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WHITHER RFID?

Wal-Mart Stores and some of its suppliers continue to blaze a trail in the implementation of RFID technology - but what about the rest of the industry?The beneficiary of much attention in recent years, RFID is a product identification technology that promises to bring unprecedented efficiencies to the retail-CPG supply chain. With its network of tags, readers and computers, RFID far surpasses what

Wal-Mart Stores and some of its suppliers continue to blaze a trail in the implementation of RFID technology - but what about the rest of the industry?

The beneficiary of much attention in recent years, RFID is a product identification technology that promises to bring unprecedented efficiencies to the retail-CPG supply chain. With its network of tags, readers and computers, RFID far surpasses what bar codes can do by identifying products, cases and pallets without human intervention and without the need for an unimpeded line of sight.

Nonetheless, the adoption rate of RFID and its accompanying electronic product code technology "continues to move at a modest pace," according to a report released in May by Retail Systems Alert Group, Newton Upper Falls, Mass., and Atlanta-based NCR.

Retailers have been especially slow, according to the report, "RFID - How Far How Fast: 3rd Annual Benchmark Survey." It stated that "retailers are lagging far behind manufacturers in adopting RFID." Only 9% of retailers who responded to the survey have an RFID time line implementation, compared with 44% of manufacturers. Most RFID deployments have focused on identification of pallets and cases rather than items.

For some retailers, RFID still doesn't rank high on the priority chart. "I talked to a retailer who clearly stated that he's done RFID pilots and sees a positive [return on investment]," said Anthony Bigornia, solution manager, consumer driven supply chain, IBM, at the Retail Systems Conference in May. "But he has 10 other higher-priority projects."

Companies responding to the survey also cited some familiar complaints about the difficulty in affixing RFID tags to products, poor read rates and interference from other wireless devices.

On the other hand, the report was still "cautiously positive" about the prospects for RFID. "Companies are placing high hopes that the adoption of the Class 1 Generation 2 UHF chip will lower implementation costs," the report said. Moreover, awareness of the technology has significantly improved among upper-level executives. And there is an awareness of the benefits companies can expect within the first five years of RFID implementation, such as traceability of products and supply chain integrity.

So while progress remains slow, retailers and suppliers seem to see the pot at the end of the RFID rainbow, and they are beginning to believe it is real.

OUT-OF-STOCK REDUCTION

Wal-Mart has done more than anyone to demonstrate the potential of RFID. The retail giant recently declared its intention to expand its RFID rollout from about 500 stores to 1,000 next year, doubling the number of participating suppliers to 600. (See "Wal-Mart Expands RFID Program to Atlanta," SN, June 12, Page 24.)

For Wal-Mart, the principal goal of RFID has been to reduce out-of-stocks. While one study sponsored by the company reported a net 16% reduction in out-of-stocks resulting from its RFID program, "we have only just begun to attack" the issue, said Ron Moser, Wal-Mart's RFID strategy analyst, in a presentation at the U Connect conference last month in Nashville, Tenn.

Among its next steps, Wal-Mart plans to look at "why product is not shipped to stores in the first place," he said, adding that this would also help eliminate forecasting errors. RFID also enables Wal-Mart to avoid over-ordering, which prevents inventory clutter at stores and improves production planning by manufacturers.

In its distribution centers, Wal-Mart will begin using RFID to capture information as pallets are assembled, ensuring that "we have the right product in the right quantity," Moser said.

Wal-Mart also plans to use RFID to track and trace the pedigree of products, to sense temperature changes and manage freshness dates to "keep the freshest product possible," he said.

Wal-Mart has fully embraced the Gen 2 standard for RFID tags and readers. Last month the company began to "sunset" Gen 1 RFID technology, with a termination date in January. "Gen 2 is providing a step change," Moser said. "Read rates have improved 40%-50% compared to Gen 1. You can now read every case on a pallet." In addition, Gen 2 is enabling reads in "harsh environments" such as metals and liquids.

Despite the gains made by Gen 2, the perception that RFID technology has not improved is causing some companies to lag in adoption, said Dan White, RFID technical evangelist, NCR, at Retail Systems. "They still believe read rates are 85% when they are up on average to 99% plus."

The adoption of Gen 2 technology and other standards has also helped to bring down the costs of RFID. Individual tag costs are now in the 7-9-cent range and readers can be had for "well under $1,000," according to Sue Hutchinson, director of industry adoption, EPCglobal US, Lawrenceville, N.J.

