INTRODUCTION
Barcode Background
With a simple design – a series of 59 black and white lines - and a
straightforward value proposition – accelerated check out times, pricing
accuracy, and reduced labor costs - barcodes were introduced to the mass market
in June of 1974 when a pack of Juicy Fruit gum was first scanned in an Ohio
grocery store. In the 60 years since barcodes were first conceived by Joe
Woodland while drawing lines in the sand on a beach in south Florida, rapidly evolving barcode
applications and new value propositions have come to serve as critical components of nearly all point-ofsale transactions and inventory management systems around the globe; scanned more than 10 billion
times each day, barcodes drive tens of billions of dollars in annual savings for consumers, retailers,
distributors, and manufacturers in a variety of sectors (Shih, 2009). Yet, despite the substantial benefits
derived from barcode technology, its path to adoption was hindered by a series of innovation risks and the
broader alignment of participants within select industry ecosystems.
Relevant Markets and Expectations of Opportunity Size
Barcode technology effectively serves as a link between the analog world and the digital world. By
tagging physical items with a unique code, a relational connection is established with a digital record or
records. This core value proposition of bar coding technology is applicable to numerous industries. For
instance, barcodes can be used to tag and track physical assets that are mobile (e.g. rail cars). In addition,
barcodes provide an excellent means to track and manage the flow of materials through manufacturing
and supply chain processes. Finally, and most obviously to the average consumer, barcodes can be used
to automate and improve the retail experience. Figure 1 below details the applied value prop of barcodes
for each of these potential use cases:
Figure 1: Potential Barcode Implementations
Use Case
Fixed-Asset Tracking
Value Prop
- Reduced losses from misplaced/lost assets
- Efficiency gains from higher utilization rates
Examples
- Rail car tracking
- IT equipment (e.g. Laptops)
Supply Chain Management
- Fewer lost/misplaced items
- Greater visibility into inventory levels and
delivery timing
- Package tracking
- Warehouse management
Process Management
- Increased levels of automation/reduced costs
- Reduction in error rates
- Factory automation
- Healthcare patient ID management
Retail Management
- Reduced breakage from input error and
malicious intent
- Efficiency gains from increased automation
- UPC item labeling
Given the large number of addressable markets, the total opportunity size for barcodes was, and continues
to be, quite large. During the initial development and commercialization of the barcode in the early
1970s, industry estimates predicted a potential cost saving of $1.43 billion for the grocery industry alone.
This number was estimated to be 5.65% of annual sales, or $17 billion, as of 1999 (Becker, 2012). These
savings estimates are solely for the grocery industry – total retail savings are much larger, and non-retail
savings are larger still.
Barcode Ecosystem for Retailers
To understand how certain industries evolved towards broad market adoption of barcode technology, it is
illustrative to reflect on the challenges raised within specific ecosystems. In particular, the broader retail
industry presents a unique case study of overcoming risks and realigning an industry ecosystem that
ultimately drove adoption of barcode technology.
In the early 1970’s, at the request of the Uniform Grocery Product Code Council (UGPCC) - a council
founded by the leading trade organizations within the grocery industry, manufacturers and retailers, alike
– IBM drew upon existing barcode technologies such as those developed by Woodland and those already
in use within the railroad and automotive manufacturing sectors, to design the Universal Product Code
(UPC) system that remains in use to this day. Beating out competitors on the basis of superior printing
technology – previous versions of barcodes such as the bulls-eye pattern proved difficult to print
consistently without affecting readability – IBM introduced its system into a broad ecosystem consisting
of a concentrated manufacturing and distribution base and a highly fragmented retailer and consumer endmarket with only limited technology hardware and software inclusion.
Figure 2: Broader Retail Barcode Ecosystem
Historically, grocers managed inventory and ordering processes by hand, while manually tagging
individual items with price labels that cashiers would type in to cash registers upon customer checkout.
Barcodes, designed as automated and electronic pricing systems, served to disrupt this ecosystem,
creating significant technological and organizational challenges as highlighted in Figure 3 on the
following page.
