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Wal-Mart executive Linda Dillman addressed Wal-Mart’s plans for RFID at the Retail Systems conference in June, offering rare insight into Wal-Mart’s specific plans as well as feelings about a technology that promises to dramatically change the way products move.
When Wal-Mart Stores Inc. speaks, other retailers listen. But it’s not often that the world’s largest retailer reveals its technology strategies and plans. In the case of Wal-Mart’s aggressive plans to roll out RFID technology, however, the big merchant is really opening its mouth.
Linda Dillman, senior vice president and CIO, addressed Wal-Mart’s plans for RFID, or radio frequency identification, at the Retail Systems conference in June, offering rare insight into Wal-Mart’s specific plans as well as feelings about a technology that promises to dramatically change the way products move all the way from factories into the hands of consumers. “We believe very strongly in the potential of this technology,” Dillman said.
RFID is designed to let retailers and their suppliers more easily and quickly identify and track products by using electronic data collection devices that read product codes from RFID tags on individual items, cartons or pallets. This saves time because multiple products or cartons can be scanned instantly by either a handheld or overhead mounted RFID reader, providing visibility into product movement that can be accessed over a network. Eventually, RFID data will be processed over the Internet through the Electronic Product Code Network, making data available to anyone with authorized access.
Wal-Mart expects to realize near-term gains through a faster and more efficient distribution system as it concentrates on rolling out an RFID program with suppliers, Dillman said. It has called on its 100 top suppliers to have RFID tags on all pallets and cases delivered to Wal-Mart’s more than 100 distribution centers by January 2005. Moreover, it expects to have virtually all suppliers shipping RFID-tagged pallets and cases by 2006.
There’s a major obstacle, however, Dillman said, and that’s why she was talking to an audience of more than 500 people who had crowded into her 8:30 a.m. session, standing along the perimeter of the room as all 400+ seats filled up: Price. Individual tags today cost about $1 depending on volume.
As more companies follow Wal-Mart’s lead, industry experts say, the price of tags will drop, in turn causing increased usage of RFID tags on individual items as well as pallets and cartons. When tag prices get as low as 25-30 cents, for instance, Wal-Mart would consider using them to track individual, higher-priced products such as automobile tires, jewelry and consumer electronics, and if tag prices get to 5 cents, Wal-Mart would consider putting them on a broad number of products, Dillman said.
Other obstacles exist, as well. For instance, Wal-Mart in July backed out of a plan with the Gillette Co. to test RFID tags on individual items to track their movement off store shelves at a Wal-Mart store in Brockton, Mass., a project that could have led to automatically updating inventory records and supporting replenishment. Neither company commented on why they aborted the plan, though they were facing opposition by public interest groups concerned about potential invasion of privacy resulting from having RFID tags permanently attached to products.
But the cost was also a factor, analysts say. “Everybody’s looking for the next big thing in technology, but smart store shelves are not going to happen overnight,” says Kent Allen, retail industry analyst for Aberdeen Group.
Nonetheless, Dillman pressed her audience to get involved with RFID projects. “We have an opportunity as an industry to do something great here, but we have a lot of work ahead of us,” Dillman said, adding: “We need more pilots started to generate economies of scale.”