RFID is off and running at Wal-Mart

After 18 months of anticipation tinged with dread, most of the top suppliers to Wal-Mart Stores Inc. (www. walmart.com) have begun complying with the retail giant's radio frequency identification (RFID) initiative. As of Jan. 1, 2005, 53 suppliers began shipping RFIDtagged goods to three Wal-Mart distribution-centers (DCs) in the Dallas, Texas, area, reports Simon Langford, Wal-Mart's manager, global RFID strategy, information systems division.

"We went live on January 1, and we were ready to accept product on that day," Langford notes, "and we've asked our top suppliers to be running RFID by the end of January."

By the end of February, most of Wal-Mart's top 100 suppliers, as well as 37 other suppliers who decided to be part of the first wave, should be shipping selected products at the case and pallet level to the Texas DCs.

For its part, Wal-Mart currently has installed RFID readers at 104 Wal-Mart stores and 36 Sam's Clubs. The retailer expects to expand that number up to 600 stores and 12 DCs by October 2005.

"The stores with the cleanest and best run backrooms are also the stores with the best in-stock availability," Langford notes. Despite its enormous investments into various supply chain technologies, Wal-Mart has 0% visibility into its backrooms, he points out, which is why the retailer is in the process of implementing RFID readers at the box crusher and trash compactor areas of its backroom storage.

For Wal-Mart, a lot of the benefits from RFID will come by way of improving the customer's experience. Currently, only one out of every four stocks currently make it to a picking list, Langford says, and only one of three of those make it to the shelf in a timely manner. "No one has ever sold anything that sat in a back room," he notes.

RFID technology will provide Wal-Mart with proactive information to replenish its stores, which should provide consumers with improved customer service, speedier shopping and fresher product, Langford says.

It's not just a one-way street for Wal-Mart and the other big retailers going the RFID route, though, Langford asserts. Suppliers should experience such benefits as: end-to-end supply chain visibility, improved in-stocks, smart recalls, improved cold chain compliance, and product protection against counterfeiting.

Those benefits notwithstanding, many suppliers are still unsure as to when, if ever, they'll see a clear return on investment from their RFID implementations. According to Steve Banker, service director, supply chain management with analyst firm ARC Advisory Group, most shippers currently investing in RFID believe the payback period could be longer than two years.

Using the example of a company that ships 50 million cases per year to Wal-Mart, Banker notes that even at the cost of only 20 cents per tag, that would represent $10 million per year in tags alone, not to mention another $1.5 million in infrastructure costs and warehouse labor. Under this scenario, the shipper would have to generate $11.5 million in new savings just to break even.

Langford stresses that suppliers have found ways to drive as much as 70% of the costs out of RFID implementations, thanks to lessons learned from pilot tests, conducted over the past year. The importance of standards and interoperability can't be overemphasized, he says, adding that the RFID landscape should change dramatically in the months to come now that EPCglobal has ratified the Generation 2 standard. Furthermore, "Wal-Mart is working closely with technology providers to produce user-driven solutions," Langford notes.

For those many skeptics still unsure about hopping onboard the RFID bandwagon, Langford reminds everyone, "RFID is a journey, and we are just at the beginning." Nevertheless, Wal-Mart expects its next 200 suppliers to be using RFID tags by January 2006, and its entire supplier base to be on board in at least a limited capacity by the end of 2006.

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