By  on January 12, 2005

Wal-Mart is pushing ahead with its program to roll out radio frequency identification chips throughout its supply chain, while other major global retailers are taking a more focused and less controversial approach. At issue with the Wal-Mart project is the lack of a proven business case for both the retailer and its suppliers, particularly those that ship low-cost goods or items containing large amounts of metal or liquid, such as canned soup, which interfere with the radio signals.

Some Wal-Mart suppliers, all consumer goods companies with low-margin products, are reportedly unhappy about the rollout, which has been beset by technical difficulties, but all of Wal-Mart’s top 100 suppliers and 37 volunteers are complying with the retailer’s mandate. Not every company made the Jan. 1 deadline on the nose, but all will be shipping some cases and pallets bound for Wal-Mart’s Sanger, Tex., distribution center with RFID tags by mid-February, Wal-Mart told Forrester Research of Cambridge, Mass.

Wal-Mart intends to expand the project to two more distribution centers in Texas later this month. In June, the rollout will continue to six more distribution centers in Texas and one in Arkansas. In October, another distribution center in Arkansas and one in Louisiana will be added, according to suppliers.

The percentage of units each supplier is tagging ranges from 1 percent to 100 percent, and averages out to about 65 percent, according to Wal-Mart.

The retailer has relaxed one requirement: It no longer expects to be able to read every case in a palette, “because for some products, it’s impossible,” said Kara Romanov, an analyst with AMR Research of Boston.

Read rates are averaging in the high 90s at receiving (both at the distribution center and at stores) and the box crusher (where boxes go after items are put on the shelf), according to what Wal-Mart told Forrester. In the back hallways of the stores, they range from about 50 to 90 percent.

Wal-Mart has not said exactly how its system is expected to reduce out-of-stocks — its stated reason for the implementation — but it appears that the store is automatically generating a list of items to be reshelved by subtracting point-of-sale data from box crusher data, said Christine Spivey Overby, a Forrester analyst. Wal-Mart has admitted it didn’t test its business case for RFID before issuing its mandate, unlike U.K. retailers Asda (a Wal-Mart subsidiary), Marks & Spencer, and Tesco. A Dec. 16 Forrester report stated, “When it comes to RFID’s impact on product availability, the [Wal-Mart] team admitted that it and the suppliers are learning how to measure the correlation. [Wal-Mart’s Carolyn] Walton [vice president in charge of RFID] shared the fact that product availability ‘is one number that we [still] can’t measure. We won’t know the impact until we start fixing and measuring.’”

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