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\u2019s evolution. Wal-Mart\u2019s June 2003 RFID mandate\u2014which 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\u2019re Late," www.cio.com\/111504)\u2014has not only jump-started the RFID industry, but it has provided a snapshot of what\u2019s to come. Wal-Mart\u2019s 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\u2019s 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\u2019 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\u2019s 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\u2019s 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\u2019s Retail Link EDI exchange haven\u2019t 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\u2019s not surprising that in a 2006 Forrester Research survey of retailers and manufacturers just 24 percent said they have identified RFID\u2019s business value. Michael Liard, director of RFID and contactless at ABI Research, sums up the typical supplier complaint this way: "We\u2019ve complied, but now what? We\u2019ve got all this data, but we don\u2019t know what to do with it." Suppliers are now at a crossroad. "The possibilities [for RFID] are endless," says Fontanella, "but companies have to take the next step" to get any value from their investment.The RFID Paradox, or the Suppliers\u2019 DilemmaAccording to several surveys, suppliers are conflicted. More than 50 percent of 250 executives surveyed by Aberdeen Group said the inability to show a value proposition for RFID was the single most difficult obstacle in gaining support for further adoption. The survey also found that 60 percent of respondents claimed RFID holds great potential value for their companies, and two-thirds said RFID would help them create significant competitive differentiation in their business processes."The data is still exploratory for us," says Chris Parker, manager of IT infrastructure and strategic planning at the Texas Instruments\u2019 Educational & Productivity Solutions (E&PS) division, which makes calculators and is a midlevel (tier two) Wal-Mart supplier. So far, the RFID tagging of 12 of its products, begun in December 2005, has yet to deliver any big change in Texas Instruments\u2019 supply chain processes or planning. "Right now we\u2019re just testing the waters," says Parker."We know we want to do something with [the data]," says Terry Bargy, VP and CIO of Thomasville Furniture, which makes both furniture-in-a-box products as well as more upscale lines and is also a tier-two Wal-Mart supplier. "[But] it still seems to be something that we don\u2019t have our arms around."Like hundreds of other Wal-Mart suppliers, Texas Instruments\u2019 E&PS group and Thomasville see RFID\u2019s potential to transform their demand planning processes, analysis and warehouse management. "Our thought is, How can we leverage these [EPC serial] numbers, using some sort of data warehouse and drill into the numbers?" Bargy says. But that seems a distant goal. TI\u2019s E&PS group, for example, can access the EPC data for those 12 tagged products through Wal-Mart\u2019s Retail Link system. But the EPC data E&PS can access is case-and-pallet-level information\u2014not item (or product) specific, which experts agree is where the most benefit for suppliers will come from. "Folks that are on the receiving end of all the benefits of the data [right now] are the people handing out those mandates," says ABI\u2019s Liard. The ROI of DataFor all that manufacturers and retailers know about their supply chains in 2006, there are still a few black holes that RFID-derived data can fill\u2014for example, chargebacks. It\u2019s not unusual for retailers to claim that they received a different quantity of goods from a manufacturer (say, 90 cases on a pallet) than what the manufacturer believes it shipped (say, 100 cases). Retailers don\u2019t pay for cases they claim they never received. That\u2019s a chargeback. Patrick Sweeney, president and CEO of ODIN Technologies, an RFID integration and software company, says that consumer product companies have entire departments that do nothing but track where the goods could have gone and look over invoices and receipts to fix discrepancies. But because RFID tags have serialized numbering of the EPC data on each case, "there is verification of when these things come in, and the money they spent just disputing these things goes away," Sweeney says, adding that some of ODIN\u2019s clients are doing this right now.Another area where manufacturers are eager to leverage EPC data is promotional effectiveness\u2014meaning, in Texas Instruments\u2019 case, Did the special back-to-school displays of its calculators go out onto the shopping floor when they were supposed to? Was the display well-stocked during the back-to-school promotion or did stock run out? Did the display stay on the floor for as long as TI wanted (and paid for) it to? Right now, the company pays people to go into stores and answer these questions. But that\u2019s costly. "We\u2019re hoping RFID will give us insights into all that," says TI\u2019s RFID Program Manager Tom Shields.A typical manufacturer will spend 12 percent to 15 percent of the company\u2019s annual sales revenue on promotions, and the industry average for effectiveness of a promotion is 56 percent\u2014a coin toss, says Greg Aimi, director of supply chain research with AMR Research. "Right now, a lot of [promotion planning] is guesswork," Aimi says. "There\u2019s a high degree of latency and delay." During one of its RFID pilots, Gillette used RFID-retrieved EPC data to discover that 33 percent of stores it supplied failed to move its Venus razor displays from the back room to the floors when the company\u2019s Venus promotion started. Stores that got the displays onto the floors on time sold 19 percent more razors than stores that didn\u2019t. According to Gillette\u2019s analysis, a 19 percent sales increase in one-third of the retailer\u2019s stores would represent an overall sales improvement of 6.3 percent for any given promotion. And that\u2019s a lot of razors. Process Changes and IT StrategiesPerhaps the most challenging part of getting an ROI from RFID for manufacturers will be integrating the new EPC data flows with their company\u2019s legacy and proprietary systems\u2014such as supply chain and logistics applications and ERP packages\u2014and retooling warehouse and shipping processes to be more in line with RFID\u2019s real-time demands.The danger for manufacturers with their slap-and-ship deployments\u2014which usually have no clear integration plans or actionable data analysis, and drag on warehouse efficiencies because slap and ship takes extra work\u2014is that RFID implementations will become "islands of technology and information," as Aberdeen Group\u2019s Fontanella poetically suggests. In that scenario, RFID becomes yet another addition to the unintegrated tangle of systems inside many of today\u2019s enterprises. For RFID data to join the mainland, companies are going to have to include RFID in their future enterprise architecture plans and answer these questions: Will our integration strategy employ middleware packages or service-oriented architecture? What other systems, such as business analytics applications and data warehouses, will the RFID data flow into? How will the company retrieve, store and cleanse the data? And how will the manufacturer\u2019s systems exchange data with its suppliers\u2019 systems? Via spreadsheets, EDI, XML or the Web?Right now, there are a lot more questions than answers. CIOs and analysts agree that one way to start dealing with these issues is to create cross-functional teams that can better manage the organizational changes that RFID necessitates. At TI\u2019s E&PS division, execs from IT, supply chain operations, marketing, finance and sales formed such a team in late 2004 and meet at least every three weeks to talk about RFID business demands, data analysis plans and integration strategies, to name but a few issues. For now, Texas Instruments, like many other companies, will proceed cautiously with its RFID plans, mulling over future uncertainties while focusing on the things it can control. "We\u2019re creative enough to envision a lot of lift with the technology," says Shields, "but we\u2019re grounded enough to know that there\u2019s a big financial investment to get to some of these applications."