RFID experiment hailed a success

- Last updated on GMT

Related tags: Wal-mart, Supply chain management

Wal-Mart claims that its initial roll-out of electronic product
codes (EPCs) in select distribution warehouses and stores suggests
that the concept will be a long-term success.

"To date, no glitches - only positive glimpses of what's to come,"​ said Linda Dillman, executive vice president and CIO for Wal-Mart Stores. "During this test phase, we're experimenting with various tag types and tag placements to see how they impact readability on various products in a non-laboratory environment.

"We want to make this information available to our suppliers early on so that they can incorporate it into their efforts to meet the readability goals we've established."

Wal-Mart is hoping to achieve 100 per cent readability of pallets at dock doors and 100 per cent readability of cases at its distribution centre conveyor systems. The initial implementation, launched 30 April, saw cases and pallets of 21 products from eight suppliers being shipped to Wal-Mart's distribution centres and then onward to seven local Supercentres with radio frequency identification, or RFID, tags attached.

The technology allows retailers greater visibility in monitoring product inventory from supplier to distribution centre to store.

Wal-Mart initially announced its EPC initiative in June 2003. At the time, the company stated that the first phase of implementation would involve its top 100 suppliers tagging cases and pallets of products headed to three Dallas/Fort Worth area distribution centres by January 2005. Since then, an additional 37 suppliers have voluntarily asked to meet that same milestone.

However, many manufacturers feel that they have no choice but to join an RFID revolution that is not designed to benefit them. Some producers believe that supply chain RFID projects are distracting them from efforts to match supply to demand.

"RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain,"​ said one manufacturer interviewed by market analyst Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks. Then the extra RFID data can be helpful."

The consensus among the manufacturers interviewed by Forrester, it seems, is that production networks still suffer from a lack of visibility with customers and suppliers, and it is this that results in mismatches between supply and demand. At the moment, RFID mandates are putting extra pressure on manufacturers, who are already finding their profit margins continually squeezed.

The power that big retailers such as Wal-Mart now wield almost cannot be overestimated. According to the McKinsey Global Institute, four per cent of the growth in the US economy's productivity from 1995 to 1999 was due to Wal-Mart alone. But to achieve this, suppliers and manufacturers have been squeezed relentlessly to cut wholesale costs.

"Our customers are really slugging it out for retail space, and as long as Wal-Mart and some of the other customers are putting pressure on our customer base, it's going to be a challenging environment for all manufacturers,"​ Campbell Soup chief executive Douglas Conant said in an interview.

European food processors face the same difficulties, according to Andrew Marshall, chief operating officer of equipment supplier SFT. He believes that retailers need to work for reduced margins if manufacturers are to be given a fairer slice of the pie.

In addition, this would release billions of Euros to create safer products - farmers would be able to raise safer livestock and manufacturers would not have to take shortcuts.

Nonetheless, retailers are set to continue the roll-out of RFID technology. Wal-Mart is bringing its top 100 suppliers together in Arkansas next month in order to assist them in implementing EPCs. The meeting will be followed days later by a gathering of the next 200 largest suppliers to discuss their upcoming participation.

Wal-Mart is currently focusing on case and pallet tagging, and expects the number of suppliers tagging cases and pallets to expand every few weeks. However, in the initial test, there were three products in which consumer packaging was also tagged.

Related topics: Market Trends

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