Some Suppliers Dragging Feet on Wal-Mart’s RFID Program

Discussion
Jan 04, 2006
George Anderson

By George Anderson


Wal-Mart’s top suppliers that participated in the first phase of its radio frequency identification (RFID) technology program all met the minimum requirements set by the retailer but that is not going to be good enough going forward, says the company’s chief information officer.


Linda Dillman told MSN Money magazine last week, “We’ve started communicating to some of the suppliers who have been reluctant — which is a nice way of saying it — to say, ‘We can’t invest any more time in you’.”


Kara Romanow of AMR Research told The Morning News, Wal-Mart is taking a “hard line” with suppliers it views as impeding progress on its RFID initiative.


“The message hasn’t really changed, I’m just not sure how much they’re enforcing it. (The suppliers) are dragging their heels because there’s no (return on investment) for them,” said Ms. Romanow.


Greater participation will only happen, said Ms. Romanow, when it makes financial sense for suppliers.


“The cost model doesn’t support it,” which is why some suppliers have tagged only a “handful” of products, she said.


“Those 100 suppliers did their minimums, rather than embracing it fully,” she said. “It’s a manual process, in most cases — slap and ship. They don’t have the infrastructure in place.”


Some categories of products, such as electronics, with higher price points can support the cost involved with using RFID, said Ms. Romanow. She is looking for manufacturers and distributors of higher ticket items to continue working with Wal-Mart and other retailers to improve supply chain efficiency and reduce costs using RFID. 


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14 Comments on "Some Suppliers Dragging Feet on Wal-Mart’s RFID Program"


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Kai Clarke
Guest
15 years 1 month ago
RFID is a great concept whose time is premature. It has 2 issues with its implementation: 1) It doesn’t make good business sense for the implementing vendor-except for high ticket items. Implementing RFIDs cost the vendor more than it is worth, let alone supporting them in just 1 vendor. 2) There are some serious personal security (and privacy) issues which have yet to be resolved around this technology. Privacy groups have been asking questions about the usage of RFID, when does the store stop “tracking” the tag, and at which point (“where”) does the system start and stop tracking RFIDs. These issues have not been fully addressed and the issues of personal privacy are glaringly open for any participants of this system. This is a legal and PR risk which would cause any large organization to pause when implementing it. The costs of implementing the RFID grid in each store, along with the tags themselves are tremendously expensive, and most vendors have yet to identify a model for recouping these losses, let alone the logistical… Read more »
Martin Amadio
Guest
Martin Amadio
15 years 1 month ago
RFID is a wonderful concept but…. For RFID to reach its full potential there must be a method and requirement to track EVERY SKU in a retail store, not just some. I do not have all the facts regarding the distribution of “price-points” sold within a Wal-Mart store. Obviously there must be a huge percentage of SKUs sold in a Wal-Mart store that retail for less than say, $7.00. The cost of tags and infrastructure associated with RFID for a manufacturer are, as my uncle used to say “a number.” Common business sense would dictate that if Wal-Mart insists on forcing suppliers to give them the lowest possible price, these suppliers are already working on very skinny margins. Any additional costs Wal-Mart (or any major retailer) forces a manufacturer to absorb will cause foot dragging, at best. Some of you may be familiar with Wal-Mart’s “Penalty Box” approach to supplier relations. It can cost a manufacturer dearly. It is the sort of leverage to which manufacturers must capitulate. There are enough financially stable Brand Name… Read more »
Chris Kapsambelis
Guest
Chris Kapsambelis
15 years 1 month ago

The problem is that RFID does not work as advertised. Recent reports from pilot studies at the DoD Ocean Terminal in Norfolk, VA show that the so called “Wal-Mart RFID Portal” can only capture between 50% to 80% of the RFID tags from any given pallet load.

To overcome this problem, it is necessary to read each case as it is being loaded on the pallet and link the case tag data to the pallet tag. This linkage has to be included in the ASN associated with the shipment. That way, when the pallet is received, the reading of any one tag can be used to retrieve the missing data.

This is a new requirement for the suppliers. It also makes the “Slap and Ship” concept obsolete. At a minimum, a supplier must have the ability to individually read cases loaded on pallets and tie this data to their ASN generating system. This a very laborious and expensive requirement.

Pamela Stegeman
Guest
Pamela Stegeman
15 years 1 month ago
EPC/RFID does have tremendous potential for some products right now. High value, high counterfeit items can, most likely, see great benefit from use of RFID technology with pallet and case level tagging, the method favored by Wal-Mart. For those products that may not find the ROI with pallet and case level tagging, there are a number of other uses of RFID being tested which might prove useful, such as display-unit tagging, currently being tested by Walgreen’s. The important thing to remember with this technology at present is that different products will find different benefits and different levels of benefit, and that different manufacturers and retailers will see benefits at different places in their supply chain based on their current systems. In its current state, both in terms of cost and reliability, RFID is not a “one-size fits all” technology. EPCglobal is working to ensure that we have one standard to use when using this technology, but we are not at a point with the technology where it delivers the same benefits to all. If we… Read more »
Carol Spieckerman
Guest
15 years 1 month ago

Gee, I hope this doesn’t become yet another issue in which Wal-Mart is portrayed as the big (this time, vendor) bully. Vendors cannot lose sight of the fact that RFID is where the INDUSTRY is going – not just forward-thinking Wal-Mart. Snooze you lose.

