WAL-MART 'FLEXIBLE' WITH RFID DEADLINE

MICHAEL GARRY

CHICAGO -- In pursuing its closely watched RFID project in the Dallas area with top suppliers, Wal-Mart Stores is taking a flexible approach to its Jan. 1, 2005, deadline for supplier compliance, according to a top executive at the company.

"We didn't say we wouldn't work with suppliers that had issues," said Michael Duke, executive vice president of Wal-Mart, and president and chief executive officer of Wal-Mart's U.S. division. "Only a few suppliers need more time because of other internal issues, not RFID, and we're working with them."

Duke made these comments in a keynote address last week at the Retail Systems 2004/VICS Collaborative Commerce Conference & Exposition at McCormick Place here.

Wal-Mart launched a test of RFID (radio frequency identification) technology at a distribution center in Sanger, Texas, and at seven supercenters in the Dallas-Fort Worth area on April 30. Pallets and cases from eight suppliers are being shipped to the DC with RFID tags, and the stores will also be receiving tagged cases.

Readers at the DC and stores are able to read product information on the tags, thereby tracking the movement and identity of the products through the supply chain. The information is encoded on the tags digitally in what's called the EPC, or electronic product code.

Last June, Wal-Mart announced it would ask its top 100 suppliers to start tagging pallets and cases by next January; since then an additional 37 suppliers have volunteered to join the test, which will expand to include three DCs and 100 stores by January. Some suppliers have reportedly expressed concerns about their ability to meet the deadline.

"There's flexibility" with the deadline, Duke said after the presentation to reporters. "We're working with each supplier. We want it to be collaborative." He also said that Wal-Mart did not require suppliers to necessarily tag 100% of the products going to the test DCs. By listening to feedback from suppliers, "we're taking months and years out of the development cycle," he said.

Duke said that next month Wal-Mart will meet with its top suppliers to share the initial results of the test, and will also meet with the "next 200 suppliers" to participate in the test.

Next year, Duke noted, Wal-Mart will begin to expand the RFID rollout domestically beyond the Dallas market, adding the rest of its suppliers in 2006. An international rollout of the technology will also begin in 2005 or 2006.

Commenting on the cost of the RFID tags, which is born by suppliers, Duke cited one technology provider that put its tag costs at 30 cents apiece. Based on usage, the provider, he said, could drop its price to 5 cents by the end of 2006. "We think the cost could fall even quicker than this" as more manufacturers get set to produce EPC-compliant chips this year.

In a prepared statement released at the Retail Systems conference, Linda Dillman, Wal-Mart's chief information officer, said that during the Dallas-market test, "we're experimenting with various tag types and tag placements to see how they impact readability on various products."

Duke stressed that the most important benefit Wal-Mart would realize from RFID technology was improved in-stock levels. "That's the greatest reason I am passionate about it," he said.

Addressing the retailers at the conference, Duke advised them to start working on an RFID pallet/case program. "Form an RFID team and identify the [return-on-investment] opportunities," he said. "Start early and create a roadmap for deployment." He also advised them to support efforts by EPCglobal, a division of Uniform Code Council and EAN International, to develop standards for EPC technology.

While the lion's share of the test is on pallets and cases, Hewlett-Packard has chosen to tag the packaging of two individual photo printers and one scanner. Since these tags will be present at store level, Wal-Mart has been the target of criticism from privacy groups. The chain has pledged to make consumers aware of the tags through signs and labeling. Gus Whitcomb, a Wal-Mart spokesman, said Wal-Mart "needs consumers to be comfortable" with store-level tagging and that there was "no reason to delay" that part of the test. The number of such items will grow as tags are applied to large products like televisions and lawn mowers, he said.