April 30, 2004 8:35 AM PDT

Wal-Mart turns on radio tags

Wal-Mart has launched a pilot program using radio frequency identification technology, as it moves ahead with plans for all its top suppliers to be using the inventory-tracking tags by January, the retail giant said Friday.

The pilot program is a significant step in Wal-Mart's much-publicized mandate to adopt the technology known as RFID. Wal-Mart is requiring the company's top 100 suppliers to have the technology in place by the beginning of next year. RFID tags are chips with radio frequency antennas that provide detailed product information and allow better tracking of inventory. Wal-Mart believes the tags can significantly reduce costs by improving inventory management.

Wal-Mart said it turned on an RFID tracking system at eight sites in the Dallas area, including seven of its "supercenters" and one of its distribution centers. Joining Wal-Mart in the pilot is a roster of major consumer products vendors: Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle Purina PetCare, Procter & Gamble and Unilever.

Executives from the Bentonville, Ark., retail chain said they believe the pilot will immediately demonstrate the efficiency inherent in using the tags. Simon Longford, Wal-Mart's strategy manager for RFID, said his company remains committed to having the technology running on a much larger scale in the near future.

"The benefits offered by RFID should be obvious fairly quickly at a store level, as employees will have much greater ability to locate (a product) within a location and get it on the shelves when customers need it," Longford said. "Today's launch has us right on track with our original plans to have RFID in use on the case and pallet level this year."

Getting the right gear together

A major portion of the Wal-Mart pilot effort is dedicated to adoption of the electronic product code (EPC), an inventory guideline created by EPCglobal, the industry standards organization borne of the Massachusetts Institute of Technology's AutoID Center. The EPC is meant to replace traditional bar code technology as part of RFID systems. One of the main differences between current bar codes and the EPC is that it lets companies know exactly where a specific piece of inventory is located, rather than simply indicating a package's contents.

Longford said that getting Wal-Mart and its suppliers on the same page regarding the EPC is a significant achievement in making the companies' RFID plans come to fruition.

"You can't underestimate the importance of everyone working together with EPCglobal," he said. "This is how we're really going to drive costs out of the inventory process."

Longford pointed out that Wal-Mart has conferred with other retailers involved in the development of the standard, including Target and U.K. grocery chain Tesco. Devising a single product code standard is also meant to help lower the cost of RFID tags themselves. Longford estimated that tags have dropped from an average of 60 cents per unit to roughly 20 cents per tag over the last year, and he expects EPC standards adoption to drive that price down even further.

The executive said the price of the hardware used to receive signals from the tags, known as RFID readers, has also become more attractive, with an increasing number of vendors bringing products to the market. The arrival of readers from well-known makers of data terminals and handheld bar code scanners, such as Symbol Technologies and Intermec Technologies, has made it more of a buyer's market for readers, he said.

According to Mike Wills, chief RFID strategist for Intermec, most ongoing pilot programs such as Wal-Mart's are testing kinds of readers and tags while working out requirements for the future. Wal-Mart said it is working with "passive," or fixed-location, readers, which can scan tags from up to 15 feet.

"Most often companies are working to streamline compliance requirements, using several kinds of fixed readers, along with printers and tags," he said. "Companies are interested in understanding the flexibility and freedom that other devices like handheld and portable readers give them, but for the most part those are going to come into play down the line."

Keeping a lid on it

Privacy advocates and consumer activists have voiced apprehension over whether the devices could be used to derive information about individuals buying the goods without their knowledge or permission.

Earlier this month, the Federal Trade Commission said it would begin researching consumer uses of RFID and privacy threats posed by the technology. Sen. Patrick Leahy, D-Vt., has also discussed federal regulation of RFID technology, and several states--California, Missouri and Utah--have introduced bills to ease privacy concerns related to RFID.

Wal-Mart executives attempted to assuage privacy concerns related to its RFID programs, and said the company would work to incorporate safeguards to protect consumers' personal information. While the pilot effort will focus almost entirely on attaching RFID tags to cases and pallets, some electronics products--specifically, printers and scanners from Hewlett-Packard--will feature RFID tags in individual packages. The company did not indicate whether those tags would be removed after an item is sold, but executives said the chain is making every effort to protect consumers' rights.

"We can certainly understand and appreciate consumer concern about privacy," Linda Dillman, Wal-Mart's chief information officer, said in a statement. "That is why we want our customers to know that RFID tags will not contain nor collect any additional data about consumers. In fact, in the foreseeable future, there won't even be any RFID readers on our stores' main sales floors."

Hitting its targets

Wal-Mart executives say they're hopeful that the April launch of the RFID pilot will be seen as proof that the company is having success meeting the terms of its larger mandate. Some experts say the retailer set terms for its program that were unrealistic for its suppliers to meet.

In March, Forrester Research published a report that indicated that an overwhelming majority of Wal-Mart's top suppliers would not be able to meet the company's January 2005 deadline. In the report, Forrester reduced the number of companies it expected to meet Wal-Mart's mandate from an earlier estimate of 60 percent to only 25 percent. Forrester said that an increasing number of the company's suppliers view the mandate as unachievable.

However, Wal-Mart's Longford disputed those findings and said Friday that an additional 37 suppliers contacted the company and asked to become part of the RFID program. Many of those companies were smaller than the top 100 suppliers.

"From our perspective, things are going along just as we planned, and in line with our publicly announced timeframe," Longford said. "We're pleased with how things are developing."

Wal-Mart reported that only 21 products will be included in the pilot. Cases and pallets containing those products armed with RFID tags will be delivered to the company's Sanger, Texas, regional distribution center. Upon arrival, RFID readers installed at the facilities' loading dock doors will scan the tags and send inventory information to the company's back-end computer systems.

At the seven stores involved in the pilot, RFID readers at dock doors will mirror the process from the distribution center by automatically confirming that a particular shipment has arrived.

 

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