Wal-Mart RFID Tests Underway

By Jim Wagner

April 30, 2004

The retail world is taking notes on the retail giant's first foray into 'case and pallet' level wireless tagging.

RFID-enabled pallets started arriving Friday at retail giant Wal-Mart's distribution centers in the Dallas/Fort Worth Metro region as manufacturers began field tests for their radio frequency identification initiative.

The Bentonville, Ark., company is only nine months away from its self-imposed deadline that pallets from its top 100 suppliers bound for Wal-Mart or Sam's Club include RFID tags.

The company's CIO, Linda Dillman, said in June 2003 that the move would drive cost savings across its network of suppliers and internal supply systems.

Friday's tests are the first "real world" experiment to discover whether the technology will work outside a controlled environment. Suppliers and Wal-Mart researchers have been conducting tests for months, officials said, tweaking the system to weed out the bugs.

Participating in the Texas tests are: The Gillette Company , Hewlett-Packard , Johnson & Johnson, Kimberly-Clark , Kraft Foods , Nestle Purina PetCare Company, The Proctor & Gamble Company and Unilever .

Ash Eisa, Wal-Mart project manager for its global supply chain division, told internetnnews.com the reason it selected the Lone Star state was the company's presence there as well as its complexity, which includes Supercenters, neighborhood stores, discounts stores and Sam's Club.

The field test is an open-ended affair that will roll into the January launch nationwide, Eisa said, and they will be incorporating new products and suppliers to the Dallas tests over the coming months.

Its a process that has had many Wal-Mart suppliers scrambling to incorporate the technology; out of the 100 suppliers notified of the RFID requirement (with 10 other suppliers joining voluntarily), only two will not be able to make the January deadline, "and that wasn't because of a RFID issue," he said. He expects the final two to be RFID-compliant later in 2005.

"We definitely believe in the potential, that there are opportunities to make a positive impact in product availability, making sure the product is there at the right time -- when the customer wants it," Eisa said.

It's an expensive test of the wireless technology that hasn't been used on such a scale before, to be sure. According to an A.T. Kearney November 2003 report, it costs as much as $100,000 per store and $400,000 per distribution center to get an RFID system in place. Systems integration at the corporate level will cost an additional $35 million to 40 million. They did note, however, that it was a fixed, one-time cost. It's an easy trade off for retailers like Wal-Mart; according to the same report, the reduction of out-of-stock items alone will generate $700 million in annual revenues to companies for every $1 billion in annual sales.

Wal-Mart is not the only company that believes in the potential of RFID, with its scanners that tag incoming pallets, which are then translated into supply chain management database forecasting models in order to address out-of-stock items and reduce restocking mix ups.

Other retailers are taking notes as they roll out RFID initiatives of their own.

"There are already a number of retailers that have announced RFID plans, most notably Target and Albertson's in the U.S. and Tesco and Metro in Europe," Mike Dominy, a senior analyst at the Yankee Group, told internetnews.com.

"The other retailers in the U.S. haven't announced it yet, but we know they're looking into this."

He pointed out that retailers like Best Buy, Home Depot and Lowe's "are waiting in the wings to see how [RFID] shakes out," he said.



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