Wal-Mart and RFID


Background

Wal-Mart uses information technology (IT) as a tool to improve its operations and gain competitive advantage. Several years ago, following an aggressive expansion plan, internal supply chain improvements, and impressive revenue growth, Wal-Mart looked to RFID technology to further improve its operations. Further advances through RFID, such as reduced labor costs, improved inventory control, and advanced market intelligence, appeared to hold significant promise for Wal-Mart. The promise of total supply chain visibility offered by RFID technology was an appealing value proposition. This is because, in spite of billions of dollars of existing investments in supply chain operations, Wal-Mart (and other retailers) experienced problems with lost or misplaced palletized goods. Pallets were sent to the wrong destination or contained fewer cases than originally ordered. Studies show that, on average, products are out of stock in grocery and mass merchandise stores 7% of the time. Some of the most popular items are not available 17% of the time. As a result, retail locations often choose between ordering more than they really need or contend with insufficient stock for the most popular (and often most profitable) items, resulting in lost sales.

Retailers and suppliers are continually seeking new methods for correcting any negative impact to their profit margins. As Wal-Mart perceived it, the more accurate and less labor-intensive tracking enabled by RFID provided the retailer with the expanded supply chain visibility it so critically needed. Because line-of-sight contact is not required to read an RFID tag, Wal-Mart would be much more effective in tracking items in its stores, warehouses, and in transit. This enhanced tracking capability would offer Wal-Mart dramatic improvements over barcode methods, which required much more labor-intensive and time-consuming methods of handling and scanning goods.

RFID would allow Wal-Mart to track individual pallets, cases, or even single items. For example, when a Wal-Mart store received a pallet containing cereal boxes, the store manager could quickly discern precisely how many cases and individual cereal boxes had arrived. This information could be derived not only from a tag on the pallet, but also from individual, differentiating tags on every case and box. By integrating this data with the store's existing warehouse management system, that manager would know immediately when the supply was low so that a new order could be placed. With barcodes, such item-level verification of goods is impractical, because of the vast amount of handling required to open up every case in a pallet and scan its contents at the receiving dock. With RFID, the entire contents of a pallet, even those containing a variety of different products, could be identified easily and efficiently with minimal handling.

Having selected RFID technology, Wal-Mart's executives embarked on the same path that they had followed two decades before, when they mandated the use of UPC barcodes, ushering in their widespread use throughout the industry. This time, they developed a similar mandate to usher in the era of widespread use of RFID. Looking at the complexity of this operation, however, Wal-Mart modified its mandate to only case- and pallet-level tagging. Tagging of individual items may happen at a future date.

Wal-Mart Mandate

On June 11, 2003, Linda Dillman, the CIO of Wal-Mart, revealed that its top 100 suppliers would be required to put RFID tags carrying Electronic Product Codes (EPC) on pallets and cases by January 1, 2005. This was a global directive, and Dillman announced that the company would begin a pilot by the end of 2003. Subsequently, Wal-Mart's distribution center near Dallas, Texas, was selected as the site for the pilot. The company organized a conference for its suppliers in November 2003 in Bentonville, Arkansas, to provide further clarification on the mandate, including specifications for the tags to be used.

Among the key points of the Wal-Mart mandate were the following requirements:

  • One hundred percent of all cases and pallets sent by the top 100 suppliers into the Texas Distribution Center were to be tagged by January 1, 2005. After several pilots in 2004, the target was reset to 65%, on average, as an achievable target due to trouble reading tags on metal and liquid.

  • Eight stores in the Dallas/Fort Worth area would participate in the initial rollout, with subsequent rollouts beyond that area.

  • All suppliers were to tag cases and pallets by end of 2006.

  • Ultra High Frequency (UHF) tags would be used.

  • Per the current EPCglobal standards, Class 0 and Class 1 tags were to be used initially, with a shift to EPC Generation 2 tags (that is, next generation tags) after that standard is properly defined (see Chapter 4, "Standards Related to RFID," for details). (Note that Gen 2 standard was ratified in December 2004. Wal-Mart is not likely to force the transition to Gen 2 tags until they are widely available.)

  • Data would be communicated to and from Wal-Mart via RetailLink and Electronic Data Interchange (EDI), with no use of the EPCglobal Network because the standard was still under development (see Chapter 3, "Components of RFID Systems," and Chapter 4, "Standards Related to RFID," for details on the EPCglobal Network).

