November 3, 2003 11:55 AM PST

Wal-Mart to hold ID tag meeting

Wal-Mart Stores and its largest 100 merchandise suppliers plan to meet this week to plot the implementation of a new high-tech inventory-tracking system, a project expected to send ripples across the retail industry.

The meeting, scheduled for Tuesday near Wal-Mart's Bentonville, Ark., headquarters, follows the megaretailer's announcement in June about its foray into a technology known as RFID (radio frequency identification). At the time, Wal-Mart asked its top 100 suppliers to join the effort and, starting Jan. 1, 2005, attach RFID tracking "tags" to the millions of cases and containers they ship to the company.

Among the companies congregating in Bentonville for a full briefing from Wal-Mart are industry giants Kraft Foods, Procter & Gamble, Tyson Foods and Unilever, a Wal-Mart representative said. Some big names in information technology will also be in town, with IBM, Intel, Microsoft, Philips Semiconductor and SAP participating in an RFID "tech expo" Wednesday.


News.Commentary
Think big on Wal-mart ID tags
Wal-Mart suppliers must ask the
retailer and themselves some tough
questions about their RFID initiatives
to reap long-term benefits.

RFID tags, which contain special microchips and antennae, are designed to automatically relay to computers precise information about the contents of product packages and containers. The technology is expected to reduce much of the manual labor and human error involved in tracking inventory via bar codes and could save Wal-Mart close to $8.4 billion annually, according to investment research firm Sanford C. Bernstein.

But less clear are the benefits for Wal-Mart's suppliers, many of whom already have highly accurate inventory systems, according to a recent report from IT analyst firm AMR Research. It's a critical question, given that large suppliers will spend an average of $13 million to $23 million to comply with Wal-Mart's plan, AMR Research estimates.

"Other than maintaining positive relationships with Wal-Mart, almost no company attending the symposium could readily identify immediate value in implementing the technology," the report states.

A spokesman for the retailer dismissed the notion, insisting that the technology will be a boon to suppliers as well as to Wal-Mart. "Analysts always have to come up with something," Wal-Mart spokesman Tom Williams said.

The benefit to manufacturers comes only when RFID is deployed in stores to decrease stock-out situations, AMR analyst Kara Romanow said. But because of costs and privacy concerns, that could be 10 years away or more, experts said.

Procter & Gamble, which has been deeply involved in the testing and development of retail RFID systems for the last several years, is optimistic that RFID will be more than just another cost of doing business with the world's largest retailer.

"We see that this technology has huge benefits, even at the case and pallet level, in helping us to track our product and helping us understand how long does it take to get through the supply chain," a P&G representative said.

 

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