David Zhou of MoreRFID.com (our content partner here at the RFID Weblog) recently interviewed Dr. Hau Lee, who is a world-leading expert in Supply Chain Management, a professor of operations, information and technology at Stanford University's Graduate School of Business, and co-founder and Chief Supply Chain Strategist of VC backed company, TrueDemand Software. Excerpts from the interview follow:

Question: You are a leading supply chain expert in the industry -- what made you interested in SCM at the first place?

Dr. Lee: I started in the early 80s when I did a lot of work for companies like IBM, HP, and GM. I found out most of the problems these companies faced with, were related to how company to company information is transferred, and the relationship inside the company's multi-organizations that needed a lot of coordination within the company. That got me interested in helping these companies to solve these distribution, manufacturing, or inventory problems. I was fascinated by the fact of looking at the complete chain, end to end, to see where the opportunities were. That got me interested in working in the supply chain area.

Question: Recently you talked about Seven Supply Chain Lessons. One is Sense and Respond. Could you give us more detail about this one?

Dr. Lee:I think this is a very powerful concept and IBM starts to use it. In the supply chain, you need to sense and know what's going on inside the company as well as what's going on outside the company, downstream and upstream. You need to have much better information inside out.

When you figure out what's going on, you will be able to create a plan of action and be able to execute it. The common mistakes company make is just gathering information and having overloaded information. They try to capture signals. But when you are overwhelmed with thousands of signals, what would you do with it? You have to have a way to understand what are the reasons that caused the signals, try to create intelligence out of information. When you respond, you have to respond fast. It doesn't do you any good if you could respond, but miss the time window. The selling season is short and competitors are doing something during the same time. If you are not able to respond fast, the opportunity is gone forever. So I think you have to put intelligence in the sense and put fast action in the response part.

Question: So this is one of the reasons you co-founded the TrueDemand?

Dr. Lee: Yes, very much so. You read my mind. RFID provides unprecedented opportunity for companies to have huge amounts of information. Most companies I talked with got the concern. "Once I get the information, what do I need to do? Or will the information contain a lot of mistakes or misreads. When the unreliable signal comes in, should I act and how do I even act?" TrueDemand is the company that can help the industry to make the best use of this great information signals and getting potential partners to implement RFID. So they will have the opportunity to get these signals. Now let us create the system, so we can make good use of the information and turn the signals into actionable responses. You can forecast better, replenish better, avoid stockouts and take advantage of some potential opportunities. That's the objective of TrueDemand.

Question: What do you see as the major challenges in RFID technology today?

Dr. Lee: I think there are two kinds of challenges. One is a technology problem. How can we get more reliable readers to read signals well and middleware to process the data to make sure not to read data twice? There are a lot of things that need to be done, such as reader misreads, sometimes interference problems. I personally think we are making good progress by having a lot of good middleware companies emerging from the past few years. Of course, the hardware side is also improving. We have better tags, low-cost tags, and more powerful readers. Those are absolutely improving and progressing pretty well.

The part not progressing well is how to turn this information into intelligence. That's the same thing I talked about earlier. The more you read, the more RFID information you have, you will have overload and you will be overwhelmed. Before you get a byte of data, now you get a hundred bytes more. If you do not have software behind the scenes to sort things out, and to analyze the information, then you have an overload problem. The result of overload problems is that the company just ignores them and does not use them. It means the information is useless as company is not using them. I do think this part is lacking. We need more solid application software to better utilize RFID data. This is the second challenge - the application challenge.

Question: How do you see the importance of demand forecasting and planning for the retail industry?

Dr. Lee: I think it is very crucial. It's not so important for the products you are selling day in and day out, such as toilet paper, tissue paper. A lot of people know how to forecast that because they don't change. Companies usually fail in forecasting promotions. They fail to forecast products that are related. For example, hot dogs and buns. If hot dogs are selling well, buns usually sell well. They miss out on this kind of relationship.

