Packetizing the Real World

RFID (Radio Frequency Identification) technology is on its way. In the last issue of IESE Alumni Magazine (No. 93), the article “Had a Chat With Your Refrigerator Lately?” explored the development and possible impacts of RFID technology. The article outlined how RFID will affect retail by replacing bar code tags that require active reading with a wireless tag that can register the movement of goods passively. The potential savings for the retail industry are enormous, due to cost reductions in retail outlets and distribution centers.The article suggested that the major barrier to the technology’s widespread use was cost. This article delves deeper into some of the possible implications of RFID for retailing and distribution. In particular, it looks at the potential effects on business practices and prods business leaders to start thinking now about how RFID might affect their industry … because RFID may be with us sooner than we think. WalMart recently announced that its top 100 suppliers must adopt RFID technology by January 2005. And where Wal-Mart goes, many other large retailers are bound to follow.In this article, we will present some of the transformations enabled by RFID and other confounding trends. Since we cannot see into the future, we will speculate on a couple of scenarios with the aim of helping the reader analyze what the effects may be on various businesses. First, we contend that shipments will be broken down at origin, instead of products being shipped to intermediate warehouses. Such shipments will be fragmented to match demand and routed through a logistic network. The world will be packetized very much like the Internet has packetized digital information distribution. This contrasts with the prevalent bulk shipment supply chain. Second, we also contend that new forms of customer experience may emerge and displace current offerings