RFID at Retail -- Five Key Implications

July 1, 2003
NEW YORK -- Deloitte Research named Ajit Kambil, a specialist in new and emerging technologies and an expert on markets and auctions, as its Global Director

NEW YORK -- Deloitte Research named Ajit Kambil, a specialist in new and emerging technologies and an expert on markets and auctions, as its Global Director for Technology and Innovation. Besides concentrating on emerging technologies and innovation strategies, he will also work on innovations in supply chains and risk management.

"New technologies represent a critical edge as companies search for their competitive advantage," said Ann Baxter, global lead for Deloitte Research. "What Ajit brings to our clients is the ability to understand these nascent technologies and to help them seize their value." These technologies include such developments as radio frequency identification (RFID), grid computing and voice recognition.

Dr. Kambil joins Deloitte Research from Accenture's Institute for Strategic Change where he led research initiatives in electronic commerce, innovation and venturing strategies. Previously, he served on the faculty of New York University's Stern School of Business where he introduced e-Commerce into its Master in Business Administration program.

At NYU he led the National Science Foundation-sponsored project that pioneered the dissemination of U.S. corporate disclosures on the Internet. As an expert on designing and executing electronic markets and auctions, Harvard Business School Press published his book, Making Markets: How to Profit from Online Auctions and Exchanges, in June 2002. He and co-author Eric van Heck explore the wreckage of the first wave of more than 100 electronic markets and explain the characteristics of environments favorable to e-markets.

Dr. Kambil holds a bachelor's degree in electrical engineering and computer science, a master's degree in technology and policy, and management science, and a doctorate in management information technologies, all from the Massachusetts Institute of technology. He is also a Distinguished Scholar in Residence at Babson College.

Kambil recently authored a perspective on the strategic implications of RFID technology, including five key changes that will challenge the industry status quo:

1. On Shelf and In the Money:

-- Based on a GMA analysis in 2002 of the top 25 categories of supermarket products, out-of-stock products cost the industry upwards of $6 billion in lost sales each year.

-- RFID means shelf-level readers can detect when items are nearly out of stock and signal store or manufacturing personnel to replenish products. A small sales lift in popular products can drive a significant profit lift given the industry's razor-thin profit margins.

2. Retail by the Half:

-- RFIDs dramatically increase visibility into on-shelf availability of products and what sells. One result: the possibility of altering merchandise assortments and the in-store inventory mix to reduce space requirements of stores dramatically.

-- For smaller retailers, this can increase sales per square foot dramatically. Big box retailers may soon find smaller retail formats that offer competitive and compelling merchandise assortments challenging current industry assumptions.

3. Delivery on the Double:

-- For manufacturers, RFIDs promise much clearer visibility into product demand and the location of inventory, reducing the bullwhip effect of over- or under-stock inventories caused by imperfect visibility into the supply chain.

-- Information from RFIDs can be used to improve demand forecasts as well as reduce inventories to free up working capital. Inventory turns on key products may double, reducing working capital requirements.

4. Honest Trade:

-- Visibility in the supply chain and store shelf will enhance other key practices in the retailer-manufacturer relationship. Trade promotions to induce retailers to discount prices have expanded to more than $75 billion in 1998 from $8 billion in 1980. Such promotions today account for the second-largest expense, following only the cost of goods sold.

-- Item-level RFIDs will enable accurate remote monitoring from ensuring the right product is on the right shelf at the right time to assuring that promotional products are priced correctly and sold to the customer during a specific promotion.

5. The Rich Get Richer

-- The major cost driver to deploying RFID technologies represents the costs of tags. As more companies adopt RFID tags, the costs of tags for all companies will drop as will the fixed costs of readers and systems integration. But larger manufacturers and retailers stand to gain the most from deployment.

Deloitte Research produces cutting-edge research that empowers global enterprises to take maximum advantage of ever-changing market forces and the rapidly evolving technologies shaping their industries today and into the future. Thought-leading research is developed through state-of-the-art research techniques, surveys that assess the thinking of visionary leaders at the globe's leading corporations, insights gained on the front lines by our top-notch consultants, and partnerships with some of the best minds in academia. Deloitte Research identifies and analyzes market forces and major strategic, organizational and technical issues that are creating an upheaval in today's business dynamics, providing insight into new and evolving challenges and how to master them to retain or further develop a company's industry leadership role.