Figure 3: Challenges of Introducing Barcode Technology in Retail
TECHNOLOGY CHALLENGES
Network Effects – As a standardized approach to product labeling, pricing, and potential inventory management processes,
early proponents of UPCs recognized the network challenge associated with the innovation; early estimates suggested that the
system as a whole within the grocery sector would not yield savings unless 75% of products bore a UPC and scanners were
installed in nearly 8,000 grocers (Dunlop & Rivkin, 1997). In effect, barcodes would only be valuable if the scanning
technology was both inexpensive and widely installed. Vice versa, scanning equipment would be rendered useless without the
widespread adoption and printing of barcode labels, regardless of the industry or end-market application.
Scanning – Leading up to 1974, scanner technology remained expensive and difficult to operate within the barcode
ecosystem. While laser technology was well understood, it was not yet commonplace commercially. Not until holography
was developed in the 1960’s was it even possible to use lasers for scanning purposes in a retail setting – without a rotating
holographic disk placed in front of the laser, cashiers in a grocery store would have needed to scan a barcode at a highly
precise angle for each item, a process that destroyed the value proposition associated with reduced checkout times.
Computing – Prior to 1970, the cost of installing and operating a computer capable of processing barcode information from
both a dollar and physical size perspective were extreme by today’s standards. By the time the UGPCC issues an RFP for
automated pricing systems, the cost of installing a mini-computer has been reduced to less than $20,000, and even less
expensive micro-computers capable of robust data processing are on the near term horizon.
Standardization – In order to be effective in a mass-market environment, UPC barcodes required not only a standardized
approach to product identification, but also a system for registering and issuing UPC codes for a massive combination of
potential products. Early skeptics believed the UPC system would be obsolete in just a few years given the potential for a lack
of barcode sequences (in reality, several versions of the UPC system allow for trillions of unique code combinations).
Communication – While early applications of UPC technology was limited to pricing automation within the retail channel, it
was quickly determined that the information captured in a point-of-sale setting through UPCs could translate into substantial
inventory management and supply chain benefits. However, such value propositions would only be possible if a robust
communication system were established between retailers such as grocery stores, their own distribution channels, and product
manufacturers, technology that was limited in the early 1970s.
ORGANIZATIONAL CHALLENGES
Information Capture and Interpretation – For the first time, barcode technology allowed retailers to automatically capture
vast amounts of information at an item’s point of sale related to a myriad of supply and demand factors driving profits in the
broader sector. To effectively capitalize on this information advantage, the entire ecosystem would need to develop improved
analytics and decision making processes.
Headcount Reduction – Barcode technology was marketed as a tool to drive down labor costs, particularly in retail
environments like grocery stores where labor represented nearly 70% of expenses other than COGS (Dunlop & Rivkin, 1997).
With strong labor union participation within the grocery channel, barcodes were met with substantial skepticism on the part of
retail staff facing headcount reductions.
Pricing Procedures – With automated price equipment, retailers were forced to revisit pricing procedures. Initially, this
meant training staff to effectively operate barcode scanners and cash register interfaces. Later, retailers would begin working
directly with manufactures to analyze and interpret data captured at the point of sale to determine optimal pricing strategies
and procedures in the broader retail channel.
Scale & Scope of Operations – Barcodes, by improving economies at the front end of the store, helped drive increases in
grocery store size and scope (i.e. larger footprints and increased product offerings).
Organizational Relationships – Following the potential for improvements in information capture and analytics, the
relationship between ecosystem participants, particularly between retailers and manufacturers, was substantially altered by the
introduction of barcodes. Specifically, collaborative approaches to inventory and supply chain management offered
substantial opportunity for margin improvement across the entire ecosystem.
Consumer Perception – By eliminating the need to label individual products with price tags/stickers, barcodes offered
reduced labor costs, but at the expense of consumer trust. In a highly inflationary environment, the price of grocery items
changed on a regular basis in the early 1970s. Without a price label in place, consumers did not trust that the price on the shelf
for an individual product would be the same when an item was rung up at the register with barcode technology. Skepticism
reached fervor in the mid-1970s as consumers pushed for legislation mandating continued price labeling, legislation that was
also supported by union leaders seeking to save jobs within the grocery industry.
