Wal-Mart Shifts RFID Plans

Emphasis now on stores rather than distribution hubs

Though Wal-Mart Stores Inc. expects the number of its stores using radio frequency identification systems to reach 1,000 in April, the retailer has come under fire from some analysts and users for failing to meet its plan for installing the technology in its distribution centers.

A spokesman last week acknowledged that the company missed its goal of installing RFID technology in 12 of its 137 distribution centers 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.

Along with the U.S. Department of Defense, Wal-Mart is widely seen as one of the world’s top drivers of RFID technology.

Wal-Mart began its RFID journey early in this decade, when it mandated that its 100 top suppliers start tagging all cases and pallets carrying merchandise by January 2005. Wal-Mart officials said 600 of its suppliers are currently RFID-enabled.

Despite the missed deadline for installing the technology in the distribution centers, 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 at Oyster Bay, N.Y.-based 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 centers 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 centers, 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.

Langford, however, argued that first installing RFID technology in its stores allows the retailer to better collaborate with suppliers that need to monitor the flow of inventory and respond to problems or spikes in demand.

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 centers], 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% while improving the efficiency of moving products from backrooms to store shelves by 60%.

“RFID in our stores is going to drive the initial value,” he said. “We see distribution centers as coming onstream a bit later.”

Langford wouldn’t estimate when the technology will be installed in all of Wal-Mart’s distribution centers. 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.”

Copyright © 2007 IDG Communications, Inc.

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