Tag — You’re It

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.”

Within reach

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.

Supplier buy-in

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.

Although suppliers will bear the cost of installing tags, Wal-Mart has set up an organized system providing them support within the retailer’s executive and technology ranks. It helps to promote RFID projects with its suppliers by dedicating support teams of Wal-Mart executives and RFID technology specialists for each participating supplier. “They’re really trying hard to make RFID happen, so they’re collaborating on all levels with us,” says Mike O’Shea, director of corporate auto-ID RFID strategies and technology for consumer products maker Kimberly-Clark Corp.

By sharing information on RFID projects among its suppliers, Wal-Mart is learning how to benefit from RFID in ways that minimize the impact on network infrastructure, Langford says. “The biggest ideas we’ve shared is how to approach this in a simple way that allows us to benefit from this technology without having to re-engineer back-end systems and applications, such as inventory management,” he says.

Few pilots, much learning

In a sort of dry run for its January 2005 mandate, Wal-Mart and several suppliers will operate a pilot RFID system by the end of the first quarter in Wal-Mart’s three Dallas distribution centers, which serve 110 stores, testing the operation of RFID infrastructure and data flow. “We’ll be replicating our RFID position for January 2005,” Langford says.

Wal-Mart has done a number of RFID tests leading up to its Dallas distribution center pilot, a process that has exposed it to challenges and issues that need to be resolved. “A few pilots have given us a lot of learning,” Langford says. “We’ve shared ideas with system integrators and consultants to help our suppliers focus on further development of business solutions.”

Wal-Mart learned some basic lessons the hard way: after some of its RFID readers were damaged by forklifts, for instance, it figured how to better position readers to scan cases and pallets while providing clearance for moving large stockpiles of goods. “We’re fairly confident we worked out all the kinks,” Langford says.

In addition, it learned how to best position RFID readers and their antennas to produce an appropriate power level for scanning all cases on a pallet. And that experience put Wal-Mart in a better position to consider the advantages of new readers now becoming available with antennas as a single unit.

Some of the future benefits of RFID will take time for the technology to evolve, which makes the process of pilots all the more important, experts say. Wal-Mart was able to learn how to deal with some of RFID’s most significant shortcomings; its inability to send and receive signals through water and metals, for example.

“Don’t expect to read every case that comes into the dock at the distribution center,” Langford cautions. “Water and metal are no great friends of radio frequency, so if there’s a shipment of soft drinks in cans, there’s no way RFID can read cases in the middle of the pallet.” Well, at least not for now. By being aware of such problems, Wal-Mart is monitoring developments that would enable RFID tags and readers to communicate sufficiently to read an entire pallet of liquid-filled cans.

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In the meantime, RFID experts note that retailers may need to operate a hybrid system that uses both RFID and barcodes to accommodate all products coming into loading docks.

There’s also work involved in making RFID an effective means of gathering and transmitting information, experts say. “There’s no one-size-fits-all solution,” says Higgins of BearingPoint. “RFID will involve a lot of custom work to make the technology work within each retailer’s four walls.”

To leverage the information absorbed by RFID readers in a sophisticated means that can update back-end software applications as well as provide browser-accessed product tracking, retailers will need to deploy middleware that translates data transmitted from tags so that the information can update enterprise resource planning systems or single applications like warehouse management.

A number of technology vendors, meantime, including Manhattan Associates Inc., webMethods Inc., RedPrairie Corp., IBM Corp., SAP AG, Yantra Corp., Sun Microsystems Inc. and Oracle Corp. have begun to offer RFID support systems for integrating RFID data with back-end software applications.

Supply chain alerts

In most near-term cases, RFID will help managers and store employees do better jobs of arranging to have the right products on display when and where customers are mostly likely to buy. By seeing on a web page that expected products have been checked into a distribution center or into a store’s backroom—or by getting an alert to a cell phone or laptop e-mail system that the wrong or insufficient products are being shipped—retail personnel can respond immediately. “Having RFID tags on cases and pallets will help retailers understand what they have and where they have it,” says O’Shea of Kimberly-Clark. “If retailers rely totally on POS data for what they have in store, a lot of stuff can go missing.”