ADDRESSING ECOSYSTEM CHALLENGES
How barcodes achieved such large scale success in the retail industry largely depended upon the
ecosystem’s ability to overcome the various technological and organizational challenges raised during the
innovation’s introduction in the early 1970s. Taking a granular view of the barcode ecosystem’s value
blueprint at adoption highlights the specific co-innovation and adoption chain risks that arose, as well as
the degree to which they affected wide spread implementation of barcode technology.
Figure 4: Barcode Ecosystem Value Blueprint
Co-innovation Risk
The extent to which co-innovation risk played a part in the development and eventual adoption of
barcodes was significant. Several factors came together over time that enabled barcodes to reach the level
of adoption necessary to sustain the technology to its ubiquity today. Several primary innovations needed
to be commercialized for the players in the ecosystem to realize even the initial value of the technology,
let alone the full potential of barcode systems associated with broader data processing and electronic data
interface systems. This included the barcode system itself, but more importantly, scanning technology.
Probably the most significant bottleneck for the roll-out of barcodes was found in the cost and availability
of scanning systems. An engineer named David Collins at Compunetics developed the first scanner to
use a laser beam as a light source. This laser was energy efficient – no longer was a light bulb required –
and could scan from one side of a barcode to the other very quickly. The line that the human eye sees
when a barcode is being scanned is actually not a line at all. It is a laser passing back and forth so rapidly
that the eye is not able to tell much of a difference. However, the cost of omni-directional scanners –
those that were required given the vertical orientation standard – could cost up to $10,000 in 1976 dollars.
Continued cost reduction and miniaturization of microprocessors and lasers, the economic feasibility of
barcode scanners became apparent. Technological advances reduced the cost of scanning equipment and
increased its reliability. Even the technology’s early skeptics were beginning to see the potential for a
long-term solution to the problems that barcodes were attempting to tackle.
Not until decades after the barcode was first invented did it gain ubiquity in American supermarkets and
mass merchandisers. Several innovations needed to be commercialized before the players in the
ecosystem could unlock the full potential of this revolutionary technology. Fortunately for those trying to
push the technology forward, the status quo was sufficiently dysfunctional to the point that a reversal to
previous methods was unconscionable. As a result, the co-innovation risk of bringing the technology to
market was dampened by the resolve of those that were desperate for its remarkable promise.
Adoption Chain Risks
Barcodes are an innovation that was fraught with adoption chain risk. In its infancy, the minimum viable
footprint or value proposition was highly restricted relative to today, only promising labor savings and
basic inventory tracking. For example, early barcode systems only increased labor productivity by an
estimated 4.5%, with only small gains made in the first few years of adoption. Yet in order to realize
even this basic value proposition, several actors had to adopt the innovation. Product suppliers, grocers,
hardware manufacturers, and customers needed to be aligned. One reason why the barcode innovation is
interesting is that one individual firm did not lead. There are numerous innovations where one firm has
assumed clear leadership, such as Amazon and its e-reader. In the case of barcodes, grocers were a key
actor, yet this actor was comprised of thousands of individual actors. While larger grocery chains
certainly yielded more influence than independent grocers, not even large chains had the resources or
influence to assume complete leadership in the ecosystem. Fragmentation among grocers was itself a
massive source of adoption chain risk. Take for example the barcode technology itself. If individual
grocers advocated for different technologies, other actors in the ecosystem would see diminished value.
At the same time, hardware manufacturers would incur larger costs in devising technologies to interface
with conflicting barcode technologies.
Grocers recognized that coordination among grocers as well as product suppliers was critical. Significant
adoption chain risk grew from the network effects characterizing the relationship between grocers and
product suppliers. Without a critical mass of product suppliers, barcodes would not produce the promised
cost savings and efficiencies (Becker, 2012). For example, a grocer would still be required to manually
count its stock to get an accurate picture of its inventory unless a majority of products contained barcodes.
