MIT and IESE Study Shows RFID's Value

By Claire Swedberg

May 1, 2006—A new study conducted by the Massachusetts Institute of Technology (MIT) and the University of Navarra's IESE Business School, in collaboration with Wal-Mart, Gillette and Kimberly-Clark, asserts that real financial gains can be achieved from using EPC RFID technology in the retail market. MIT and IESE presented the study, based on six months of research, as two vignettes (scenarios): electronic proof of delivery (EPOD) of products and the use of RFID to track retail promotions.

Brian Subirana, IESE and MIT Auto-ID Lab

For each vignette, MIT and IESE investigated how passive UHF EPC RFID systems were used by participating companies. "This study is based on data from real implementations, not estimates," says Brian Subirana, lead researcher for the study, associate professor of information systems at IESE and visiting associate professor at MIT Auto-ID Laboratory. Subirana explains that the study investigated EPC systems already in use by such companies.

The EPOD scenario included tens of thousands of tags, Subirana says, and thousands of line items (lines of an invoice usually corresponding to shipments of one SKU). According to Subirana, the message both vignettes delivers is that "when you factor everything, RFID allows you to capture value today, even without a full deployment of the RFID infrastructure." In the case of EPOD, the study showed, RFID allows that capture of direct value by improving accuracy and eliminating or resolving discrepancies between the supplier and the retailer.

The EPOD vignette examined the receipt of product, the counting of product received and the matching of what was received with what was invoiced, all using RFID technology. Wal-Mart, Kimberly Clark and Gillette participated in the study, illustrating how RFID technology worked with Wal-Mart's receipt of products from Kimberly Clark and Gillette.

The basic principle behind EPOD is simple: When a manufacturer receives an order from Wal-Mart, the supplier sends cases with passive EPC UHF tags attached, then reads the tags on the cases as they ship to create an advance shipping notice. When Wal-Mart's distribution center receives the shipments, it interrogates the case tags, generating an electronic proof of delivery.

The EPOD study found that benefits include identifying small inconsistencies between the quantity and type of goods Kimberly-Clark and Gillette said they shipped and the quantity and type of goods Wal-Mart reported receiving. Previously, such inconsistencies often went uninvestigated because of the cost versus benefit of manually tracing the inconsistency. By identifying inconsistencies that would otherwise be overlooked, companies can reduce the cost of lost or misrouted product and avoid over- and under-stocks down the supply chain.

The research found that the study participants were able not only to identify discrepancies as they happened in the distribution center, but also to trace their source. The cost savings to Wal-Mart of utilizing EPC RFID technology to identify these discrepancies, according to the study, was at least $.01 and $.03 per case. The study did not identify an upper bound for the value, but researchers concluded that benefits from RFID adoption could be obtained even with imperfect read rates.

The second vignette showed how EPC RFID technology benefited those participating in retail promotions. In the case of promotions, delayed or premature product movement onto the sales floor can have a large impact on the retailer's success in selling the product.