He adds that a major advantage offered by RFID over existing barcode scanning systems is the real-time visibility RFID offers. When shipments arriving at distribution centers and stores are scanned for barcodes, data are usually batched and sent to managers every 24 or 48 hours. That can be too late when retailers have to respond quickly to surging demand for particular products. But with real-time data flow from RFID scans at multiple points along the supply chain, and instant browser-based access to the data, retailers can immediately see whether a particular store’s backroom has sufficient goods and, if it doesn’t, see where the desired goods are among its network of distribution centers as well its suppliers’ warehouses. At the same time, it can see if expected orders have not been scanned in at stores or distribution centers, then make alternate merchandising plans to satisfy customers.

This visibility also lets retailers stock less back-up inventory to guard against stock-outs, a costly technique that leads to inefficient use of warehouses. “We still have too much inventory within Wal-Mart’s operations,” O’Shea says, “because we don’t always understand where demand is on a timely basis.”

Easing the crunch

Store deliveries often come in the middle of the day during the crunch of sales activity, making it difficult for managers to quickly get new hot-selling items onto shelves while also properly checking in products on the loading dock, says Hunter Harris, vice president of retail market development for Yantra. “Many times store managers will rush to get the best-selling incoming products on the store shelves, then check later for mistakes made in checking products in at the loading dock that disrupt inventory records,” he says. But with RFID quickly recording products and updating back-end inventory records, store managers will have the best of both worlds of displaying products quickly as well as avoiding errors in inventory systems, he says.

Langford and others say the retailing concepts that RFID addresses are not hard for managers and employees to learn, since RFID presents them the same kind of information on web pages and electronic alerts that they would otherwise have to gather from different points along the supply chain by scrambling with phone calls, faxes and e-mail. “Training in using RFID technology is more of a briefing,” Langford says, adding that Wal-Mart will schedule RFID briefings along with routine training procedures for other store systems. The Retail Industry Leaders Association (formerly the International Mass Retail Association), in conjunction with RFID advisory firm ePC Group and Sun Microsystems, has developed a web-based RFID training course that advises retail managers on the necessary infrastructure and procedures required by RFID, as well as the technology’s capabilities and limitations. The course takes about 50 minutes and costs $100.

“The whole idea of RFID is to minimize the work patterns of associates so they can go about their everyday jobs,” Langford says  “This will enable us to deliver much better service, and have products in stock when customers visit our stores. And as the technology matures and comes along with more sophisticated tags, that will just add on top of that.”

No. 1 priority

As more retailers get involved with RFID and see upfront how it works in pilot projects, the technology’s acceptance will grow among a broader number of companies with plans to implement it, experts say.  “Some people have the view that RFID is rocket science and will be difficult to implement,” says Higgins of BearingPoint. “But once they get involved at the root level, some of the mystique goes away and people think it’s doable.”

In fact, some think that not only is it doable, it must be done. Mullen says he’s made RFID the No. 1 priority among technology projects at Birds Eye. “I have embraced this technology because it will give us a competitive edge,” he says. “I believe the ROI on this will be there in spades.” l

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Tagging the future with RFID

Development of RFID technology will also produce tags capable of doing an increasing number of useful things, says Simon Langford, Wal-Mart Stores Inc.’s RFID strategy manager, adding that customizable tags will be able to monitor and emit detailed information on the shipment record of a tagged product. A shipment of frozen meat, for example, is likely to carry a battery-attached tag that would be programmed to wake up every 15 minutes to record the product’s temperature.

“Today, when we get a trailer of frozen food, we may know that the trailer itself maintained a chill compliance, but we don’t know if a case of items had been left in the sun while being transferred from another trailer,” Langford says. “With new temperature-taking tags, we’ll be able to read them to see if products ever went up in degrees of temperature.” Such sophisticated tags could be costly, perhaps up to $1.50 per tag, but worth it to track highly valuable goods or, in the case of frozen foods, to assure that goods maintain quality levels and avoid  liability for damaged goods.

RFID tags are available in two basic types: Class 0, which operate as pre-programmed read-only instruments that can only be used for pre-assigned products, and Class 1, which users can program with information for use with any of a wide range of products. A third type of tag, Class 1 Generation 2, which is expected to be available next year, will accommodate all radio frequencies as well as coding for international shipments under standards being developed by the Uniform Code Council and its European counterpart, EAN International.