Why RFID Won't Fly for a While

How to Save RFID Initiatives for the Department of Defense and Wal-Mart When Wal-Mart and the Department of Defense (DoD) both push a new initiative it gets people's attention, for together they represent roughly 5% of the US GDP. Today, they are both requiring suppliers to attach Radio Frequency Identification Devices (RFID) to pallets of products and eventually each individual item. Strangely, these two very different organizations face similar pressures to improve efficiency of assets while simultaneously managing radically increasing complexity of assets used or sold. Despite enormous pressure, suppliers are resisting, for RFID is simply the next incarnation of a very long-lived control logic aimed at governing the actions of organizations by relying on a smart monitoring network at the center tracking all the parts "at the ends". I call this smart network, dumb ends or smart/dumb control. Given the smart/dumb approach RFID's incremental value will not recapture its cost of creation for it will not deliver enough value if it is only used to extend existing control thinking.

However, within this potentially gigantic fool's errand, there lies a potential breakthrough in how we manage networks of goods (and potentially services, too). If we combine a smart/dumb network to do what it is best suited for along with a dumb network with smart devices at the ends (its inverse -- a dumb/smart network) we can design a system that effectively deals with exceptions, the bane of any complex logistics system, and thereby set the stage to deal with non-standard products with the same efficiency as standard products, and the exceptions they cause. The firm who first figures this out will have the efficiency of Costco, with the effectiveness of the corner store. I call this mix "The Control Alloy," for like any alloy, the mixing of constituent parts makes a result stronger than either was before the blending.

A Thought Experiment

There is a mile long warehouse operated by a large retailer which was outfitted with the state of the art bar-coding equipment at a cost of over forty million dollars. Yet, the warehouse was plagued by many exceptions driving down efficiency. The retailer found only 3% of orders caused 80% of these problems: custom furniture, usually sets that had to be delivered together to the customer. Custom furniture was caught in a Catch-22; it could not be bar-coded until all the pieces were present, but when the later pieces arrived, the earlier pieces could not be found because they were not bar-coded.

One smart advisor suggested that they use a new technology called motes - tiny reusable computers costing $20 a piece or less --  which are programmable, have attachable sensors, and can communicate with each other and with other networks -- on each piece of furniture as it came in. Then the piece parts could "wake up" every few hours, look for each other, and when they were all there - like a set of dining room chairs awaiting a table - they could tell the barcode system they were ready for processing.

By putting the smarts on the exception, the exception becomes self-tracking, and allows for it to be monitored with tiny amounts of overhead. It can let the rest of the network know when it is ready to be processed. Also, you can remove and reuse the motes once furniture is processed in the barcode system, and like all digital devices, motes will get much, much cheaper soon. This is an example of a dumb network with smart ends: dumb/smart control.

The importance of this approach is that in almost every system, it is the exceptions that drive up costs and drive down quality because they are exceptional, requiring non-standard procedures. Trying to extend the smart/dumb network for exceptions drives up complexity and cost because it is not only difficult to do, but one must imagine many more eventualities than will ever occur. Chasing that last bit of control costs a fortune - hence RFID is not being well welcomed.

If we change our thinking and add a layer of dumb/smart networks to "alloy" our smart/dumb networks, it will enable all sorts of variety at "the ends." This approach would enable much easier handling of returns, which often have an unpredictable route. It would allow for more customization of parts, orders and services, for each order could have its own smart bill of lading that knew what to look for before getting ready to be shipped. It might even allow fewer manufacturing activities to migrate off-shore, because on-shore creation may be able to compete more effectively for differentiated demand if it is not reliant on supply networks optimized for regularity. Target might source more from the USA, if it could have the efficiency of a standard supply chain, with the differentiation of a local product delivered quickly.


Like many things, the right combination of approaches can yield something that neither could deliver on its own. The current efforts of the DoD and Wal-Mart will not yield value for the economy unless we begin to understand the need for a Control Alloy, not just another phase in a very old and rich tradition of centralized control.

The Achilles Heel of Customer Information