieve, now that they're tracking items in their stores. I told them the RFID Lab has identified a number of ways they could build on the foundational uses cases. We call these applications second-order (SO) use cases.

Let's put these SO use cases in perspective. I have suggested for several years that the foundational use cases are not strategic, because they will not provide a sustainable competitive advantage. High inventory accuracy may provide an edge in the near term, but every retailer can—and eventually will—deploy a basic RFID system and conquer the foundational use cases.

The SO use cases, on the other hand, will allow forward-thinking retailers to use the foundational RFID data to do things never before deemed possible. These retailers will develop proprietary solutions that cannot be easily duplicated by others, and the market share they'll capture by using these innovative solutions likely will be sustainable.

Take, for example, distributed order management (DOM), which addresses whether to source goods directly from the supplier, the back room of a store or a distribution center. As retailers develop an omnichannel strategy, the from-where-to-source decision must be optimized and made in real time. This decision requires high inventory accuracy and knowledge of where the product is located. Solutions developed for DOM will be complex, retailer-specific and based on RFID data. The first retailers to solve this issue will be able to provide an unparalleled experience for their customers.

In my next column, we'll explore more SO use cases for retailers.

Bill Hardgrave is the dean of Auburn University's Harbert College of Business and the founder of the RFID Research Center. He will address other RFID adoption and business case issues in this column. Send your questions to hardgrave@auburn.edu. Follow him on twitter at @bhardgrave.

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