Additionally, forcing a cashier to scan barcodes and manually enter prices could actually decrease
efficiency at the point of sale. At the same time, grocers wishing to adopt barcodes were required to invest
in the optical scanner. This represented a significant investment in an industry historically faced with
razor-thin margins. Such an investment was prudent only if enough products were marked with barcodes.
Without aggregation, both grocers and product suppliers would experience a negative value surplus as
highlighted in Figure 5. In an aggregated scenario, grocers receive the largest surplus, while product
suppliers are close to break-even, per Figure 6. In order to reap the potential surplus, grocers were willing
to assume a position of leadership. First, barcodes promised savings in the form of lower labor costs.
Costs were especially top-of mind for grocers in the economic environment in the decade leading up to
initial adoption. High inflation cut into grocers’ margins and increased the incentives to seek cost-saving
technology (Becker, 2012). Thus, macroeconomic conditions slowly chipped away at the adoption risk
facing grocers. Even small cost savings became material, and grocers became keener to adopt technology
that held the promise of reducing costs.
Figure 5: Leadership Prism in the Absence of Aggregation
Grocers’ surplus under the initial value proposition was also derived from better inventory management.
Barcodes provided a real-time view of inventory that was far more accurate than a manual count of
inventory. Eliminating the need for manual inventory counts was another source of cost savings. While
they experienced some benefits grocers faced significant costs in barcode adoption. Early optical scanners
required significant investment and grocers incurred costs in training staff to utilize the new system push
surplus negative.
The need for industry aggregation in order to capture potential surplus took the form of the Uniform
Grocery Product Code Council (UGPCC). It helped unlock value by creating a standard for barcode
technology, ensuring all codes were unique, and keeping the technology in the public domain. Besides
developing modern barcode technology, the UGPCC enabled the creation of a technological standard that
significantly diminished adoption chain risk. Grocers could rest assured that all UPC codes on their
shelves were technologically uniform and non-overlapping. Product suppliers needed the capability to
produce only one barcode technology, and hardware manufacturers did not need to produce optical
scanners compatible with multiple barcode technologies. Finally, consumers benefited from a smoother
checkout experience with a lower likelihood of being overcharged as a result of the standard imposed by
the UCPCC.
Figure 6: Aggregated Value Prism
Fortuitous legislation also helped mitigate adoption chain risk by lowering the cost incurred by product
suppliers in printing barcodes. In 1973, new regulations for nutritional labeling from the FDA required
suppliers to re-design labeling, allowing barcodes to be added at little additional cost (Becker, 2012). As
the number of products containing barcodes increased, grocers were able to justify the cost of scanners,
and adoption by grocers increased. Thus, product suppliers helped break grocers out of the chicken-andegg dilemma.
In contrast to grocers, product suppliers faced a zero surplus. In its early days, the barcode did not change
the relationship between the grocer and the product supplier. Grocers still placed orders manually and
barcodes represented a cost to product suppliers. While the FDA nutritional regulations created an
opportune time to implement barcodes, printing the barcode still represented a cost, albeit a small one, in
a high volume industry with thin margins. It is unclear how much, if any, of the cost of printing could be
passed along to grocers. Given the absence of surplus, one might question why product suppliers would
print barcodes. Grocers yield high bargaining power among suppliers, especially for commoditized goods
such as food. Thus, suppliers chose to incur the cost of printing barcodes rather than jeopardize longstanding relationships that are the lifeblood of product suppliers.
Consumers also lacked surplus. Barcodes held the promise of decreasing checkout time, but longer
checkout times were more likely while employees learned to use the system. Barcodes also increased
pricing accuracy by eliminating human error associated with manually keying prices, but consumers
resisted the loss of individual price labels. Despite real consumer benefits, anti-UPC consumer groups
emerged. Labor unions felt threatened by potential job losses, and consumers felt threatened by the lack
of pricing transparency as UPC codes began to replace price tags. In order to overcome this adoption
chain risk, some grocers voluntarily allocated some of their surplus to consumers. Giant Supermarkets
provides one example of voluntary action. After removing price labels in favor of UPCs, the grocer
voluntarily offered discounts on 2400 products to convince consumers that it was passing along savings to
the user (Gallo, 2006). New regulation also accompanied the consumer backlash, with regulators
requiring that price tags remain on items carrying UPCs. Surplus re-allocation and increased price
accuracy left consumers with a small enough surplus to avoid mass boycotts. Adoption risk for consumers
is also notable because choosing to not adopt the innovation would impose costs on them. Indeed
switching to a supermarket that did not carry UPC codes would have been a difficult and time-consuming
process for many shoppers.
