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RFID and Productivity Growth: Behind the Economic Statistics

Companies using radio frequency identification to automatically track and manage assets are lowering costs, increasing revenue, and improving customer satisfaction and employee morale.
By Barb Freda
Aug 28, 2016

How productive is your organization? Can you produce more goods and generate more sales with fewer costs, resources and labor—in less time, with fewer errors? That has been the goal of many businesses since the Industrial Revolution. More recently, technology innovations were expected to deliver big productivity gains. But according to a U.S. Bureau of Labor Statistics report released in June, productivity growth, which measures output (revenue and inventory) per unitywhich measures output (revenue and inventory) per unit of input (labor and capital), is basically flat across the economy. The Conference Board, a global business membership and research association, reported in May that it sees modest global economic growth for the remainder of 2016 with little upside for 2017.

Yet, for several years, RFID Journal has been reporting that companies in health care, manufacturing, retail and other sectors that have adopted RFID have been achieving outstanding gains in productivity. Why the discrepancy?

It seems broad economic statistics show just part of the story. First, economists say, there is the "lag" effect—it takes time for new technologies to be harnessed, and RFID is still considered an emerging technology. Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy and co-author with Andrew McAfee of The Second Machine Age: Work, Progress, and Prosperity in the Time of Brilliant Technologies (2014), coined the term "productivity paradox" to explain the lag between the introduction of new technology and the implementation that makes productive use of the technical changes.

Robert Gordon, professor of economics at Northwestern University and author of The Rise and Fall of American Growth (2016), says there is plenty of innovation and technical change, but it is having very little impact on the economy at large. "Most of the economy operates much the way it did years ago," he says. "My emphasis is on how gradual the change is, how our economy is like an ocean liner taking a long time to turn." Gordon acknowledges that a technology such as RFID will improve productivity, because it improves inventory management without hand counts.

Second, economists aren't looking at individual technologies such as RFID when they discuss broad gains and losses in productivity, says Ygal Bendavid, a professor in the department of management and technology at the Université du Quebec à Montréal. "RFID is a data-capture technology. Economists look at composite indicators too large to discriminate the RFID role," he says. "They are missing the big changes at this level."

Sanjay Sarma, VP for open learning at MIT and co-founder of the Auto-ID Center, says it is a matter of scale—with so much innovation, productivity growth is difficult to measure. The noise of other variables must be stripped away, he says. When you do that, and look at just one technology such as RFID, it is much easier to see the benefits and real growth.

Economists who are pessimistic regarding the impact of technology on productivity "don't understand retail that much," says Bill Hardgrave, dean of Auburn University's Harbert College of Business and founder of the RFID Lab. "RFID presents opportunities to squeeze efficiencies out of the way we do retail, with less handling of product, a reduction of logistics and better ways to handle counting."

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