eBusiness Evangelist: An Interview with Erik Brynjolfsson (page 4)
-- Supply Chain Management Review, 1/1/2006
Page 4 of 4
Q: Could you talk about some of the research projects going on at the Center for eBusiness, in particular, the research being done on RFID?
A: Brian Subirana, Rob Laubacher, and Tom Malone at the Center have been doing a lot of research on RFID. To measure the value of this technology, they’re applying a model that was developed here at MIT called activity-based performance management, or ABPM. It seeks to measure the performance benefits of specific activities. There are some analogies to activity-based costing, which is an accounting approach. But measuring performance is a little trickier because performance often involves a lot more interactions among different components of the organization. The researchers have applied this methodology to some specific RFID implementations. In one project involving a big personal health-care products company, they went to their facilities and looked at the rollout of RFID at the pallet level and documented in great detail how the technology was being used. To do this, they needed a baseline of what the company was doing beforehand.
One of the things they discovered, which really was remarkable to me, was the number of times an item was counted just inside the company’s own facilities. When they would move finished products from one part of the factory to another, there would be somebody literally counting the items before and after. This would happen numerous times inside the factory, even before they shipped it to an external supplier.
Q: Do you see RFID becoming increasingly important to businesses or is it a short-term phenomenon driven by the mandates from Wal-Mart, the Department of Defense (DoD), and others?
A: Well, it’s certainly part of a much broader trend in which all of the activities in the firm will be measured much more minutely. And cheap and abundant information—which RFID may represent—enables this. Now as for the specific RFID technologies, I think the jury is still out in a lot of ways. There certainly have been a lot of aggressive moves by Wal-Mart and the DoD and other organizations, and we’ve been able to document some really large performance improvements. But I think that the future of RFID probably has less to do with the technology than with the business processes and the business case to take full advantage of this technology. Managers need to think about what they could do differently now by being able to measure things more carefully through technologies like RFID. That’s where the big wins are going to come—not just simply from taking their existing processes and squeezing a few costs out of the intermediate steps. And that’s going to take time.
Q: That comes back to a point you made earlier about the importance of measuring before, during, and after, right?
A: Measurement is critical. In fact, one of the reasons that productivity is growing so much faster now than it was a couple of decades ago is not just that the technology has improved, but that we are doing a better job of measuring, monitoring, sharing, and just learning about process improvements. As information gets shared more rapidly, the whole economy tends to grow faster. A few decades ago, there wasn’t as much of a culture to share, and there wasn’t as much of an infrastructure for measuring and sharing the practices that were working.
Q: e-Business enables sharing information with your supply chain partners? But is there still a hesitancy to share?
A: Yes, that’s part of the cultural problem. So now you can share a tremendous amount of information with suppliers and customers around the world. That information is incredibly valuable in increasing production, but it also could be seriously abused. If a supplier knows that a customer absolutely, positively has got to have this product by such and such a date or all hell will break loose, that potentially gives the supplier enormous bargaining power. And if you don’t have a trusting relationship, the supplier could abuse that and hold up the customer for millions of dollars. Well, they could do that once, anyway. But when companies have these types of one-off relationships where they go with the low bidder one time and then with different low bid the next time, that does nothing to builds an environment of trust in which you can share information. We’re seeing a move toward not just more sharing of information, but in parallel, more long-term partnerships that are built on trust rather than low price, and “What have you done for me lately?”
Q: So you’re saying that technology is certainly an enabler and facilitator, but it has to be done with the context of trust among the parties?
A: Well, it goes back to a word I used earlier, complementarity, which means that the change in the technology is a complement to the organizational change. Yes, you can do the technology alone, but you don’t get nearly the payoff you would if you’d combined the technology with trust-oriented relationships. On the other side, trust is great, but it really gets leverage when you have the technology that allows you to share the information. The two of them together are much more valuable than either one alone.
View All Blogs