The final actor, hardware manufacturers were required to invest in scanner technology, but these
investments were small due to the broadly applied technology used for scanners. That is, hardware
manufacturers reaped the benefits of concurrent advances in optical and transistor technology.
Additionally, the adoption of the UPC standard eliminated the need to interface with competing barcode
technologies. Low investment costs provided hardware manufacturers with an overall surplus.
Extending the Minimum Viable Footprint
The advent of new technology greatly enhanced the value proposition and extended barcodes beyond the
minimum viable footprint, highlighted in Figure 7. The linkage between grocers and product supplier
became tighter and more complex. Specifically, the integration of point of sale systems as well as
fulfillment and production systems of product suppliers enhanced the value proposition. Prior to the
integration, the dynamic of the retailer-manufacturer relationship was horribly clunky. Among a mess of
paper forms and red tape, each order was negotiated individually to the point that quantities and prices
were rarely the same from order to order. Each side was falsely incentivized to withhold information
about inventory, distribution, production etc., from the other in hopes of preserving negotiating power to
the greatest extent possible. Fortunately, the integration of the point of sale terminals and ordering
systems through the advent of an Electronic Data Interchange (EDI) led to a complete reversal of the
previously unproductive activities that characterized the relationship (Becker 2012). With the EDI at
their fingertips, retailers and manufacturers were now able to foster an open exchange of data. Initially,
this data allowed both sides to monitor changes in consumer purchasing behavior. Also, retailers were
now able to order items in quantities that more closely matched demand. Likewise, with their newfound
visibility into this sales data, suppliers were able to produce at a level commensurate with retailer order
quantities and timing. In the aggregate, the integration of these operations through an EDI resulted in a
leaner supply chain and significant efficiency gains for all players.
Figure 7: Minimum Viable Footprint / Value Proposition for Barcode Technology
Another innovation necessary for the value proposition of barcodes to be more fully realized was in the
processing of the data that this new technology was suddenly collecting. During the early roll-out of
barcodes, the options for data processing were insufficient. Mainframe computers and minicomputers
were the de facto tools for data processing among businesses. Not only was this technology expensive,
but it required constant maintenance and highly skilled labor to run the applications. Further, these
systems required climate-controlled rooms where energy costs alone were prohibitively expensive. As
such, a significant portion of the value of barcode implementation was eroded without the requisite data
processing capabilities to make use of the information that the technology brought about. Not until the
early 1980’s did various players in the ecosystem begin to be able to make use of the data that retailers
had been collecting. For example, Pepsi was able to see that sales volume sharply increased around the
time of sales promotions. However, in a revelation that flew in the face of conventional wisdom, the data
showed that the increase actually occurred before the sales began, when many retailers positioned large
displays of Pepsi products in advance of the sales. It was the ability to harvest these types of actionable
insights that was essential to the mass adoption of UPC technology.
Consumers have also captured incremental value as the application of barcodes has grown more
sophisticated. Better inventory management increases the likelihood that any store will correctly stock the
goods that consumers desire. While some privacy concerns persist to this day, barcode data forms the
foundation of modern loyalty programs by enabling any merchant to offer coupons and rewards that are
uniquely tailored to an individual’s preferences.
