Wal-Mart eyes $287 million benefit from RFID

IDG News Service - Wal-Mart Stores Inc. could increase sales by $287 million by fixing just a small portion of its inventory problems using radio frequency identification (RFID) technology, and that could be just the start, an executive said Friday.

The world's largest retailer, with $345 billion in sales last year, is gearing up to roll out the RFID gear to make that prediction a reality in its 4,068 North American stores. The key behind it all is making sure 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.

It's a big issue for Wal-Mart, said Ron Moser, RFID strategy leader at Wal-Mart, 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 had some missteps. It missed a goal last year of installing RFID technology in 12 of 137 distribution centers, and an April target to have RFID technology in place at 1,000 retail stores. So far, it has RFID installed in 975 stores.

Wal-Mart started working with RFID in 2003 and expects the first major rollout of the technology, the RFID tags and forklifts at U.S. 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 waiting around 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's missed, then not only is the sale lost, the searcher will normally order more of the product to avoid further lost sales. That's how unnecessary inventory builds, explained Moser.

By sticking RFID tags on products, the company is able to locate them wherever they are, and quickly. Once the system is installed in every Wal-Mart in the U.S. 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% of that problem, then Wal-Mart will gain $287 million per year by avoiding lost sales, he said.

He 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. Wal-Mart took that data to the makers of such products and encouraged them to offer bigger packages of their items, so people didn't have to buy so many single items. In the end, that leads to savings for suppliers (less packaging) and customers (buying in bulk).

With RFID, Moser expects inventory accuracy to improve tremendously. He believes products will get to shelves faster, thereby reducing lost sales, and that lost or missing merchandise will nearly be a phenomenon of the past.

Going forward, 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 comply with Wal-Mart's initiative. 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.