Above and Right: A look at RFID circuitry, courtesy of The Kennedy Group.

When Wal-Mart announced it was requiring its top 100 suppliers to tag cases and pallets with Radio Frequency Identification (RFID) by January 2005, it sent the RFID world spinning. RFID was relatively untested, the cost of implementation was high and the RFID industry was still very small.

But, some argued it was the jump start the RFID industry needed.

“Although it’s causing the industry a lot of stress, I don’t think there would have been a better time. Before Wal-Mart came along, the industry was just kind of hanging in suspension with a good technology idea, but no where to go, apart from a few limited applications,” said Mike Cove, senior marketing manager, Thermal and Advanced Technical Product Business for Appleton, Appleton, WI.

According to Wal-Mart, the mandate is on track so far. The initiative included 100 top suppliers, in addition to over 30 volunteers. By Jan. 14, Wal-Mart had received tagged shipments from 57 suppliers. The rollout, which currently requires companies to tag only a few SKUs, will continue throughout the year, into 2006 and beyond.

“We plan to expand geographically to be in up to 600 stores and 12 distribution centers by October 2005,” said Christi Gallagher, spokesperson for Wal-Mart, headquartered in Bentonville, AR. “Some suppliers will be tagging additional SKUs as we progress through the year. By the end of the year, our next 200 top suppliers will need to be tagging cases and pallets destined for our distribution centers by January 2006. We will have all domestic suppliers involved in the initiative by the end of that year, beginning with the initial planning stages.”

Why RFID Is a Good Thing
Wal-Mart’s business case for RFID in its supply chain is strong. Gallagher said that the company will see improved productivity, less checking time and less freight handling, which will give associates more time for customer service and re-stocking shelves. “Down the road, we can see benefits related to returns, recalls, warranties and battling counterfeit products, including pharmaceuticals,” Gallagher added.

But for suppliers to Wal-Mart, some say the benefits are not necessarily as clear-cut. For companies involved in Wal-Mart’s mandate, the investment was substantial, even at the lowest levels. Wal-Mart’s suppliers spent on average between $1 million and $3 million each to implement RFID, according to Kara Romanow, research director for AMR Research in Boston.

“The $1 to $3 million is pretty much for whatever they needed to comply, but at the bare minimum. It did include all the hardware and software, as well as the tags and readers, but they only did it for a few products and only in one limited geography in most cases,” Romanow said. What most suppliers did not do, she added, is integrate the entire supply chain or set up methods for capturing and analyzing the tremendous amount of data that RFID would provide.

In Romanow’s report titled, RFID Fast Followers Take Heed: Suppliers Spent $250 Million in Round One, she stated: “Suppliers haven’t embraced the technology and made these more substantial investments. Why? Because in many cases there were too many hurdles to overcome in too short a period to consider revolutionary ways to use the technology and the data that will eventually become available.”

“Slap and ship,” as it’s commonly called by industry pundits, was the easiest way for suppliers to comply. It includes hand application of labels and only the most essential of equipment. Some say the lack of bells and whistles makes it an extra cost instead of a valuable tool.

“Slap and ship is basically, ‘I print the label with an RFID enabled printer, then I take it and slap it on the carton or pallet,’” said Dan Williams, marketing manager for Avery Dennison Printer Systems America in Philadelphia. “All it is, is cost, because there is no feedback into the system telling you that I shipped this, that I have x number of units going to x number of places. It’s just the equivalent of an extra label.”

However, not all suppliers to Wal-Mart have chosen to go this route. Procter & Gamble is among the top 100 suppliers to Wal-Mart and has begun shipping RFID-tagged cases and pallets to the retailer.

“We are not just doing ‘slap and ship,’ said Jeannie Tharrington, P&G Media Relations, Cincinnati. “We see tremendous potential value in the EPC (Electronic Product Code RFID) system, so we are evaluating how best to create systems to get the most out of the information we’re able to collect via the system. We are still in a test-and- learn mode right now. This means that we are focused on doing small pilots with interested retail partners.”

Like Procter & Gamble, many suppliers are starting implementation on a small scale, but they recognize the long-term benefits of RFID and the need for further investments.

