March 31, 2004 8:59 AM PST

RFID deadline hits a wall, study says

Radio frequency identification technology, seen as a way to streamline supply chain operations, isn't exactly on the fast track to widespread use.

According to a new report from Forrester Research, an overwhelming majority of Wal-Mart Stores' top suppliers will not be able to meet a January 2005 deadline for adopting the technology. The retail giant has been among the most aggressive in its push for RFID.

The report, published Wednesday, reduces the number of companies expected to meet Wal-Mart's much publicized RFID requirement from an earlier estimate of 60 percent to only 25 percent. Since December, when Forrester projected the larger proportion of compliance, it has learned that an increasing number of the company's suppliers view the mandate as unachievable.

In June 2003, Wal-Mart asked its top 100 suppliers to begin work on adding RFID tags--which combine chips that carry descriptive information and radio frequency technology to track inventory--to the millions of cases and containers they ship to the company.

Specifically, Wal-Mart told these suppliers that they must affix RFID tags to all cases and pallets bound for three of the company's Dallas distribution centers by January 2005. Some larger, tech-savvy suppliers, such as razor-blade maker Gillette, will be able to meet Wal-Mart's deadline, but many suppliers will not come close.

Perhaps of greater concern to the retailer, Forrester said, Wal-Mart has yet to convince its partners that RFID can deliver sufficient benefits to justify the technology's current expense. Many industry watchers believe that RFID will eventually offer significant savings through improved inventory management.

The Cambridge, Mass.-based research firm estimates that adopting RFID under Wal-Mart's existing guidelines would cost about $9 million for a typical supplier but added that it could cost above $100 million in some cases.

The report also highlights suppliers' growing concern over the compatibility of existing RFID technologies, including so-called RFID scanners, which read data stored on the chips, and the RFID tags themselves. Forrester blames this situation both on vendors of RFID technology and on the industry's inability thus far to create standards.

In order to appease its suppliers and further encourage them to embrace RFID, Forrester said, the retail chain should narrow its program's requirements to let companies experiment with the technology and first apply tags to products that pose less of a physical challenge.

For instance, products containing large amounts of liquid or metal are known to create problems with some RFID systems. As a result, Forrester suggests that Wal-Mart view this type of inventory differently than less-demanding inventory, such as apparel. Executives at the retailer have said they would consider scaling back the mandate if its original demands prove unrealistic.

Forrester also places the onus to push for friendlier and cheaper RFID tools on Wal-Mart's suppliers themselves, suggesting that companies form consortiums for buying tags at volume discounts, for instance. The research firm also advises suppliers to band together, keeping Wal-Mart aware of the realities they face in adopting the technology.

 

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