Inventory Management Will Create the Internet of Things

It’s buzzworthy… it’s unavoidable… it’s trendy… it is… the Internet of Things. What does the term mean, and, more importantly, what does it mean to a retailer (or everyday human being) today?

The “IoT”

The term “Internet of Things” (or IoT) was first popularized in an RFID Journal article written by Kevin Ashton, though similar ideas around interconnected objects had existed for quite some time. In the article, Ashton claims the term first originated in 1999 in a presentation he gave to Proctor & Gamble. The term generally refers to the idea that, while information (bits and bytes) is certainly valuable, in the real world, things count even more. While the internet and the devices that connect to it are fantastic at managing information, they still do a very poor job managing things–where they are, what they contain, their current status, and the like.

Ashton identifies people as the bottleneck in the information economy today. When referring to physical things, computers are beholden to what people wish to tell them about said things. For example, you can build a spreadsheet to record the status of your car each day, but you might not find it relevant to enter the make, model, and year into it. If your car came equipped with a means of relaying information about itself to the internet, however, all sorts of minute details could be captured, aggregated, and analyzed.

Meanwhile, Somewhere on the Adoption Curve…

Given that the idea of connecting self-referencing objects spans at least the past few decades, where are we in terms of adoption? Obviously, we don’t yet have smart refrigerators warning us that the milk is about to expire. The reason, it turns out, is directly related to the evolution of RFID and its family of related technologies. The lowly RFID tag has been around since the 1970s, but it was prohibitively expensive. Inductively coupled tags, with their coils of wire and glass casings, were used primarily on large items whose value justified the cost of the tag. But since then, newer technologies have driven costs down significantly until, for the first time, it is now no longer considered career-ending for a business leader to seriously consider the implications of tagging all items in a store.

internet of things retail

This graphic, by SRI Consulting Business Intelligence, shows a projected roadmap of IoT adoption.  It begins with the simplest and most obvious business case: supply chain enhancement and inventory management. Indeed, the majority of use cases today center around just such functions, with retailers like Macy’s, the Gap, and American Apparel using RFID primarily as a way to measure inventory and insure against out-of-stocks, often with an eye toward using their newfound clarity to employ omnichannel integration. Just up the curve are vertical market applications; again, the graphic is pretty prescient, as companies are beginning to employ RFID to create an Internet of Things around surveilling, security, IT asset management, and more. In a way, this is old hat–using RFID to track valuable things or prevent against expensive problems like food spoilage are some of the original purposes of the technology at its conception.

To date, the curve has done an impressive job describing and predicting the adoption of item-level tracking technologies vis-a-vis the IoT. The next step forward, then, is the ubiquity of RFID, NFC and other related technologies being placed in and on many, if not most, of the manmade objects in the physical world (hopefully trees, rocks and wild animals will be exempt…). There are glimmers of this happening already–every week, new articles appear about schools requiring kids to wear RFID identification tags, passports now come with readable chips, and some retailers and brand owners are moving toward sewn-in clothing tags, chucking the disposable tags of the past.

The debate is beginning to heat up as marketers learn to track movement within a store with the same accuracy with which they track movement across web pages. As more objects are encoded, they will be broadly trackable: street intersections might be able to record not just what vehicles have passed through them, but the individual occupants and even the goods being transported in the vehicles themselves.  You might use a tablet or smartphone to instantly identify the location of any object within your home, or interact with a cooking website that will tell you what ingredients you have on hand and what recipes can be made with those ingredients. The possibilities are endless… and this is only the beginning.

The next phase in the chart, which truly brings about the Internet of Things, is referred to as the “Physical World-web.” Whereas the preceding phase focused on locating and tracking the status of objects in realtime, this phase will actually allow two-way control between objects and humans. Rather than compiling a shopping list, your smart refrigerator might simply send out for milk, delivered by driverless cars or delivery drones. Up until days ago, this seemed far fetched, but with retailers like Amazon (and now, it turns out, UPS and Google, too) intent on implementing drone deliveries within the next four to five years, it may not be as far off as you think.

So Where’s My Flying Car?

Given that much of the technology exists to encode and track everyday objects, why aren’t we tracking more things? The big-picture answer has more to do with cost than know-how. RFID tags, the simplest “step 1” for bringing about a connected web of things, are an order of magnitude more expensive than a “dumb” paper tag with a simple bar code. Sewn-in or hardened permanent tags can be even more expensive. Meanwhile, new technologies continue to emerge to facilitate object connectivity on different levels, from near-field communication (NFC)  – itself a derivative of RFID – to triangulating location using wifi and cellular networks, to “old-fashioned” GPS. However, the “killer app” will need to be cheap enough to be ubiquitous, disposable, and easily replaced. With the advent of printable circuits and other similar technologies, some form of tag-like chip is as good a candidate as any to fit the role.

Encouragingly, tag costs are being driven down, and with that there is a strong correlation to the number of retailers moving toward in-store RFID and the number of categories they intend to tag. But with costs as high as $0.10 – $0.20 per unit, placing an RFID chip on every single in-store item is likely still a few years away. Nevertheless, a good proxy for tracking the rise of the Internet of Things will likely be to follow the cost and adoption curve of RFID at retail. The “tag everything” philosophy will probably be driven by very practical, financially motivated concerns pertaining to retail inventory management. As banal as it sounds, inventory management in the retail supply chain could well be the catalyst that transforms the way our physical world interacts. The revolution will truly take off when the same tags used to manage out-of-stocks are used in the aftermarket as part of “smart houses” and consumer object tracking applications.

Cost is not the only major concern, however. Privacy concerns have spawned legislative efforts far ahead of actual implementation of the technology, and for good reason: citizens are concerned, particularly in light of government intelligence gathering operations, of being physically tethered to the web via chips that could be used for tracking location in realtime. If all objects can be tracked, the opportunity for exploiting such information is tremendous and a very real threat.

Like It or Not, The Internet of Things is Coming

Whatever the average retailer’s cost or the average citizen’s privacy concerns may be, one thing is near certain: the idea–and eventual reality–of an Internet of Things where billions of items are tracked, monitored and controlled via the web is not going away. The proverbial train has left the station, and it isn’t slowing down or coming back.

As retailers and manufacturers assess what the Internet of Things means to them, it will largely be in terms of when to enter the fray, and how far behind they can afford to get before being forced to adopt the latest innovation. As in many seismic market shifts, a great many new entrants will arise, and today’s stalwarts, built for another era, will die. The most forward-thinking retailers and manufacturers are already laying the groundwork for item-level tracking and identification, even as consumers struggle to fully understand the implications from a convenience and privacy perspective.

That’s the Internet of Things. Revolutionary, innovative, and more than a little scary–but it’ll be fun to watch!