How Manufacturers Can Reap the Benefits of RFID

CIO — Say what you will about Wal-Mart (and people say a lot), but since announcing its intent to transform the retail supply chain by using radio frequency identification (RFID) technology and demanding that its suppliers do the same, the company has been passionately committed to the technology’s evolution. Wal-Mart’s June 2003 RFID mandate—which demanded that during the next several years its suppliers would have to start shipping their products to Wal-Mart distribution centers with RFID tags affixed to cases and pallets (see "Tag, You’re Late," www.cio.com/111504)—has not only jump-started the RFID industry, but it has provided a snapshot of what’s to come. Wal-Mart’s ultimate vision is a seamless, real-time retail supply chain with fewer out-of-stocks, better promotion management, and invaluable logistics and data analysis. Even a high-level shake-up in April of this year (Rollin Ford, once head of logistics and supply chain, replaced Linda Dillman as CIO) has done nothing to slow the retail giant’s RFID express.

As of this summer, Wal-Mart claims it has reaped many benefits in pilot stores tracking RFID tags with electronic product code (EPC) data. According to Wal-Mart, manually placed orders have declined 10 percent, reducing excess inventory and unnecessary replenishment orders from suppliers. Wal-Mart claims that the new system has ensured that suppliers’ promotional displays are delivered on time and that products are ready for sale when promotions begin, and Wal-Mart workers have been able to move product from back rooms onto store shelves three times faster than before.

For Wal-Mart’s suppliers, metrics like these have opened a window on the supply chain future. But many suppliers have, in fact, done little more with RFID than slap the tags on their cases and pallets, receiving little or no useful data in return. Over the past two years, a number of suppliers have tried to minimize the cost of complying with Wal-Mart’s demands by investing as little as possible in RFID, pointing to uncertainties around standards, readers and tags, says John Fontanella, former senior VP of retail and edge research at Aberdeen Group. And those suppliers that are able to pull the EPC data feeds (which often contain information on case and pallet movements) from Wal-Mart’s Retail Link EDI exchange haven’t yet devised a way to connect that information to their back-end systems.

To fix that disconnect requires money that, so far, has not been earned through the deployment of the technology. Add to that a dearth of RFID expertise (according to a recent Computing Technology Industry Association survey of high-tech companies, 75 percent said the RFID technology talent pool is insufficient to their needs) and it’s not surprising that in a 2006 Forrester Research survey of retailers and manufacturers just 24 percent said they have identified RFID’s business value. Michael Liard, director of RFID and contactless at ABI Research, sums up the typical supplier complaint this way: "We’ve complied, but now what? We’ve got all this data, but we don’t know what to do with it."

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