Wal-Mart’s 100+ largest suppliers are enthusiastically embracing the retailer’s requirement that they deliver pallets equipped with RFID tags, which enable web tracking of inventory.
When Wal-Mart Stores Inc. talks, other retailers listen—especially now when it comes to the future of RFID. And after the first quarter of this year, much of what Wal-Mart says will be based on what happens at its three Dallas distribution centers.
A pilot project involving several of Wal-Mart’s suppliers will test the efficacy of doing what the world’s largest retailer has already told its 100 largest suppliers they must do by next January: ship pallets and cases equipped with radio frequency identification—RFID—tags. As the pallets and cases pass through distribution centers and other points along the supply chain, special electronic devices will read the tags and distribute data to managers to keep them updated with the latest information on the status of shipments. “One of our biggest opportunities is to fill the visibility gaps we have in our supply chain,” Simon Langford, Wal-Mart’s RFID strategy manager, says, “so we have visibility of what’s arriving in our distribution centers, what’s shipping to stores and what we’re receiving in stores.”
Langford refers to those visibility benefits as the low-hanging fruit offered by RFID implementations. As RFID usage and technology evolves, he says, retailers will benefit from the higher-hanging fruit of data integration with back-end software applications, for example, to automatically update inventory records and to share inventory status with suppliers. Other advancements in store, he adds, will be the ability to use RFID tags to check such things as whether refrigerated products kept a constant temperature throughout shipment.
RFID technology uses a system of radio-signal emitting tags mounted on cases, pallets or even individual products. When shipments enter distribution centers or stores, electronic devices read the tags and pass information on their shipment status to retail managers. Eventually, the RFID data will flow over a web-based Electronic Product Code network to provide universal access to authorized users, no matter where they are located.
But the full scope and potential of RFID’s benefits won’t arrive until widespread adoption occurs in basic projects, helping to lower the cost of RFID technology while setting the stage for further development, experts say. The initial step toward widespread adoption in the U.S., they add, is the anticipated success of RFID projects underway at Wal-Mart and at the Department of Defense, where RFID is supporting the distribution of products to stores on military bases.
“Over the next 18 months, we’ll see the course of RFID adoption,” says Brian Higgins, senior manager and director of global RFID solutions for consultants BearingPoint Inc. “It all depends on Wal-Mart and the DOD. If their projects are smooth in the next 18 months, there will be a rapid adoption of RFID throughout the retail industry. If their projects tank, it could set back RFID three years.”
Headway in the UK
In the meantime, however, early RFID projects are making headway in the U.K., where grocer Tesco plc is testing its ability to track individual items mounted with RFID tags to better control stock levels and department store Marks & Spencer is testing RFID to track warehouse totes and individual apparel items.
Tesco is piloting a system from Stamford, Conn.-based MeadWestvaco Corp. that places tags on individual items and readers on selling-floor shelves and in back-room storage areas. The system is designed to let store managers see real-time updates of which products are shelved at less than full capacity and what replacement inventory is available in the store’s warehouse. Experts say this can address one of the most common problems facing retailers. “A fundamental issue in the retail world is back-room/front-room visibility,” Higgins says.
A retailer can get good distribution perspective throughout the supply chain until products arrive at stores, but that can all go to waste if supplies sitting in backrooms don’t make it out to retail shelves in time to serve customers. “If you can’t compare front-room inventory with back-room inventory, it doesn’t do much good,” Higgins says.
Item-level RFID tagging, however, is not expected to reach widespread use any time soon. Although it offers the promise of supply chain visibility down to store shelves and the potential to immediately update back-end inventory management applications, most item-tagging projects are expected to wait until tag prices—currently 25 to 50 cents—get closer to 5 cents.
But as Wal-Mart and its suppliers are showing in its pilots, RFID benefits can be realized in stages. Even without item-level tagging, retailers that scan RFID tags on cases and pallets can compare real-time data on shipments and warehouse stock levels with what’s available on store shelves.
In the meantime, the push by Wal-Mart and others into RFID projects is expected to drive down the cost of tags and readers, which can cost $2,000.
Indeed, key to Wal-Mart’s plans for RFID is cooperation from suppliers. And perhaps to no one’s real surprise, the retail giant has already elicited more support than it has demanded. Although it has ordered its 100 top suppliers to support an RFID supply chain by January 2005 with RFID tags on pallets and cases, 128 suppliers—the top 100 plus 28 smaller ones—are already moving ahead with RFID projects, Langford says.
Some have signed on enthusiastically because they expect immediate benefits to their own operations. “There are very few technology breakthroughs I’ve come across that I consider as important as RFID,” says Birds Eye Foods Inc. president and CEO Dennis Mullen. “We’re not doing this because Wal-Mart said so. We’re doing this because long-term it facilitates a win-win-win for the consumer, the retailer and the supplier.” Mullen says he’s seen enough of how the technology works to determine that it will significantly increase the ability of Birds Eye and retailers to get the right products to the right stores in time to sell at the best price.