Why RFID—and Why Now?

By Mark Roberti

Radio frequency identification is gaining traction, because business needs drive the evolution of information technology systems.


When I spoke at the MIT Sloan CIO Symposium, on May 19, I had a chance to chat with some attendees. One CIO from a large Midwestern manufacturing company indicated RFID was just one of many emerging technologies on which he needed to keep up-to-date. “There are always new technologies emerging,” he told me, “like price-optimization software, that we need to evaluate periodically, to see which ones can deliver value to the company.”

Price optimization, to my mind, is not a technology, but rather a software application. And it’s not that new—I wrote about Ford dealerships using it back in 2001. But his larger point seemed to be that the development of new technologies is random, like genetic mutations, and that his job was to see which were ready to be used, and which were not—sort of the way natural selection decides which mutations carry on and which die out.

While genetic mutations are random, the forces of nature influence the course of evolution. For instance, if there is a long cold spell, mutations such as a heavy fur coat will help an animal survive. Similarly, new IT products might pop up randomly, but business factors determine which catch on and which are discarded.

In the 1960s, for example, the need of senior managers to process more information as companies grew led to the adoption of mainframe computers. In the 1970s, the need to crunch numbers at the department level resulted in the adoption of minicomputers. And a decade later, individuals needed to process information, so desktop computers caught on.

Today, companies are managing many aspects of their business extremely well. CEOs at television stations have dashboards that show the nightly ratings of their shows and the yield on advertising. Manufacturers track the output of production lines and the number of defects per million. Cisco is able to close its books at the end of each business day.

But CEOs have virtually no visibility into the mobile aspects of their business. The CIO of a major consumer packaged goods company told me, a few years back, that at any given time, it has a billion dollars’ worth of inventory that it can’t locate. Most companies replace 10 percent or more of their returnable transport items each year. Inventory accuracy in many apparel stores is only 65 percent, and out-of-stocks has remained stubbornly at 8 percent for the past 15 years.

RFID is emerging because it addresses problems no other technology can solve. Bar codes are too expensive—it would cost a fortune to have people scan them each time an item moves. Ultrasound and infrared technologies can not penetrate materials, so they would require opening a box to count what’s inside. And GPS doesn’t work indoors.

All of these technologies are important, and all have a role to play in helping firms gain visibility of—and better manage—the mobile aspects of their business. But RFID and RFID-based sensors will cover the vast majority of mobile assets, from individual items in inventory to cargo containers.

So that leaves the question: Why now? It’s because RFID is the logical next stage in IT evolution. By the late 1990s, companies had eliminated layers of management and boosted office productivity, so they began looking for new areas of inefficiency to attack. There were still tremendous inefficiencies in managing mobile assets (I’m using the term broadly here), so they turned to RFID. Wal-Mart, Procter & Gamble, Gillette (now part of P&G) and other major companies supported RFID’s development at MIT’s Auto-ID Center, because they believed the technology could address problems with goods flowing through the supply chain.

Over the next two decades, companies will come to know as much about the location and use of a pneumatic tool on the shop floor, or a returnable transport item in the warehouse, as they do about a salesperson in the head office, or a marketing person overseas. I’m sure of this, because the business forces driving IT evolution are clear: Just as animals adapt to survive and procreate, companies need to get ever more efficient and profitable in order to survive. One interesting question, then, is this: So what comes after RFID?

I’ll address that one next week.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog, RFID Connect or the Editor’s Note archive.