RFID as a Disruptive Technology

By Mark Roberti

Bill Hardgrave makes the case that companies can get the most value out of RFID by using it to disrupt the competition.

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Speaking in London at RFID Journal LIVE! Europe—UK on Oct. 30, Bill Hardgrave, dean of Auburn University’s College of Business and founder of the University of Arkansas’ RFID Research Center, said radio frequency identification can be used as an evolutionary, radical or disruptive technology, and companies can get the most value by using RFID in a disruptive way.

Hardgrave described evolutionary technologies as those that are built on existing technologies and deliver only minor changes to the status quo. Evolutionary technologies bring some improvement to the business—lower costs, for example—but the improvement is modest and the results are largely predictable.

Illustration: iStockphoto

Radical technologies, he said, bring revolutionary or transformational change. They enable companies to achieve significant improvements in existing processes or enable new processes. The results can be unpredictable, because the radical technology is not based on an existing technology and the process change is new.

A disruptive technology, Hardgrave told the audience, “changes the basis of competition. It enables us to do things we were unable to do before. The technology lacks refinement. We don’t understand the performance issues and [the disruptive technology] might not have a practical application. It’s a solution in search of a problem.”

Early RFID adopters, including Walmart and other retailers, viewed RFID as an incremental technology, a better bar code, Hardgrave explained. They tagged pallets and cases and used RFID to read the tags faster or automatically, but in many instances they did not even use the unique serial number in the tags. Many people described RFID tags as “bar codes on steroids,” he noted.

“If you think of RFID as just the evolution of bar code—a very stable, existing technology—then it’s just a tweak of what you’ve been doing,” he said. “Retailers were tracking pallets and cases with bar codes, and they just overlaid a stable process with RFID.”

The technology did deliver incremental benefits. A study by the RFID Research Center showed that RFID could reduce out-of-stocks by approximately 20 percent. “That’s significant,” Hardgrave said, “but it is incremental.”

Using RFID to track goods in the supply chain provided visibility into the movement of goods, and retailers began to realize that the big issues leading to out-of-stocks occurred in the store and at the item level. This led to a shift in thinking. “Around 2006 or 2007, the term ‘bar code on steroids’ started to fade out,” Hardgrave said. “Companies’ thinking changed as we learned what RFID could do. Pallet and case tracking opened our eyes to the benefits that could be achieved at the item level… Instead of just looking at out-of-stocks, we could do things like improve inventory accuracy, improve shelf replenishment, reduce shrinkage, manage dressing rooms better and so on.”

The RFID Research Center study showed that the top 10 U.S. retailers had inventory accuracy at roughly 65 percent, and RFID could boost that to the upper 90s. Using RFID to improve inventory accuracy created an opportunity for retailers to effect radical or transformational change, because so many aspects of a store’s operations depend on accurate inventory, including replenishment, reordering and merchandising. “It is not an incremental change,” Hardgrave said. “It allows us to address issues that have plagued retailers forever.”

RFID can bring even greater change, Hardgrave explained, if retailers go a step further and use it as a disruptive technology. One way several retailers are trying to do that is by using RFID technology to support omnichannel retailing, which means a customer could purchase an item online and pick it up in store, or buy online and return the item to the store. True omnichannel retailing will allow brick-and-mortar retailers to disrupt online retailers by offering same-day delivery and other services online retailers can’t offer.

The online retailers disrupted conventional retailing by having better inventory accuracy (visibility is usually lost at the store and online retailers don’t have stores). Sales online have been growing faster than store sales for the past few years, because online retailers can usually deliver what you ordered within a few days, which beats going to a store to find it is out of the item.

“If a brick-and-mortar retailer does omnichannel right, it could disrupt online retailers,” Hardgrave said. “That’s because they will know exactly what they have in the store. So if someone in New York City orders an item online, they can deliver it from a store a few blocks away the very same day. Pure online retailers have to deliver from a centralized warehouse, so they will struggle to compete with a true omnichannel retailer.”