RFID Tests Wal-Mart Suppliers

Wal-Mart Stores Inc. last week confirmed that some of its 18 pharmaceutical suppliers didn't meet a March 31 deadline to put radio frequency identification tags on warehouse packs of Class II narcotics.

Wal-Mart said it now expects all the companies to comply by June 30. But the missed deadline highlights the challenges that all suppliers face as they try to adopt RFID technology. And the compliance delays may not be the only ones Wal-Mart encounters as its leading suppliers strive to fully meet the RFID directives it set last year, predicted analysts at Forrester Research Inc., Gartner Inc. and five other market-research and consulting firms (see story).

A Wal-Mart spokesman confirmed that the retailer is requiring its top 100 consumer goods suppliers to ensure 100% readability of the RFID tags that they're being asked to affix to all pallets and cases shipped to its three distribution centers in the Dallas/Fort Worth area by January. Forrester estimated that only 25% of the suppliers will be able to fully comply with the requirements on time.

Wal-Mart continues to maintain that the deadline is realistic. In a message posted last week on the company's RetailLink extranet site for suppliers, CIO Linda Dillman stated that Wal-Mart is "on track to have in excess of 100 suppliers tagging cases and pallets by January. ... The response from our suppliers is exceeding our expectations and demonstrates how compelling RFID can be within one's own supply chain."

But at an RFID conference in Chicago, some of Wal-Mart's top-tier suppliers said that they are confronting technical hurdles in pilot projects and that they are struggling to find a return on investment, at least in the near term.

Tom Torre, associate director of business-to-business supply chain innovation at Procter & Gamble Co. in Cincinnati, said executives at P&G will work over the next four months to "understand what the value proposition is." He pointed to the ability to capture tag data from retailers as a key potential benefit, saying it could give P&G better insight about sales.

But Torre said the high cost of RFID tags is a problem. He noted that tags are nowhere near the 5 cent target set by Wal-Mart. Volume prices can range from 18 cents to 40 cents apiece, according to industry sources.

"You're not going to get ROI immediately," said Mark Engle, director of IT at Campbell Soup Co. in Camden, N.J. He added that Campbell views the incorporation of RFID technology as "tactical in nature" to meet the requirements of major customers like Wal-Mart.

Identity Crisis

Cost isn't the only challenge confronting suppliers. Engle said RFID technology currently comes up short on identifying tags affixed to cases that are on the inside of pallets.

P&G discovered through its pilot tests that RFID technology has trouble handling metals and liquids, according to Torre. Foil-wrapped packages of Cascade dish detergent present the toughest challenge because the foil repels RF signals transmitted by tag readers, he said. Liquid detergents also fall into the "RF-unfriendly" category because liquids absorb RF signals, he added.

Mike O'Shea, director of corporate AutoID/RFID strategies at Kimberly-Clark Corp. in Irving, Texas, said his company has found putting RFID tags on cases and pallets of baby wipes to be daunting because the wipes have the characteristics of "a wet brick."

Despite the problems, Kimberly-Clark eventually expects to realize a benefit from RFID. But O'Shea predicted that it will take three or four years before use of the technology in corporate supply chains reaches a "critical mass."

Gartner analyst Jeff Woods predicted that Wal-Mart will see partial compliance by January, but he doesn't think most of the top suppliers will be able to tag all their pallets and cases at 100% read rates. "That's not going to happen," he said. "Most people will support Wal-Mart in some way in 2005. But they're not going to support all commodities, and they're not going to jump through hoops for a business case that only benefits Wal-Mart."

But Gus Whitcomb, a spokesman for Wal-Mart, said only two of the top 100 suppliers have informed the company that meeting the January deadline will present a significant challenge. "It has nothing to do with RFID," he said. "It has to do with other internal events inside their companies."

Whitcomb added that an additional 37 companies that don't face the mandate have told Wal-Mart they're working to meet the deadline anyway.

He emphasized that Wal-Mart views the RFID initiative as a partnership with its suppliers. Suppliers that are having trouble meeting the deadlines are being urged to discuss their problems "early on" with Wal-Mart "so that we can see if we can work with them on a solution," Whitcomb said.

Copyright © 2004 IDG Communications, Inc.

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