Menu
Menu
Leeway found in Wal-Mart's RFID mandate

Leeway found in Wal-Mart's RFID mandate

Wal-Mart Stores Inc.'s January deadline for its top 100 suppliers to begin shipping cases and pallets outfitted with radio frequency identification tags is just around the corner - in theory. The reality is, compliance is going to be a multi-year effort, analysts say.

Wal-Mart Stores Inc.'s January deadline for its top 100 suppliers to begin shipping cases and pallets outfitted with radio frequency identification tags is just around the corner - in theory. The reality is, compliance is going to be a multi-year effort, analysts say. According to ABI Research Inc., only about 30 percent of Wal-Mart's top 100 suppliers will have accomplished full-scale RFID implementations by January. The remaining 70 percent have only been testing the waters with shallow "slap-and-ship" efforts. ("Slap-and-ship" refers to adding RFID tags at the distribution center, simply to meet retailer requirements, as opposed to integrating RFID technology early in manufacturing processes.)

"This mandate was never as big and hard and fast as it looked from the outside," says Steve Banker, service director for supply chain management at research firm ARC Advisory Group Inc. Banker talked to 24 companies that have actively invested in an RFID infrastructure, including 19 that are Wal-Mart suppliers.

He expected to hear that these Wal-Mart suppliers would be putting RFID tags on all their cases and pallets going to Wal-Mart's three designated RFID-ready distribution centers in Texas. But that isn't the case.

"Several of those 19 companies, including some of Wal-Mart's top eight suppliers, were RFID-tagging less than a dozen (stock-keeping units). On average, companies were probably tagging about 20 to 30 SKUs, instead of the hundreds of things that they sell to Wal-Mart."

One reason the laggards have been half-hearted in their compliance efforts is a lack of technical assistance. "The truth is that there haven't been reputable integrators in the market," says Erik Michielsen, a director at ABI Research, in a statement. "Only now are we seeing Sun, HP, IBM, Oracle, SAP and Microsoft getting involved at the product and personnel level."

The technology is a little messy, and some of the vendors and consultants aren't as good as expected, Banker adds. Among the suppliers, the projected ROI is disappointing, too. Nearly all the suppliers Banker talked to say it will take more than two years to achieve a payback for deploying RFID technology. Only one company said it could obtain payback in less than two years.

"The suppliers don't believe that many of the benefits they would like to reap are going to become possible until this technology becomes far more reliable," Banker says. The reliability of RFID readers needs to improve greatly, for example.

According to rough figures from ARC Advisory Group, a company that ships 50 million cases a year to Wal-Mart might spend US$10 million for RFID tags, assuming 20 cents per tag; $1 million to prepare the RFID infrastructure; and $500,000 to tune warehouse processes, including adding labor.

So is Wal-Mart disappointed? The goal was and remains 100 percent compliance, but the retail giant built some flexibility into its plans all along, according to company spokesperson Gus Whitcomb.

Participation is expected: Of its top 100 suppliers, just two were allowed to back away from the January 2005 deadline, Whitcomb says. One because it was taken over by another company, and the other because it was in the middle of switching over all its systems and to add an RFID implementation to its plans would have been too taxing, he says.

The other 98 of Wal-Mart's top 100 suppliers will be participating in the RFID rollout come January, along with 38 other companies that voluntarily joined the first wave of RFID-ready suppliers.

Where flexibility exists is in the percentage of shipments to be tagged, Whitcomb says. Wal-Mart has worked with suppliers on a case-by-case basis to see if it's possible to tag 100 percent of their Texas-bound cases and pallets.

"That's where the flexibility has always been. We challenged them to do 100 percent because ultimately we think we can get there. But if they came back and said their supply chain didn't work that way, or that would cause them to have to make massive changes, then obviously we said, 'OK, well what can you do reasonably?' And that's what we've been working with them on."

Wal-Mart's current estimate is that by the end of January, the 136 participating suppliers will be tagging about 65 percent of the product cases and pallets that get sent to the three Texas distribution centers, Whitcomb says.

Analysts say the leeway is necessary.

"Wal-Mart didn't expect this battle to be won by Jan. 1, 2005," Michielsen says. "What it did was create an incentive structure that pushed its partners in the market to better understand the technology while standards were being developed and innovation was taking place. Wal-Mart's goal is to get companies to integrate this technology into their changing business processes."

Wal-Mart was amenable to delays, the suppliers told Banker. "Companies could make a valid argument for starting smaller, and learning, and then growing as they discover how to do this more profitably. Wal-Mart was willing to listen to that," Banker says.

Wal-Mart's deadline leniency doesn't mean suppliers are relaxing, however. "The suppliers I talked to are doing everything in their power to meet the commitment that they made to Wal-Mart," Banker says. "What they verbally committed to, they're breaking their backs trying to do." -- Network World (US)

Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

Join the newsletter!

Error: Please check your email address.
Show Comments