Mark Lilien
Guest
15 years 1 month ago

The best supply chain improvements are winners for both suppliers and retailers. Improvements with least traction are cost-shifters that force one group to pay while the other group gets the benefit. When purchase orders, advance ship notices, and invoices are transmitted electronically, both groups save money and time, and improve accuracy. When suppliers are asked to make six and seven figure RFID investments and they see minimal payoff for themselves, is foot dragging a surprise? Systems improvements are driven by return on investment.

Ron Margulis
Guest
15 years 1 month ago

The real story is that substantial progress is being made in the manufacturer-retail DC loop, and not as much at retail. The progress in the primary supply loop includes 100 percent or near 100 percent tag read rates on unit loads and cases (even though most unit loads need to carry multiple tags) and the deployment of analytical tools to actually make better decisions based on the data collected. The latter is one of the most under-reported developments of the past year. Companies, both retail and supplier, are starting to use information gleaned from RFID systems to improve in-stock positions and reduce excess inventories. The reason why it hasn’t been widely reported is because the companies having success want to have a little competitive advantage after investing millions in the projects. The one retailer that is going public with their success on this score is Metro in Germany, and they will report the latest and greatest in a few weeks at the NRF show in NYC.

Len Lewis
Guest
Len Lewis
15 years 1 month ago
To some, RFID may be a premature technology, but now is the time to start analysis and implementation–even on a narrow scale. The ball is in the manufacturer’s court. They can’t ignore RFID or lament the fact that Wal-Mart and others are forcing them to use it. Now is the time for them to look at the supply chain and figure out how to use the data and make changes in their operations that will result in a shorter return on investment. Prices of the chips, tags and readers will continue to come down–that’s inevitable. As to the privacy issue, I think it’s being overblown to a large extent by conspiracy theorists who have seen one too many late night sci-fi flick. There are privacy issues that should be addressed. However, the fact is that the effective read-range of today’s RFID tag is no more than one-foot. This is not going to follow the American public outside the store and into the home. Additionally, you can’t read the RFID tags on smart cards in someone’s… Read more »
Ryan Mathews
Guest
15 years 1 month ago

The real story is that somebody has to pay — and nobody wants to. RFID’s potential is still undetermined and not everyone is chomping at the bit to invest in the unknown.

John Stone
Guest
John Stone
15 years 1 month ago

The cost of RFID from any perspective is still unjustifiable. The hardware, software, and other infrastructure simply cost too much at this time, not to mention the price of the tags themselves. The return on investment is simply not there yet.

As the 800-lb gorilla, Wal-Mart is probably the best retailer to motivate suppliers to move forward, but they have forced suppliers to bite off too much at the outset. Wal-Mart would have been better off had they started with RFID implementation at the pallet level only, instead of also insisting on it at the case level. Suppliers would have been more willing to incorporate the new technology because the cost per pallet would have been small. Once everyone was comfortable with the pallet-level tagging, and RFID was an established fact at most businesses, there would have been less resistance to the next logical step, which would have been to move to the case level.

Dan Raftery
Guest
15 years 1 month ago

Stegeman is capturing the problem best. It is one of perception. Supply chain experts look so far into the future with RFID that the current reality is pushed into the background. There is a big perception disconnect on the future of RFID between the folks who lead new technology development and those who fund it. The quest for the holy grail of critical mass is also confusing. Traditional definitions are probably inappropriate but have been cemented in place by the broad array of technology investment opportunities of the last two decades.

Camille P. Schuster, PhD.
Guest
15 years 1 month ago

Wal-Mart’s mandate to its top 100 suppliers certainly was a jump-start for the industry. However, as with any new technology implementation is problematic and expensive. Using RFID technology and information is collaborative and has benefits throughout the supply chain. However, the costs have not been distributed as well. Collaborative projects only work if both partners are benefiting. Unless they are, the collaboration will not work in the long run. However, that is not to say that use of RFID technology is dead. As more companies work with the technology, the implementation process will become easier and more cost effective. Companies that do not keep up with new developments and continue working with implementation will lose in the long run.

Herb Sorensen
Guest
15 years 1 month ago
Although we look forward with great anticipation to item level tagging on the sales floor, we see the “perils of Pauline” involved with supply chain implementation as a harbinger of what is to come in a few years. Meanwhile, we continue to deploy RFID to track shoppers on the sales floor and link to sales through the checkout. This is way too costly at this point for wide deployment, but works really great for research purposes. Meanwhile, our development of the analytics for this sales floor tracking are far in advance of any but a few cutting edge brands and retailers. By the time item level tagging becomes common, we expect to be ready with a unified model of shopping/merchandising/store design that will allow us to build “virtual” stores, with “virtual” planograms, and “virtual” shoppers, that will be a close approximation to what will actually happen if that virtual store is created in the real world. I don’t think anyone is going to implement item level RFID just to achieve this vision, but as we… Read more »
Mohamed Amer
Guest
15 years 1 month ago
Although RFID technology is old, its application in CPG-Retail complex is new. It requires investments by both segments of the value chain. There are inherent privacy issues and potential new ones that are not yet foreseen. Such is the nature of a innovations in business – they change status quo and we know how much we all are born embracers of change. For RFID (or any new process/technology) to gain traction and acceptance there has to be value to the consumer; if not, then it will never catch on. However, such clarity rarely exists in the early phase of true innovations. We are simply going through a process that will last many years and at some point we’ll all look back and say what was all the fuss about. Hindsight is always 20-20. Meanwhile, we’ll debate this and that and where are the standards, and consultants will make a ton of predictions and money, and RFID vendors will come and go. At the end, we’ll still have RFID and items will be tagged, and OOS… Read more »
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