WAL-MART'S WALTON SAYS KEEP RFID SIMPLE 2004-11-08 (2)

ELLIOT ZWIEBACH

PORTLAND, Ore. -- Retailers looking into radio frequency identification ought to consider testing it for themselves, if only on a small scale, said Carolyn Walton, vice president of information systems for Wal-Mart Stores, which itself is exploring the technology one step at a time.

"Don't enhance the field of dreams on RFID. Look long and hard at where to make an investment, and stick to the simple stuff. Start small, take baby steps, and pick off some of the low-hanging fruit," said Walton here at Executive Forum 2004, the 10th annual conference sponsored by the Food Industry Leadership Center at Portland State University.

Bentonville, Ark.-based Wal-Mart began a pilot project on RFID in April at a distribution center in Sanger, Texas -- a test that has subsequently been expanded to seven additional supercenter distribution centers in the north Texas area, Walton said. Until now, the tests have focused primarily on cases and pallets, although some products were included.

Wal-Mart expects cases and pallets from its top 100 suppliers to carry RFID tags by next year, she added.

Yet clearly, the industry has only begun dealing with RFID, Walton pointed out. "Right now, approximately 40,000 vendors are contributing information to the global data synchronization effort. Only 641 of those, representing 5,000 items, are Wal-Mart suppliers. But with more than 100,000 stockkeeping units in a supercenter and more than 10,000 U.S. suppliers, we've only scratched the surface," she said.

Speaking on the same panel, Stephen Salvatierra, senior management, consumer products, for Accenture, said retail and manufacturing companies generally fall into two categories with regard to RFID: "those who are focused on compliance -- companies like Wal-Mart, Target and Best Buy, along with several suppliers -- and who don't see much opportunity for supply chain improvements while they look for the cheapest options; and those who don't see opportunities for improvement yet, but who are watching what others are doing and waiting for costs to come down."

Installing the technology is expensive, Walton pointed out, with RFID-tag readers running as much as $2,000 per dock door.

There's also the cost of the tags themselves to consider, Salvatierra added, which he said can range from hundreds of thousands of dollars up to $1 million, with individual tags costing anywhere from 20 cents to 50 cents, depending on a vendor's specifications and price points.

Yet those costs have come down an average of 50% in the last 12 months, Walton said, with tags currently priced at 20 cents to 25 cents apiece, "and there are forecasts that over the next 12 to 18 months, the fees will drop another 50%, down to 10 cents to 12 cents each.

"The holy grail would be a 5-cent tag, and that is forecast within two to three years, depending on volume."

Aside from the costs, companies using RFID technology may be faced with the challenge of educating consumers to reassure them that tags on products would not provide an opportunity to invade their privacy, given that some consumers fear detectors will be able to reach into their homes, the panelists said.

"Wal-Mart takes such privacy concerns very seriously," Walton said, "but the tags are simply a series of numbers with product information, not information on the buyers of those products."

Salvatierra said manufacturers and retailers need to put programs in place to help conquer consumer fears of RFID technology. "We need to present RFID as a value proposition to consumers by telling them that, yes, products may have information tags, but in exchange, there's a value they get out of it. We have to find ways to introduce that kind of approach into the retail environment."

That could happen as more uses for RFID tags are found, Walton said. "Initially, the tags will be used to make sure an item is on the shelf when a consumer wants to buy it, and to alert retailers to restock and manufacturers to replenish.

"But down the road, other uses and values will develop. For example, RFID tags can be used to prevent theft on high-ticket items; they can be used in the pharmacy to prove a medication is authentic; or they can serve as a way to maintain warranty information."

Gary Herman, vice president and chief information officer for Unified Western Grocers, Los Angeles, said the industry will be moving from the 12-digit Universal Product Code used in the United States to the 13-digit European model by next year. "We're building up to the 14-digit code that's the basis for RFID," he noted.

"Most grocery retailers will have no problems converting to a 13-digit UPC," Herman said, "but as we move to RFID, 14 digits will be needed to identify cases and pallets."