The RFID Value Proposition for Reverse Logistics
RFID—The Next Generation of Identification

David C. Wyld, Maurin Professor of Management and Director of the Strategic e-Commerce/e-Government Initiative, Southeastern Louisiana University

Reverse Logistics Magazine, Summer/Fall 2006

To better understand the power of RFID (radio frequency identification), it is first useful to compare and contrast RFID with bar code technology. The bar code has become a part of every product we buy, having become the ubiquitous standard for identifying and tracking products. While the bar code was intended to improve efficiencies in the grocery industry, it has become ubiquitous in the identification of everything, having been institutionalized across most industries and around the globe. In fact, the Uniform Code Council (UCC) estimates that there are five billion bar code scans each day around the world. Still, while the bar code and the UPC (Universal Product Code) have become omnipresent and enabled a host of applications and efficiencies, they only identify a "thing" as belonging to a particular class, category, or type.

A bar code can not uniquely identify the specific object before you; it can identify only the product and its manufacturer. For instance, while the bar code on a box of cereal can tell you the type, size, and producer of that box of corn flakes, it can not tell you:

• Where the cereal was boxed?
• When the cereal was produced?
• The lot and/or production run during which the cereal was made?
• Where the cereal box had traveled in its journey to the shelf?
• When will the product expire?

Conceptually, bar codes and RFID are indeed quite similar, as both auto-ID technologies which are intended to provide rapid and reliable item identification and tracking capabilities. The primary difference between the two technologies is the way in which they "read" objects. With bar coding, the reading device scans a printed label with optical laser or imaging technology. However, with RFID, the reading device scans, or interrogates, a tag using radio frequency signals. Thus, referring to RFID as "radio bar codes"—as many do—is a disservice to the technology, confusing the basics of the technology.

The specific differences between bar code technology and RFID are summarized in Table 1. In summary however, there are five primary advantages that RFID has over bar codes. These are:

• Each RFID tag can have a unique code that ultimately allows every tagged item to be individually accounted for,
• RFID allows for information to be read by radio waves from a tag, without requiring line of sight scanning or human intervention,
• RFID allows for virtually simultaneous and instantaneous reading of multiple tags,
• RFID tags can hold far greater amounts of information, which can be updated, and
• RFID tags are far more durable.

It is also important to bear in mind the fundamental temporal differences between bar codes and RFID. With bar code technology, information on the item is obtained only when someone takes the action of scanning the bar code label with a reader—and only that particular reader. In contrast, an item tagged with RFID is always "turned on" and available to be read—and perhaps by multiple readers at the same time. Thus, while a bar code labeled item can only be read discretely, an RFID-tagged item can be read or monitored continuously. In practical terms, a bar code can only tell you where an item of a particular class was when it was last scanned, while RFID can tell you precisely where a particular item is presently

RFID and Reverse Logistics

RFID has the potential to dramatically change and reinvent the handling of retail returns. Presently, with bar code based product identification, retailers and manufacturers alike have little information on precisely what is being returned. Once RFID tagging of individual items becomes commonplace, this will allow all parties in the returns handling process to have far greater visibility and create order—and value—from the process. In fact, in the estimation of Dale Rogers, Chairman of the Reverse Logistics Executive Council and Professor of Supply Chain Management at the University of Nevada, Reno, "RFID will completely change the deal."

With RFID tagged goods being returned, retailers will be able to gain far greater insights into their overall returns processes. Retailers will be better able to track returns by:

• Product Line
• Manufacturer
• Store
• Dates of Sale
• Consumer

By sharing this data with consumer goods makers, both parties will be able to better monitor returns processes and gain insights into patterns that may emerge through modeling the data across regions and retailers. While the final area may be troubling from a privacy standpoint, several leading American retailers have already compiled and act upon lists of customers on so-called "do not return" lists—which prohibit shoppers who habitually make inordinate numbers of returns from bringing goods back for credit. Such lists include individuals who may have obtained goods through fraudulent means or shoplifting and then later attempted to return the goods for cash or credit.

In the end however, RFID tagging of items—whether tagged at the time of manufacture or by the retailer at the time of sale—must be presented as not only creating a value proposition for the consumer products company and the retail seller, but for the consumer as well. While overall customer satisfaction can be improved through lowered costs and improved products on the shelf, these are abstract in value. However, one of the main ways consumers will benefit from RFID tagging of purchased items is through warranty work.

According to a 2003 study published in Warranty Week, fully 90% of all consumers do not fill-out and return the warranty registration cards commonly included with consumer electronics. Thus, at present, manufacturers have no idea who exactly owns what units they have produced. Likewise, when consumers present items for repair—either in an initial or extended warranty situation—a great deal of time and effort must be devoted to documenting the shopper's valid purchase and gaining information from the consumer to expedite the necessary repair and shipment of the item involved. However, RFID-tagging and data interchange between the retailer's point-of-purchase and the manufacturer's data systems will allow consumer products companies to know precisely when and where particular units of a production run were sold and who bought them. As a consequence, when units come back for warranty work, the manufacturer will be able to decipher heretofore invisible trends in returns.

For instance, a maker of portable electronic gear could ascertain if problem units came from a particular factory, production run, even down to a particular worker or units' work processes. The granularity of this information will give manufacturers far greater information on the in-field performance of their products, as well as providing consumers the benefit of enhanced warranty service work through automatic identification of their units. Likewise, retailers can expedite the handling of RFID-tagged items in the extended warranty process, cutting costs and improving efficiencies in these operations which Business Week recently chronicled as being critical to their overall profitability. For this reason, leading U.S. retailer Best Buy is not waiting for the day when consumer electronics will commonly bear individual RFID tags. The "big box" retailer has recently introduced a RFID-based program to improve the company's handling of returns right now. According to John Jordan, Best Buy's Director of Logistics, the retailer has recently started applying smart labels to all items returned to its stores. By putting RFID tags on items at the point of return, Best Buy can better track the returned items while they are under their control.

Conclusion—The Importance of "Live" Tags

In the end, RFID tagging of goods may be the critical factor in making the handling of returns more intelligent and far more efficient in coming years. Reverse logistics operations may also be one of the principal reasons that retailers and manufacturers alike should work to keep item tags "live" after the sale. If tags are "killed" at sale—whether to comply with consumer wishes or even legal mandates—a great deal of the information—value proposition for RFID tagging of individual items may be lessened if such tags are only readable in the forward-facing supply chain. Thus, consumer products companies and retailers will need to endeavor—both in the realm of educating consumers and lobbying government regulators and policy-makers—to keep item-level tags viable post-sale to better handle returns, speed warranty work, and improve product reliability for shoppers.

About the author: David C. Wyld (dwyld@selu.edu) is the Maurin Professor of Management and Director of the Strategic e-Commerce/e-Government Initiative at Southeastern Louisiana University in Hammond, Louisiana. He is the author of the recently released research report, "RFID: The Right Frequency for Government," to be issued by the IBM Center for the Business of Government.

Reverse Logistics Magazine, Summer/Fall 2006