R4 Global Solutions, San Francisco, is a systems integrator working with 15% of Wal-Mart’s top suppliers.

“Manual application tags is what the vast majority of the folks we work with are using,” said Charles Rice, vice president of technology.

While that is the current reality, Rice said that these same suppliers are serious about integrating RFID into their operations. “They are investing in infrastructure, in terms of the tags, readers, the middleware, integration, and to their ERP systems, and spending more time on the business process of how this will become a part of their standard operations.”

Feedback from suppliers is both pro and con, according to Rice, but the benefits to suppliers are numerous. “The folks who have expensive products, products with high margins, products with high shrink, products where there’s a lot of counterfeit and diversion, there’s some very obvious, immediate benefits. With some of our other suppliers, the insight into inventory, the insight into the supply chain and the movement of the products through that, especially when it’s a perishable item, have resulted in increased sales,” he said.

Today’s RFID Label
Currently, Wal-Mart cases and pallets are tagged with RFID labels that vary in size—generally from 4 x 2-inches to 4 x 6-inches. Most are passive thermal transfer labels.

Blank labels are generally obtained from a systems integrator or from a label converter directly. The end use manufacturer then prints variable information, such as destination information or bar codes, using a specially equipped RFID printer.

New generation RFID printers prevent damage by “jumping the bump,” according to Williams. “These printers accommodate RFID labels with chips in any label location; users simply alert the printer to chip location during setup. During operation, the print head senses the chip location and jumps over it,” he explained.

Challenges Uncovered
“As this moves forward, more and more of the larger super stores will actually move to this. It makes sense. The technology makes a lot of sense, but boy, is it hard to get going,” stated Appleton’s Cove.

A number of challenges were encountered during piloting and initial implementation of Wal-Mart’s suppliers, including the following obstacles.

This is certainly not an exhaustive list. The cost remains a challenge for many suppliers, the yield can still be an issue and there are questions about label application in the future when suppliers go from tagging a few SKUs manually to automating the process through the entire product line. But, despite the challenges, experts are quick to say that RFID technology is not going away.

“RFID is going to happen. It’s going to happen alongside bar code and human readable labeling for a period of time, but it is a fact of life. And developing a strategy to address it should be a vital part of their future business,” said Steve Ludmerer, president of Parelec, Rocky Hill, NJ.

Testing in progress at R4 Global Solutions’ lab: RFID tags on cases are read as they move by at 600 feet per minute.

Other Retailers
RFID in retail will not begin and end with Wal-Mart, nor will it end with logistics. According to Technology Briefing #021, written by R4 Global Solutions’ Rice and released on Jan. 28, 2005, “Every one of the top 15 U.S. retailers has begun some type of effort around RFID technology.”

Several companies are mentioned specifically. In logistics, the briefing reported that Target is in the pilot stages of its program. “The program is live at 10 Texas area stores with 19 suppliers,” it said. Albertsons is anticipating an August 2005 live date for its top 100 suppliers. A current pilot includes seven top companies, among them, Gillette, Procter & Gamble and SC Johnson.

Best Buy’s RFID mandate was announced on Aug. 31, 2004. “Pallet and case use of RFID is scheduled for an August 2005 pilot with a potential further expansion to item level in 2006 and beyond,” stated the report.

In Europe, Metro Group is working on a pallet-level RFID pilot. Tesco has announced a major expansion of its “Secure Supply Chain” RFID program and has also announced expansion of its item-level DVD pilot from two UK stores to 10.

Wal-Mart’s Gallagher said that her company doesn’t “anticipate tagging at item level for 10 to 15 years,” it is important to note that not all retailers are focused so specifically on supply chain management.

“Retailers are not all going to do the same thing that Wal-Mart is doing. Wal-Mart is focusing on supply chain excellence, inventory visibility, out-of-stock reduction, all that good stuff,” said Romanow. “A lot of other retailers, they can’t compete with Wal-Mart on price, so they compete with Wal-Mart on other things such as store experience. And, RFID is one of those technologies where you can do some innovative things in the store.”

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