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Only 25% of Wal-Mart’s top 100 suppliers will completely comply with the retailer’s mandate that they begin shipping cases and pallets with RFID tags by next January, Forrester Research says.
Due to excessive costs and other challenges, only 25% of Wal-Mart’s top 100 suppliers will completely comply with the retailer’s mandate that they begin shipping cases and pallets marked with RFID tags by next January, Forrester Research Inc. says in a new report, “RFID at What Cost?”
“There is no business case for most suppliers in the short term,” says Christine Overby, the Forrester analyst who authored the study. She estimates the typical startup and first-year maintenance costs to comply with Wal-Mart’s directive at $9 million per supplier.
Overby says that RFID tags alone will account for 80% of costs, figuring a typical top Wal-Mart supplier would spend $7.6 million for 19 million tags at about 40 cents per tag. Other costs cover software, consulting, warehouse labor, and RFID readers, at more than $1,000 each, deployed at multiple points in the supply chain. Forrester based these figures on a company that does $12 billion in annual sale and ships 15.6 million cases and pallets to Wal-Mart each year. Forrester notes that a supplier shipping 15.6 million cases and pallets would purchase about 19 million RFID tags in order to have a safety stock in case some get damaged
Although Wal-Mart says that at least 137 of its suppliers--its 100 largest and 37 smaller ones--plan to be RFID-enabled by its Jan. 1, 2005, deadline, Overby says the reality is that many suppliers will take a stop-gap approach that falls short of Wal-Mart’s goal for supplier implementations. While Wal-Mart expects cases and pallets shipped in an RFID environment from the point where they leave suppliers’ warehouses, many suppliers will apply the tags at the retailer’s distribution centers, where the tags will be read by Wal-Mart’s own RFID readers.
Wal-Mart, however, says that its January 2005 deadline stands firm and that it expects nearly all of its top 100 suppliers to be in compliance. “We have met with each of our top 100 suppliers. Only two have shared that they will have a significant challenge in meeting the January 2005 deadline,” a spokesman says. “This is because of issues inside their own companies and has nothing to do with RFID. Additionally, 37 companies beyond the top 100 have voluntarily asked to meet the deadline, telling us they want to meet it and that they will meet it.”
RFID, or radio frequency identification, is being designed as a replacement for the existing system of scanning bar codes on shipments. RFID readers located within both suppliers’ and retailers’ warehouses and distribution centers will record product codes attached to RFID tags, providing greater accuracy and time-savings over the bar-code system, experts say. Eventually, RFID readers will transfer this data over the Internet to provide shipment visibility to authorized managers at retailers, suppliers and carriers.