Question: What do you see as the trend towards the adoption of item-level RFID?

Dr. Lee: I think it is slow, but coming. It's coming mainly because the technology is improving and maturing. People start seeing ROI. Without good application software, the adoption will still be at very gradual level. Companies are very practical. If the technology won't bring values, they won't buy it. Where's the value? The value must come from being able to utilize information, improve their system, improve their forecasting and replenishment process. Otherwise, just send them the data, companies may not be willing to pay just for the data.

Question: As some pioneer companies moves from pallet or case level RFID tracking to item level RFID, in your opinion, what are the main barriers standing in the way of the introduction of item-level RFID?

Dr. Lee: First it is RFID ROI. Obviously, it is much harder to justify at RFID item-level. It means you only put tags on some very specialized items, expensive items or easily reused types of items. The ROI justification is harder for item-level RFID.

The No. 2 is that item-level RFID requires the ability to read item. It means you need to develop a good architecture of readers so that the item information can be read. It requires a good and reliable reader system to be put in place.

The third one is the storage problem. As mentioned earlier, RFID multiplies your storage exponentially when you track goods at pallet or case level going through back doors. Now when we are talking about item-level, it will explode even further. It is very hard for companies to make use of the data when you have such overload. So it requires even better application software to analyze the data.

Dr. Hau Lee's biography

Dr. Hau L. Lee is the Thoma Professor of Operations, Information and Technology at the Graduate School of Business at Stanford University. His areas of specialization include supply chain management, eBusiness, global logistics system design, inventory planning, and manufacturing strategy. He is the founding and current Director of the Stanford Global Supply Chain Management Forum, an industry-academic consortium to advance the theory and practice of global supply chain management.

Professor Lee has published widely in journals such as Management Science, Operations Research, Harvard Business Review, Sloan Management Review, Supply Chain Management Review, IIE Transactions, Interfaces, European J. of Operational Research, Marketing Science, J. of Applied Probability, and Naval Research Logistics, etc.

He has served on the editorial boards of many international journals, such as Operations Research, Manufacturing and Service Operations Management, IIE Transactions, Supply Chain Management Review, Sloan Management Review, and the J. of Production and Operations Management. From 1997-2003, he was the Editor-in-Chief of Management Science.

Professor Lee was the recipient of the Harold Lardner Prize for International Distinction in Operations Research, Canadian Operations Research Society, 2003. He was elected a Fellow, Manufacturing and Service Operations Management, INFORMS, 2001; and a Fellow, Production and Operations Management Society, 2005. His article, "The Triple-A Supply Chain," was the Second Place Winner of the McKinsey Award for the Best Paper in 2004 in the Harvard Business Review.

Professor Lee has consulted extensively for companies such as KLA-Tencor, Hewlett-Packard Company, Bay Networks, Savi Technology, Nortel Networks, SUN Microsystems, Apple Computer, IBM, Lucent Technologies, General Motors, Xilinx Corp., Accenture, Eli Lilly and Company, Booz-Allen and Hamilton, Raychem Corp., McKesson, and Motorola. He is a co-founder of NON-STOP Solutions, a company that provides demand chain optimization services to industry, and a co-founder of DemandTec, a company that provides pricing and promotion optimization services. In addition, he is on the board and advisory board of several logistics and supply chain software companies. He has also given executive training workshops on supply chain management and global logistics in Asia, Europe and America.

Most recently, Professor Lee has been actively conducting research on the values of RFID and its evolution and impacts on supply chain management. He was commissioned by EPCGlobal to develop an ROI model of RFID applications; and is engaged in RFID research projects sponsored by Intel, HP, Esquel, and the Hong Kong Government.

Professor Lee obtained his B.Soc.Sc. degree in Economics and Statistics from the University of Hong Kong in 1974, his M.Sc. degree in Operational Research from the London School of Economics in 1975, and his M.S. and Ph.D. degrees in Operations Research from the Wharton School of the University of Pennsylvania in 1983.