Wal-Mart eyes £140m benefit from RFID

Asda owner Wal-Mart could increase sales by $287m (£141m) by fixing just a small portion of its inventory problems using radio frequency identification technology (RFID), and that could be just the start, an executive has said.

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Asda owner Wal-Mart could increase sales by $287m (£141m) by fixing just a small portion of its inventory problems using radio frequency identification technology (RFID), and that could be just the start, an executive has said.

The world's largest retailer, with more than £170bn of sales last year, is now gearing up to roll out the RFID systems it needs to make that prediction a reality, initially in its 4,068 North American stores. The key to it all is ensuring RFID tags are installed on all products, and using a forklift with RFID equipment installed to show the driver exactly where merchandise is inside store warehouses, Wal-Mart said.

It's a big issue for the retailer, said Ron Moser, RFID strategy leader at Wal-Mart, who was speaking at the Taiwan International RFID Applications Show in Taipei. The company is widely seen as one of the world's top drivers of RFID technology, but it has suffered some missteps. It missed a goal last year of installing RFID technology in 12 of 137 distribution centres, and an April target to have RFID technology in place at 1,000 retail stores. So far, it has RFID installed in 975 stores, all in the US.

Wal-Mart started working with RFID in 2003, and expects the first major roll-out of the technology, the RFID tags and forklifts at US and Canadian retail stores, to solve inventory problems.

The inability to find certain merchandise when it is needed causes several headaches. For one, the sprawling store warehouses can take hours to search, and once an item is found the customer may not be around waiting for it anymore, translating into a lost sale for the company.

Often a pallet with the items being sought is tucked away in some remote corner of the storage area, but if it is missed then not only is the sale lost but the searcher will normally order more of the product to avoid further lost sales. That, said Moser, was how unnecessary inventory built up.

By putting RFID tags on products, the company should be able to locate them wherever they are, and quickly. So far, RFID forklifts and tags are being used in 975 Wal-Mart stores in North America. Once the system is installed in every Wal-Mart in the US and Canada, it could have a huge impact on ridding the company of lost sales.

Currently, around 2% of all lost sales are due to the simple fact a store has run out of an item, but 41% of lost sales are due to inventory problems, said Moser. If RFID can fix just 10 percent of that problem, then Wal-Mart would gain £141m per year by avoiding lost sales, he said.

Moser expects RFID to have a bigger impact on the company than bar codes did when that technology was introduced in 1984. Bar codes enabled the company to improve inventory control and better track customer buying habits. By tracking bar code readings at the checkout counter, Wal-Mart found that some people regularly purchased two or three packages of the same item, enabling Wal-Mart to take that data to the produtmakers and encourage them to offer bigger packages of their items.

With RFID, Moser said inventory accuracy should improve tremendously. He said products would get to shelves faster, thereby reducing lost sales, and lost or missing merchandise could be consigned to history.

The company plans to work more closely with suppliers on RFID. So far, 600 of its top suppliers have started using RFID tags at their own expense, in order to meet Wal-Mart's demands. Some of these suppliers have found their own inventory cost savings, but others haven't.

"We have seen suppliers that are getting no benefit out of RFID and use it only because we told them to," said Moser. "We've got to work with these suppliers" to help them find cost savings and other benefits from the technology, he said.

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