Wal-Mart expects the number of its stores using radio frequency identification systems to reach 1,000 in April, but the retailer, which owns Asda in the UK, has failed to meet its plan for installing the technology in its distribution centres.
A spokesman this week acknowledged that the company missed its goal of installing RFID technology in 12 of its 137 distribution centres by the end of 2006. Simon Langford, director of RFID and transportation systems at Wal-Mart, said the missed goal reflects a change in course by the company to instead concentrate on RFID-enabling its retail stores.
Wal-Mart pioneered the use of RFID technology among retailers and has been closely followed in the UK by Tesco and Marks & Spencer, which earlier this month said it would expand its use of in-store RFID tags to 120 shops by May.
Wal-Mart began its RFID journey when it mandated that its 100 top suppliers start tagging all cases and pallets carrying merchandise by January 2005. The company said 600 of its suppliers are currently RFID-enabled.
Despite the missed deadline for installing the technology in the distribution centres, Langford insisted that Wal-Mart's overall RFID effort is on track and has been successful so far. "We're accelerating [RFID adoption] and at a greater pace than last year," he said.
Cost vs. benefits
However, Michael Liard, an analyst ABI Research, said the shift in strategy could slow Wal-Mart's effort to boost the visibility of its supply chain.
Having RFID technology in the distribution centres would let the company mark merchandise as it arrives from its suppliers, Liard said.
But when they're sitting in the non-RFID-enabled distribution centres, the items are invisible, so Wal-Mart wouldn't get the full benefits of RFID technology in its supply chain, he added. "For me, it presents a problem," Liard said.
RFID boosts in-store efficiency
RFID technology has cut the incidence of out-of-stock products at Wal-Mart by 30 percent while improving the efficiency of moving products from backrooms to store shelves by 60 percent
Also, Langford said, store personnel can better use the technology to keep the shelves full of merchandise and reduce the number of products out of stock at each store. Wal-Mart expects to have rolled out RFID to 1,000 stores by the end of April, up from 100 in January 2005.
"We're focused on the store level," said Langford. "If we focused internally [at the distribution centres], it would provide no value to our suppliers. When we set out on this journey, we really focused on the collaborative benefits; we wanted what was going to drive sales for our suppliers and to get product on the shelf, where it needs to be for our customers to buy."
Langford credited the use of RFID technology with cutting the incidence of out-of-stock products by 30 percent while improving the efficiency of moving products from backrooms to store shelves by 60 percent.
"RFID in our stores is going to drive the initial value," he said. "We see distribution centres as coming onstream a bit later."
Langford wouldn't estimate when the technology will be installed in all of Wal-Mart's distribution centres. He noted that the five current implementations have already helped improve the efficiency of the company's supply chain.
Nevertheless, he said, "we needed to remain focused on the stores and store associates and help them move freight to the shelf."
Procter & Gamble:RFID pays off for suppliers too
Procter & Gamble, the domestic good manufacturering giant, was one of the first 100 suppliers to comply with Wal-Mart's requirements to tag its products with RFID chips.
It has improved the accuracy of its deliveries to the retailer, particularly during time- sensitive promotions, according to Paul Fox, a spokesman for P&G Global Operations. "Ensuring that the right product is at the right place at the right time is priceless," he said.
In addition, Fox said, "we have seen significant benefits within our own four walls. It's helping streamline processes and making them more efficient. We know what we're about to ship, and there are no errors and no picking the wrong case and no miscounting."
RFID technology has offered significant improvements over bar-code systems, Fox said. For example, he noted that workers can't scan the same RFID tag twice because each one has a unique identifier. Bar-code technology lacks those capabilities, he noted. RFID automation has also allowed P&G to speed the process of moving products to a distribution centre: It took 20 seconds to manually tally bar-code data on a pallet versus five seconds to read the RFID technology, Fox said.
The cost of each tag is less than 5 pence, making the technology economically viable, he said. RFID tags cost £1 in 1999, Fox noted.
He said P&G's overall investment in RFID technology, which he would only say was multiple millions of dollars, has been recovered. "Fundamentally, it's been a fruitful collaboration between ourselves and Wal-Mart," Fox said.
Some analysts remain unconvinced that the Wal-Mart RFID program will prove beneficial to all suppliers. Michael Liard, an analyst at ABI Research, said that more data is needed to determine whether RFID technology is significantly more cost-effective than bar-code systems.
Simon Langford, director of RFID and transportation systems at Wal-Mart, said the second generation of RFID technology has improved performance and accuracy for the retailer. Langford acknowledged that the company's top 100 suppliers, which went live with the technology during 2005, faced some challenges while learning how to use it. Smaller suppliers that implemented the technology later on benefited from lessons learned by the earlier adopters, he said.