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Wal-Mart sells its suppliers on RFID

Dec. 8, 2003
News Wal-Mart sells its suppliers on RFID Speculation that retail giant Wal-Mart Stores Inc. (www.walmart.com) would slow down its plans to implement
Wal-Mart sells its suppliers on RFID

Speculation that retail giant Wal-Mart Stores Inc. (www.walmart.com) would slow down its plans to implement radio frequency identification (RFID) tags because of adverse publicity were clearly wrong. Last month Wal-Mart invited 100 of its top suppliers to Bentonville, Ark., to learn details of the RFID initiative they will be required to comply with in 2004. An additional 26 suppliers showed up voluntarily.

“The focus has always been on the case and pallet level,” says Sue Hutchinson, product manager at the Uniform Code Council (www.uc-council.org), an organization dedicated to establishing open, industry-driven supply chain standards. “We’re talking back room to back room,” she notes.

Make no mistake, these suppliers showed up because one of their biggest customers will require compliance, but, as Hutchinson explains, “Many of these companies have been down the road before with Wal-Mart and, in general, those initiatives have resulted in a real benefit on both sides.” That may account for the 26 volunteers who say they are prepared to accept the requirement and begin tagging shipments. Hutchinson, who attended the Wal-Mart meeting, says, “The [suppliers] see being part of this as definitely providing some ‘first mover’ advantage.”

Hutchinson sees an even more significant impact. “It’s going to advance the industry,” she says. Wal-Mart has been a very active participant in the automatic identification community, she says, “so they knew where we are on economics right now. They know the capability of suppliers. They know what was coming out in the specifications. They’re actively part of the community, and they set their requirements that way.”

Wal-Mart’s message is clear: “Don’t wait. Start now.” It has been tagging shipments from two suppliers and will soon expand that number to 12. The initiative will kick off with three distribution centers (DCs) and 150 stores in Texas. Wal-Mart is expected to add 100 DCs and 3,000 stores by the end of 2005, starting with merchandise DCs, then move into grocery DCs and, ultimately, add international centers. The initial requirement is for the top 100 suppliers to comply by the end of 2004 and for all suppliers to be on board and tagging pallets and cases by 2006.

Suppliers will bear the cost of implementation, including the tags. One widely circulated estimate by analysts at AMR Research Inc. (www.amrresearch.com) suggests the RFID tagging will cost consumer packaged goods (CPG) manufacturers about $2 billion to implement. UCC’s Hutchinson offers reassurance that the focus is on “making sure we get people to successful implementations in a standardized way and to make sure that all of this still works with the back office systems that are currently in place.”

To that end, Wal-Mart and fellow retailers Target, Tesco and Metro, a number of large CPG companies, technology suppliers and software companies are participating with EPC Global (www.epcglobalinc.org) in developing the standards. Some software suppliers have already announced their systems comply with the Wal-Mart initiative.

While the implementation process is still a bit fuzzy, suppliers are at least clear on the benefits of RFID. The tags allow a company to track products within a DC or warehouse, and ultimately — if the tags are applied to individual products — on the store shelves. Early adopter Gillette Co. (www.gillette.com), for instance, purchased 500 million smart tags earlier this year to thwart pilferage of its high-end Mach3 razors.

Wal-Mart itself has set no timetable for selling products with item-level RFID tags. Complaints from consumer watchdog groups were successful earlier in shutting down plans by garment maker The Benetton Group to fit 15 million tags into its apparel, and even Wal-Mart backed down from a planned pilot test with Gillette to sell RFID-tagged razor blades within a single Massachusetts store.

“RFID at the product level is many, many years down the road for us,” Wal-Mart spokesperson Tom Williams told the Associated Press. LT

On the skids
Wal-Mart suppliers will be required to apply radio frequency identification (RFID) tags at the pallet or case level. Tags will carry a serial number which will be linked to data contained in the advance ship notice suppliers already provide to Wal-Mart via electronic data interchange (EDI) or Wal-Mart’s RetailLink.

Initially, suppliers will be able to use electronic product code (EPC) Class 0 or Class 1 tags. These are open standards, but they are not interoperable. Class 0 tags are factory programmed; Class 1 can be programmed by the user. Wal-Mart has selected the 96-bit EPC for tags in the UHF spectrum (868-956 MHz).

While either Class 0 or Class 1 tags are acceptable at this initial stage, Wal-Mart has urged suppliers to obtain tag readers compatible with the Class 1 Version 2 standard. The specification set includes standards for readers as well as tags. EPC Global will launch its certification programs in the first quarter of 2004.

Suppliers have been urged to use readers that are compliant with the version 1.0 reader specification which calls for an “agile” reader that would be firmware or software upgradeable for future versions.

December, 2003

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