Large companies such as Gillette, Procter & Gamble, and Wal-Mart may be leading the way today in adopting radio-frequency identification technology. But RFID could in time become a "disruptive technology" that gives fast-moving small companies an advantage over large, established ones.
Just how disruptive RFID may be was the topic of debate among academics and industry executives Tuesday at the E-Business Is Business conference at MIT. There was also a consensus that while retailers and consumer packaged-goods makers are pioneering the use of RFID, pharmaceutical manufacturers may accelerate the use of RFID tags at the item level very shortly.
Sanjay Sarma, a co-founder of MIT's Auto-ID Center, which has helped spur the commercial development of RFID, said disruptive technologies are used by small and emerging companies to "overthrow" established companies by changing how business is conducted. He pointed to Zara, a Spanish specialty-apparel retailer owned by Inditex Group that's already shaking up the retail clothing industry with its ability to quickly introduce 12,000 new stock items per year, as a company that could radically change the industry by using RFID.
Avoiding out-of-stock products and empty shelves is Gillette's main goal for its RFID program, said Jamshed Dubash, who oversees Gillette's RFID efforts. "It's all about perfect retail," he said. While RFID is promoted as a way of reducing losses from shoplifting and supply-chain theft, Dubash said theft is a relatively small problem compared with lost sales because of products that are out of stock. Between 8% and 12% of all items in stores are out of stock at any one time, Sarma estimated.
While saying RFID has been overhyped in some instances, Sarma said it's been underhyped for its potential in the pharmaceutical industry, where he predicted that use of RFID tags on individual containers of drugs "will happen sooner than many people realize." Retailers such as Wal-Mart are experimenting with using RFID to track pallets and boxes of goods, not individual items.
"The pharmaceutical industry is going to move faster than other industries in RFID adoption," agreed James Hintlian, who oversees Accenture's health and life-sciences supply-chain practice. He said the major application for RFID will be preventing the introduction of counterfeit drugs into the supply chain, which he said can make up 2% to 7% of all drugs in the United States and as much as 80% in some Third World countries.
Working the technical bugs out of RFID tags and readers is the biggest issue facing RFID technology manufacturers and users over the next six months, Sarma said. For example, RIFD signals still have trouble penetrating liquids. Sarma also said that as RFID develops, the temptation will be to add more data to the chips beyond basic product-identification numbers. But he cautioned against that, saying it could slow RFID development.