  • The EPC tag with embedded Global Trade Inventory Number (GTIN) and serial number was to be used, and the EPC number would be GTIN based.

  • A mandatory 100% read accuracy was specified for tagged goods within 10 feet of the reader.

  • Cases containing one item (for example, a couch or a TV set) must be tagged.

  • A separate pharmaceutical tagging project would also get underway with specific requirements for handling prescription drugs.

Wal-Mart announced in the spring of 2004 that several vendors had begun shipping their goods to the retailer with RFID tags, commencing the first real-world test of the mandate. The company planned to use a phased approach in requiring all of its more than 25,000 suppliers to follow this mandate. This is illustrated in the following timeline in Figure 9.1.

Figure 9.1. Milestones for the Wal-Mart RFID Mandate


Implications for Suppliers

The implications of this mandate for Wal-Mart's suppliers are enormous. Although the first phase of the mandate focuses primarily on the top 100 suppliers, it corresponds to the use of EPC tags on approximately one billion cases per year (approximately one-eighth of Wal-Mart's annual total). In addition, Wal-Mart wants to achieve that goal in just over 12 months. Because EPC standards are still in the developmental stages, this rapid transition has the potential for continued change, and for some suppliers, a wasted investment in technology infrastructure that may become obsolete as standards evolve.

However, several factors can offset the potential downside hazards for suppliers. Wal-Mart is fully aware that it can derive the greatest benefit from its mandate only if the vast majority of its suppliers successfully adopt RFID technology. Therefore, the company also has been working closely with EPCglobal to develop and deploy the most feasible set of standards. The retailer also has expressed a concern about consumer privacy to the EPC working groups, so that effective policies about privacy will be carefully considered (see Chapter 10, "Security and Privacy," for more on this subject). In addition, Wal-Mart has stated its intent to work with suppliers to resolve the difficulties in tagging items containing metal or liquid, which is still a technical challenge (see Chapter 3 for details on why this is the case). One example of Wal-Mart's flexibility: resetting the goal requiring its top 100 suppliers to tag 100% of cases and pallets by January 1, 2005. Now, Wal-Mart expects approximately 65% of cases and pallets to be tagged, based on trials in 2004.

Wal-Mart is also working to ease suppliers' concerns over costs of RFID technology implementation by keeping the standards open and non-proprietary. Because several other retailers have announced plans to adopt EPC tags, suppliers providing goods to other retailers such as Target and Albertsons can leverage their initial, Wal-Mart related, investments across the larger customer base. In a show of support for standards, both Linda Dillman (CIO of Wal-Mart) and Paul Singer (CIO of Target) shared the stage at a retail conference in May of 2004 and announced their support for the EPC standards. This type of major support should result in similar announcements from other retailers, thus reducing the risk that suppliers might face by investing in disparate technologies to meet individual customers' requirements. The resulting volumes should also drive down the prices of tags and readers.

Implications for RFID Component Vendors

In an emerging area such as EPC, vendors can improve their competitive positioning by paying special attention to standards and the resulting implications for architecture. RFID component vendors also must focus on evaluating specific problems faced by their customers and then designing solutions. For example, the area of data collection and synchronization is likely to be a serious concern. Item-level tagging could increase the number of tags so dramatically that the computing infrastructure could become heavily taxed. Can you imagine the number of tags required and the amount of data generated if the United States Postal Service started using RFID to improve its operations and putting an RFID tag on every piece of mail delivered? That would require tens of billions of tags annually and generate many Terabytes of data. Those vendors that have built their solutions for such large-scale volume will be able to compete successfully. Vendors that adhere to open standards such as Java, XML, and EPCglobal are likely to be at an advantage over their competition as companies in open loop supply chains seek to exchange data among their peers (that is, engage in data synchronization).

Vendors looking to succeed on all levels will have to take the initiative by educating their customers about the benefits of RFID. Vendor expertise with regard to business processes and turnkey solutions, based on well-defined frameworks, will help ease customer sales and marketing cycle.



RFID Field Guide(c) Deploying Radio Frequency Identification Systems
RFID Field Guide: Deploying Radio Frequency Identification Systems
ISBN: 0131853554
EAN: 2147483647
Year: 2006
Pages: 112

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