CONCLUSION & MARKET ADOPTION
The implementation and evolution of a standardized barcode and scanner system clearly required
distributed and uneven investment and coordination by a variety of ecosystem participants. That this feat
was successful is even more impressive as the ultimate profitability of deploying early scanner systems
was uncertain. The initial goal and value proposition of implementing barcode systems was to realize
near-term labor savings. How successful was the technology in reaching its initial goal? As mentioned, it
is estimated that early barcode scanners only increased labor productivity by approximately 4.5%, with
larger retailers experiencing a slightly greater gain. In addition, gains were smaller in the first year of
adoption than in later years. However, it should be noted that early barcode scanners were relatively
expensive in comparison to later versions. In 1975, a 10-lane IBM retail scanning system cost $133,100
plus maintenance fees of approximately $7,000/year (over $550,000 and $30,000 in 2012 dollars,
respectively). Given this high cost of scanners and their corresponding short life, it is doubtful that early
scanners were cost effective despite their large productivity impact (Basker, 2011).
Despite these uncertain initial gains, the adoption of barcodes was rapid. The number of grocery
manufacturers that had adopted UPCs increased from 869 to 7,570 from 1974 to 1980 (Basker, 2011). By
1994, the governing body that managed assignment of UPCs had issued over 110,000 manufacturerspecific ID numbers and 177,000 by 1997 (Dunlop & Rivkin, 1997). Given the initial focus on the
grocery industry, many of the initial adopters of barcode printing were food and beverage manufacturers.
However, over time, other industries began adopting the format as well. Figure 8 below details the
distribution of barcode printing across industries, both originally, and 25 years after initial adoption.
Figure 8: Composition of UPC Registrations Over Time:
1971-1975
1971-1994
0.4%
0.4%
0.0%
1.4%
1.1%
0.5%
0.7%
1.2% 0.2% 0.0%
0.7%
1.2%
0.0%
2.2%
0.0%
12.8%
2.8%
1.6%
1.5%
2.9%
6.8%
2.2%
3.9%
3.4%
3.7%
1.0%
0.7%
8.0%
2.7%
4.3%
2.4%
3.2%
4.3%
3.8%
0.3%
6.8%
2.5%
3.5%
1.2%
3.6%
5.9%
64.3%
1.0%
28.4%
Home
Fashion
Alcohol
Apparel
Audio & Visual
Auto
Building & Home
Computer
Domestics
Food & Beverage
Heath & Beauty
Hobbies
Chemicals
Houesewares
Lawn & Garden
Office & School
Outdoor
Pets
Publishing
Sports
Toys & Games
Other
Source: (Dunlop & Rivkin, 1997)
Home
Fashion
Alcohol
Apparel
Audio & Visual
Auto
Building & Home
Computer
Domestics
Food & Beverage
Heath & Beauty
Hobbies
Chemicals
Houesewares
Lawn & Garden
Office & School
Outdoor
Pets
Publishing
Sports
Toys & Games
Other
Reflecting on this innovation timeline within the retail sector, barcodes enabled dramatic improvements in
inventory and supply chain management, with retailers gaining greater visibility into both demand and
supply trends and levels over time. Barcode improvements in turn enabled the development of electronic
data interchanges (“EDIs”) between retailers and suppliers, mutually benefiting both parties (Basker,
2011). With barcodes, it also became possible to design and report on much more complex pricing and
promotion strategies. In addition, scanner data came to allow grocers to track consumer demand through
loyalty cards and other similar programs. Even further, barcodes gave retailers the ability to better
measure (and properly reward) labor productivity. (Basker, 2011).
Barcodes also had a part in driving the structure of the modern supermarket. Looking back, it is estimated
that the number of individual products carried by supermarkets more than doubled between 1980 and
2004. While it is difficult to draw direct linkages and definite conclusions, it is likely that the
implementation of barcode scanners led to this explosion in the number of products carried by
supermarkets given the economies of scale gained in front-end operations and inventory management. In
addition, it is reasonable to assume that increased product depth and store/chain size led to increased
market power in the supermarket industry (Basker, 2011).
On the grocer side, one third of U.S. supermarkets adopted scanners within 10 years of the first
adopter, and more than 10,000 supermarkets had installed the technology by the end of 1984
(Basker, 2011). Figure 9 details the adoption of barcode scanners by U.S. stores:
Figure 9: Barcode Scanner Adoption
Source: (Basker, 2011)
ADDENDUM
Reflecting on the path of barcodes over its history, we see several parallels between it and its purported
challenger, Radio Frequency Identification (RFID).