On the other side of the Atlantic, Tesco in the United Kingdom and Metro Group in Germany have also been proactively applying RFID. Metro Group has been introducing RFID in stages in its supply chain since November 2004, with an emphasis on logistics and warehouse management. Like Wal-Mart, Metro is introducing Gen 2 chips and technology during 2006.

Back here in the U.S., a few other retailers have undertaken an RFID effort. Albertsons has tested the technology in two distribution centers and a handful of stores in Dallas/Fort Worth and Pennsylvania.

Publix Super Markets, Lakeland, Fla., is still involved in the initial data-gathering phase of an RFID test of produce shipments conducted with the University of Florida's Research Center for Food Distribution and Retailing and RFID integrator Franwell, Plant City, Fla. The next phase may include other retailers as well as deployment of readers at retail locations.

Meanwhile, Hannaford Bros., Scarborough, Maine, has engaged in small-scale RFID tests at a distribution center, and Piggly Wiggly Carolina, Charleston, S.C., plans to pilot RFID technology at its DC in 2007. Retailers are also starting to track and trace pharmaceuticals through the supply chain.

SUPPLIER GAINS

Some of Wal-Mart's suppliers are beginning to derive benefits from adopting RFID in compliance with the retailer giant's mandate. For example, Hanna's Candle Co., Fayetteville, Ark., which tags all half-pallet seasonal displays, was able to identify a full trailer of merchandise that had been left unloaded, Moser said. "They were able to deliver to our stores in time for the peak selling season," he said. "It saved enough to pay for the whole years' tagging."

Kimberly-Clark, Neenah, Wis., has tagged thousands of cases and tracked them through the supply chain, said Larry Roth, senior supply chain consultant, Kimberly-Clark, who spoke at Retail Systems. "We can see what the hang-ups are in the supply chain and take corrective action."

But Kimberly-Clark's business case is primarily built around "driving additional sales by making sure we solve out-of-stocks in promotions and that promotions are executed on time," Roth said. RFID will also be used to target day-to-day out-of-stocks, product rollover and new-item introductions.

One scenario Roth described has Kimberly-Clark receiving word that RFID-tagged promotional display units received at stores are not being put on the sales floor. "Then we can take action with brokers to go to the stores" and address the problem, he said.

Like many executives, Roth stresses the need for retailers and manufacturers to use RFID to undergo "business process change." In order for Kimberly-Clark to embark on a wider-scale RFID implementation, there needs to be "significant signs of business process change," he said. "Once there is evidence of that, lots of doors will open."

Another factor that may impact adoption is the development of the EPCglobal Network, a set of standard interfaces that trading partners will use to share RFID data with each other.

One part of the Network is called Application Level Events, which filters raw data collected by readers. Another key component is EPC Information Services, which provides "a way to do point-to-point exchange of visibility information," Hutchinson said.

Another piece is the Object Naming Service, a yellow pages of who is in the network. Finally, an event registry and search and discovery service enables users to track and trace information. "Standards have been developed or are in development to support all parts of the network," said EPCglobal's Hutchinson, adding that EPCIS is close to ratification while event registry and search and discovery will be explored later this year.

Publix has been using EPCIS technology as a means of sharing RFID data on produce shipments with suppliers participating in its test. "It's how we are viewing information," said Maria Brous, spokeswoman for Publix. By MICHAEL GARRY

Wal-Mart Stores and some of its suppliers continue to blaze a trail in the implementation of RFID technology - but what about the rest of the industry?

The beneficiary of much attention in recent years, RFID is a product identification technology that promises to bring unprecedented efficiencies to the retail-CPG supply chain. With its network of tags, readers and computers, RFID far surpasses what bar codes can do by identifying products, cases and pallets without human intervention and without the need for an unimpeded line of sight.

Nonetheless, the adoption rate of RFID and its accompanying electronic product code technology "continues to move at a modest pace," according to a report released in May by Retail Systems Alert Group, Newton Upper Falls, Mass., and Atlanta-based NCR.

Retailers have been especially slow, according to the report, "RFID - How Far How Fast: 3rd Annual Benchmark Survey." It stated that "retailers are lagging far behind manufacturers in adopting RFID." Only 9% of retailers who responded to the survey an event registry and search and discovery service enables users to track and trace information. "Standards have been developed or are in development to support all parts of the network," said EPCglobal's Hutchinson, adding that EPCIS is close to ratification while event registry and search and discovery will be explored later this year.

Publix has been using EPCIS technology as a means of sharing RFID data on produce shipments with suppliers participating in its test. "It's how we are viewing information," said Maria Brous, spokeswoman for Publix.

TAGS: Walmart