Analysts: Wal-Mart RFID deadline could be tough to meet

But suppliers are expected to have at least started RFID implementation projects

The majority of Wal-Mart Stores Inc.'s top 100 suppliers are expected to have RFID projects in the works by January. But whether they will be in full compliance with the requirements Wal-Mart laid out for them is another matter.

Industry analysts and consultants predict that Wal-Mart's top suppliers will face difficulties meeting the retailer's January RFID deadline because of the immaturity of the technology and the challenge in devising a near-term business case.

Wal-Mart "challenged" suppliers to tag 100% of the product cases and pallets they ship to its three Dallas/Fort Worth-area distribution centers with radio frequency identification tags by January 2005, according to Gus Whitcomb, a spokesman for the Bentonville, Ark.-based retailer.

"We asked them to come back and tell us what was doable," Whitcomb said. "Many will be tagging 100%."

But Wal-Mart is also requiring suppliers to ensure 100% readability of the tags, Whitcomb said. That directive will pose additional challenges given the current state of the technology for tags and readers, several analysts said.

"Nobody has figured out how to bend the laws of physics. So especially those dealing with liquids and metals are having real problems," said Kara Romanow, an analyst at AMR Research Inc. in Boston. She predicted that "very few" of Wal-Mart's top 100 suppliers will make the January deadline.

Jonathan Loretto, global technology lead for RFID at Cap Gemini Ernst & Young, said getting 100% reliability "is a bit of an art form." He said that multiband tags and readers that help users get accurate read rates with liquids and metals are now moving to the trial stage and that the technology will slowly move toward the goal of 100% reliability.

"The biggest challenge is how do I make money out of this, because the technology will get sorted out," said Loretto. "It's a matter of time. If you have the wrong strategy and implement [RFID] wrongly, it doesn't matter if the right technology comes along, because you will have effectively crippled your business, and that is harder to undo."

Loretto predicted that only about 25% of Wal-Mart's top 100 suppliers will be in full compliance with Wal-Mart's January directive to ship all pallets and cases to its distribution centers with 100% readability of the tags. But he said he expects that 65% will be in a state of partial compliance by the deadline.

Jeff Woods, an analyst at Stamford, Conn.-based Gartner Inc., said some companies are still figuring out what the requirements are. He said they're uncertain what type of data they will have to supply to Wal-Mart to ensure compliance.

Woods added that he expects that most suppliers will be affixing RFID tags to some cases and pallets by January, but he said they won't meet all of the originally established requirements, particularly for a business case to support RFID.

"The issue is: Can they comply and make money and support the further rollout?" Woods said. "There's a lot of negotiating and posturing going on now."

Gene Alvarez, an analyst at Stamford, Conn.-based Meta Group Inc., said he always viewed the Wal-Mart mandate as "a little bit unrealistic." He predicted that many suppliers will take a simple "slap-and-ship" approach early on, moving later to implement the systems that will enable them to realize a business advantage.

"I've been saying 2004 is the year to scramble to get compliant, but 2005 is the year that folks will probably start to get compliant," Alvarez said. "One of my fears is that the technology will be labeled a failure because it was unable to meet the date. The technology does work, but it faces the normal maturity curve."

Mike Liard, a senior RFID analyst at Venture Development Corp. in Natick, Mass., said Wal-Mart gave the industry "a shot in the arm." But the technology still isn't ready for prime time, standards remain a work in progress, and the channel of vendors and systems integrators isn't equipped to handle the customer load. He said he expects that most suppliers will have only a "very basic installation" in place by Wal-Mart's January deadline.

"The message that's being delivered through the community is that the likelihood of the 2005-2006 deadline is very, very dim at this point," Liard said.

Erik Michielsen, an analyst at ABI Research in Oyster Bay, N.Y., said there won't be enough professionals skilled in RFID technology to service the more than 130 companies working to meet Wal-Mart's January deadline.

Christine Overby, an analyst at Forrester Research Inc., said the Cambridge, Mass.-based firm originally thought 60% of Wal-Mart's top suppliers would be able to comply by the January 2005 deadline. But she said Forrester revised its prediction down to 25% after interviewing 40 users and vendors and taking a closer look at the technology, Wal-Mart's requirement of 100% readability of tags over all product types and the lack of clarity of a business case.

"The promised return on investment requires a broader implementation of RFID systems, and right now, that takes more than a year. And the pricing of the technology is not capable of supporting broader systems," Overby said. "It's really a case where we don't believe the business or the technology can move as fast as Wal-Mart's asking."

Forrester thinks Wal-Mart should refine its goals, focusing on smaller implementations in a couple of product categories or lowering its requirement of 100% readability, Overby said.

"There is so much hype about this technology," said David Hogan, a senior vice president at the National Retail Federation in Washington. "It is going to happen. But I've been in this business long enough to know how long it takes to do things."

Hogan predicted it will take four to five years before there's mass adoption at the pallet and case level. He noted that it took about 10 years before mass adoption of the bar code happened.

Wal-Mart maintains that its deadlines are realistic. Whitcomb said only two of the company's top 100 suppliers informed the retailer that they anticipated a problem in meeting the January directive. He added that, beyond the top 100, an additional 37 suppliers informed Wal-Mart they're working to meet the deadline.

Next month, eight of the top 100 suppliers will begin a test involving selected products shipped to one of Wal-Mart's distribution centers in the Dallas/Fort Worth area, Whitcomb said. The test will ultimately expand to Wal-Mart's other two distribution centers in the Dallas/Fort Worth region, but Whitcomb said the timing will depend on how the first test goes.

Copyright © 2004 IDG Communications, Inc.

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