Barcodes have been in existence for more than half a century and through the Universal Product Code
have played a role in the consumers’ daily lives for over 35 years. The prevalence, saturation, and
dominance of this system is astounding and today alone more than 10 billion barcodes will be scanned
around the world (Shih G. , 2009). Although improvements have been made in scanning and processing
technology with additional value created through enhanced information sharing among constituents, the
fundamental proposition of 59 black and white lines has remained the same. It has thus far persevered
despite the presence of potential disruptors such as Radio Frequency Identification (“RFID”).
Shoplifters were probably among the first to feel the power of RFID as stores have long tagged
merchandise with RFID technology to track whether items have been removed from the store illegally.
However, this is merely a fraction of RFID’s potential to retailers, grocers, manufacturers and other
members of the supply chain. “RFID is a revolutionary information exchange system that can create an
environment in which every object can be automatically recognized, tracked, and traced from factory to
shelf only using a single tag on each product item of pallet (White, Gardiner, Prabhakar, & Abd Razak,
2007).” This technology is superior to barcodes in most every way, from elimination of human error to
no longer needing line of sight.
Figure 10: Barcode to RFID Adoption
Barcode
Require line of sight to be read
Can only be read individually
Cannot be read if damaged or dirty
Can only identify the type of item
Cannot be updated
Require manual tracking (human error potential)
RFID
Can be read without line of sight
Multiple tags can be read simultaneously
Can cope with harsh of dirty environments
Can identify a specific item
New information can be overwritten
Can be automatically tracked
Despite clear advantages, relevance, and enormous potential to members throughout the supply chain,
RFID has yet to make a dent in the dominant role of barcodes. In many ways RFIDs challenges are
similar to those faced by barcodes in its infancy, but there are differences as well that may prevent this
innovation from making the impact many have predicted. Adoption chain issues, co-innovation
challenges, questions on leadership and value creation all play a part in why RFID remains the next great
thing rather than the standard.
Figure 11: Value Proposition of Barcodes versus RFID
Advantages
RFID
Barcodes
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Affordable
Easy to Use
Mature Proven Technology
Continually Evolving
Established Quality Standards
Inventory Tracking
Reliable and Accurate
Optical Line-of-sight Scanning
Limited Visibility
Restricted Traceability
Incapable of Item Level Tracking
Labor Intensive
Susceptible to Environmental Damage
Prone to Human Error
Disadvantages
•
•
•
•
•
•
•
•
•
•
•
•
•
Non-line-of-sight Scanning
Simultaneous Automatic Reading
Labor Reduction
Enhanced Visibility and Forecasting
Asset Tracking
Item Level Tracking
Improved Asset Utilization
Traceable Warrantees
Reliable and Accurate
Information Rich
Enhance Security
Robust and Durable
Improved Inventory Management
Value Blueprint and Co-Innovation Challenges
• Cost of Tags
• Cost of New Infrastructure
• Lack of Training
• Concern of Return on Investment
• Limited Knowledge
• Immature Technology
• Interference Limitations
Leadership Prism and Co-Adoption Challenges
• Lack of Ratified Standards
• Requirement of Close Co-Operating Between Supply
Chain Partners
• Deployment Issues
• Consumer Privacy Concerns
Value Blueprint and Co-Innovation Challenges
Costs are a primary factor for why many retailers and suppliers have been slow to switch over to RFID
technology. Barcodes “cost just half a cent each, while the electronic tags used in RFID cost more than 5
cents each (Shih G. , 2009).” This doesn’t not include the substantial infrastructure and training
investment required in making this transition—it was estimated that start-up costs for suppliers was in the
range of $13-$23 million for those that shipped $50 million tagged containers per year (Murray, Brady,
Brennan, & Armstrong, 2006).
Justification for this type of investment is return on capital. Theoretically this return could be massive as
incredible amounts of potentially valuable information can be obtained through the use of RFIDs.
