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Through the Trough of Disillusionment

Barriers to the adoption of radio frequency identification technologies are disappearing.
By Narges Kasiri, Gerd Wolfram and G. Scott Erickson
Mar 31, 2019

U.S. and European retailers are rolling out RFID technologies at an increasing rate in recent years. It has been a long journey since RFID was introduced in retail more than two decades ago. The benefits of RFID in retail operations are well-proven: fewer out-of-stocks, improved efficiency, theft reduction, better inventory control and more. So why was RFID retail adoption so slow—and why is it now accelerating?

We asked U.S. and European retail executives about their experiences in adopting RFID technologies and solutions. Here, we will share the important factors discussed.

Left to right: Narges Kasiri, Gerd Wolfram and G. Scott Erickson
• Prioritize organizational RFID investment.
Budgets are always limited and numerous technology alternatives exist. Spending on big-ticket investments such as RFID is difficult without a long-term vision. Current industry priorities, however, include omnichannel services requiring full visibility, fewer out-of-stocks and greater inventory accuracy, all impossible without RFID. Further, if decision-makers intend to reduce human error—so as to increase efficiency and sales, slash labor costs through employee satisfaction, and delight customers with inventory visibility and smart fitting rooms—all are possible with RFID. Less expensive and more visible technologies, such as digital marketing, may look more attractive in the short term, but they don't deliver the same long-range results.

• Aim to improve operational efficiency.
RFID enables a retailer to confidently commit store items to online shoppers, knowing the products are there for fulfillment. At the same time, merchandise availability is increased and markdowns are decreased as balanced supply and demand enable the selling of all available supplies from the full network of stores. Similarly, supply chain errors decrease as suppliers ship the correct products to the right stores, audit accuracy increases (with noncompliance rates dropping from 30 percent down to 4 to 6 percent), and consumer trends can be better tracked, matching inventory to demand while introducing engaging shopper experiences.

• Consider economies of scale.
Operational size influences the RFID adoption process. In general, larger-size retail means more scale economies with lower cost per unit. Even so, the denser European supply chain, with fewer distribution centers, enables the technology's coordination and implementation across the continent when compared to more dispersed U.S. retailers. In addition, the more common vertical integration across the supply chain in Europe (for example, at Marks and Spencer) allows for faster technology adoption, thereby reducing the need to deal with non-affiliated suppliers.

• Reduce concerns about RFID's technological complexity.
Complexity has diminished over time. Current RFID technology is a new paradigm connecting the physical and digital worlds. Tag design, middleware software and infrastructure have all evolved. The availability of cloud-based storage and services allows retailers to leave some implementation and support complexity to third-party providers. Technology improvements and standardization have been continuous. Technology was a limiting factor years ago, but significant improvements—such as tag maturity, allowing better handling of liquids and metals, or powerful readers with more capabilities—are indicators of user-ready technology. GS1's and EPCglobal's efforts have also addressed most of the issues on standardizing frequency allocations, tag codes and data exchange.

• Recognize costs but view them in context.
Recurring tag costs and infrastructure costs have fallen over time but are still considerable, especially when compared to investments in alternative technologies, such as enterprise resource planning (ERP) systems. Benefits are more visible, so cost should not be all a retailer sees. RFID technology pays off over time, but if executives are more concerned about quarter-to-quarter costs and revenue reports, they'll miss the big picture. The long-term returns are the leading justification for retailers' RFID investment decisions.

• Manage privacy policies according to best practices.
Privacy issues are quite visible these days. In this age of ubiquitous technology and data, with smartphones, social media and many other technologies available, consumers are more comfortable with technology than ever before. Consumer advocacy groups, however, are still concerned with the level of identity and location data available within RFID systems. The greatest concerns are raised in Europe, with its greater sensitivity to consumer privacy issues. Many initiatives and policies, such as the Privacy Impact Assessment (PIA) in 2011, have been developed by the European Commission and other centralized authorities in Europe throughout the last decade. In the United States, however, the lack of a central authority has left privacy issues only partially addressed and still open to industry-driven initiatives. Without a centralized coordination, privacy policies can even be more complicated in the United States if those policies differ between states.

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