EZ DOES IT.(using radio frequency identification for inventory control)

Among the three million or so items in the Smithsonian's National Museum of American History is a ten-pack of Wrigley's Juicy Fruit gum, which was sold for sixty-seven cents at the Marsh Supermarket in Troy, Ohio, in 1974. The gum was ordinary enough, except for one thing: this was the first item ever to have its bar code scanned at a checkout counter.

Three decades later, the bar code seems indispensable. Five billion items have their bar codes scanned each day; those little swatches of numerals and lines are so ubiquitous that they're practically invisible. Companies rely on bar-code data to keep their shelves stocked and their inventories lean. And yet, to hear those companies tell it, the bar code's expiration date may be nigh.

That's because a successor has emerged, a technology called radio-frequency identification (R.F.I.D.), which relies on a computer chip and can convey far more information than most bar codes. Integrated into the chip is a little antenna that transmits the information via radio waves. You may already be using R.F.I.D.--for example, if you have an EZ-Pass, which enables your car to zip through a toll booth without stopping. Farmers use R.F.I.D. tags to keep track of cattle. Manufacturers use them to track high-priced components. Mobil Speedpass customers use them to buy gas. But some of the biggest companies in the world have grander ambitions: they envision a future in which R.F.I.D.s are embedded in everything we buy--every can of soda, box of detergent, and pair of shoes. Products will be tracked continuously, from factory floor to checkout aisle. Checkout will take only seconds. There will be no more shoplifting or shipments that fall off trucks or items that are out of stock. Inventory will flow like water in a mountain stream. Or so the story goes.

Companies like the idea of R.F.I.D. because, even in this technology-rich economy, making and selling stuff is harder than it ought to be. In a typical store, eight per cent of the items are out of stock--at any moment thousands of products that customers want are piled up in back rooms or warehouses. In economics textbooks, supply flows in a smooth and orderly fashion, but in the real world it's often a panicky mess of misplaced inventory and mistimed forecasts.

In the sixties, a group of researchers at M.I.T. devised a simulation called the beer game. Participants play one of four roles: the brewer, the distributor, the wholesaler, or the retailer. (No one, sadly, gets to be the customer.) The retailer, who knows how much beer has been consumed in a given week, orders from the wholesaler, who orders from the distributor, who orders from the brewer. The goal is for everyone to have enough beer to satisfy demand but not so much that it can't all be sold. Sounds easy enough. In fact, soon after the game starts, chaos erupts. Instead of a nice, even flow of beer, you get wild oscillations; the players veer from having too much beer to too little, and back again.

The ...