Unfortunately, the actual value of this flood of data is questionable. The cost of obtaining this value
requires storing and transmitting the information as well as instituting software and internal processes that
can analyze and react to what is learned. These are co-innovations that must occur alongside RFID to
truly enable the value creation potential that the technology theoretically offers. Adding to this
complexity is research that suggests many companies already cannot adequately cope with their current
information systems and would struggle with anything more advanced such as RFID (Brady, Fellenz, &
Armstrong, 2007).
Leadership Prism and Co-Adoption Challenges
Similar to barcodes, RFID has met challenges in its current unstandardized/unaggregated form. One of
the critical events in the establishment of the barcode system was the formation of the UGPCC and the
creation of a worldwide standard. RFID has yet to take this important step and is currently without
uniform globally accepted standards.
Much in the way that barcodes faced consumer skepticism and doubt, RFID has encountered issues.
Consumer concerns about RFIDs are focused upon the potential for the tags, invisibly embedded in
consumer items, to be used as mobile tracking devices leading to the persistent surveillance of the
individual. The promise of RFID technology to simplify supply chain logistics and speed up consumer
checkout is overshadowed by its overwhelmingly negative public image (Gallo & Laprise). The outcry
against RFID type monitoring has led to the formation of groups working to stop its proliferation such as
Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN). Privacy concerns have
even hampered RFID rollouts, including Wal-Mart’s, which had to cancel its pilot smart-shelf program
before it even began (White, Gardiner, Prabhakar, & Abd Razak, 2007).
Pixtech and LED effect
RFID has several challenges to overcome specific to its technology. Adding to these hurdles is the
continued development of barcode technology. Quite often, barcodes provide a “good enough” solution
relative to the RFID equivalent. For instance, RFID has long been heralded as the enabler of mobile
payments. However, QR codes, a 2D barcode variant, are increasingly used in lieu of RFID solutions to
enable next generation smart phone based payments. LevelUp, a mobile loyalty and payment startup, has
users load a QR code onto their phone’s screen and scan it at the point-of-sale. This use case could
obviously be served by RFID technology, but continued innovation in barcodes such as the QR code,
have precluded RFID from gaining traction.
Cost advantages, adequacy to handle required supply chain needs, and continued improvements in
barcode technology create a substantial gap that must be overcome by RFID supporters. Similar to how
LED technology continues to dominant television despite apparently superior technology, barcodes have
a meaningful buffer to RFID. For RFID to overcome this challenge, it must substantially accelerate its
cost effectiveness and value proposition in comparison to barcode’s own advances. This is much easier
said than done and leaves open the potential it will not ever be fully accomplished.
Works Cited:
Basker, E. (2011). Raising the Barcode: Technology and Productivity in the Retail Sector. SSRN.
Beck, J., Grajek, M., & Wey, C. (2005). Hypermarket Competition and the Diffusion of Retail Checkout
Barcode Scanning. SSRN.
Becker, M. B. (2012). Interoperability Case Study: The Bar Code/UPC. The Berkman Center for Internet &
Society at Harvard University.
Brady, M., Fellenz, M., & Armstrong, C. (2007). Too Much Data, Too Little Information: The Challenges of
RFID Implementation. British Academy of Management.
Dunlop, J. T., & Rivkin, J. W. (1997). Introduction. In S. A. Brown, Revolution at the Checkout Counter.
Cambridge: Harvard University Press.
Gallo, J. a. (2006). From Barcodes to RFIDs: Consumer and Commercial Responses to Individual
Identification Technologies. Northwestern University: Presented at the annual conference of the
Society for the Hisory of Technology.
Murray, J., Brady, M., Brennan, L., & Armstrong, C. (2006). The Business Case for RFID: Challenges and
Opportunities. 1st International Academic and Technical Conference. Oxford.
Shih, G. (2009, June 26). NY Times. Retrieved from NY Times:
http://www.nytimes.com/2009/06/26/technology/26barcode.html
Shih, G. C. (2009, June 25). Game Changer in Retailing, Bar Code Is 35. New York Times.
White, G., Gardiner, G., Prabhakar, G., & Abd Razak, A. (2007). A Comparison of Barcoding and RFID
Technologies in Practice. Journal of Information, Information Technology, and Organizations.