Wal-Mart Prods Suppliers On RFID
Last updated Tuesday, January 3, 2006 10:39 PM CST in Business
By Anita French
The Morning News
Some Wal-Mart suppliers are reportedly dragging their feet when it comes to getting with the retailer's radio frequency identification program, and now the company is laying down the law.
Linda Dillman, Wal-Mart's chief information officer, said recently that the Bentonville-based company will be increasingly unwilling to work with manufacturers that do not adopt its approach in the use of RFID to tag shipments.
"We've started communicating to some of the suppliers who have been reluctant -- which is a nice way of saying it -- to say, 'We can't invest any more time in you'," Dillman told MSN Money magazine last week.
Repeated calls to Wal-Mart Stores Inc. for further comment were not returned.
Wal-Mart's top 100 suppliers met a January 2005 deadline for tagging shipments, and another 200 are scheduled to begin using RFID tags on their shipments this month.
A researcher with AMR Research of Boston said Tuesday that Wal-Mart has been taking a "hard line" with manufacturers over RFID since the program began.
"The message hasn't really changed, I'm just not sure how much they're enforcing it. (The suppliers) are dragging their heels because there's no (return on investment) for them," said Kara Romanow of AMR.
AMR Research provides information on technology issues, and a report written by Romanow in late 2004 suggested all was not rosy between Wal-Mart and its suppliers when it came to using RFID.
Romanow's report said some suppliers saw the program as costly and without benefit. Projected cost for each supplier implementing RFID is between $12 million and $23 million, she said.
"The cost model doesn't support it," which is why some suppliers have tagged only a "handful" of products, Romanow said.
"Those 100 suppliers did their minimums, rather than embracing it fully," she said. "It's a manual process, in most cases -- slap and ship. They don't have the infrastructure in place."
Wal-Mart is now pushing its suppliers to not only tag more products but also to expand the technology, Romanow said. She expects Wal-Mart and its suppliers will continue to discuss the use of RFID on certain products that will prove beneficial to both parties.
"Other retailers are doing the same. They're not going to be tagging toilet paper but high-value pharmaceuticals or DVDs," Romanow said.
Wal-Mart has deployed RFID at 117 of its warehouses and 500 of its stores, and reportedly plans to double the RFID-capable store count by the end of next year.
RFID uses a decoder, a radio frequency tag and an antenna that emits radio signals to activate the tag and read and write data to it. It is expected to eventually replace the bar code.
Wal-Mart and other companies are interested in the technology because it has the possibility of speeding up the supply chain and reducing costs.
Management consulting firm A.T. Kearney released a study in 2004 which said large regional and national retailers will have to spend an estimated $400,000 per distribution center and $100,000 per store on RFID, and that tens of millions of dollars will have to be spent on organizational systems integration.
The Kearney report suggested that, while RFID will save companies money in labor and inventory expenses, those are long-range savings and that a lot of money will have to be spent on development and implementing the technology before any savings are seen.
The RFID market is expected to grow to $2.7 billion by 2007, according to the American Business Journal.
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Giuseppe Ancona wrote on Dec 8, 2006 1:54 AM: