Most food retailers know about RFID and its potential for making the supply chain a great deal more efficient. But with the economy sputtering, they probably figure they have enough to worry about without investing in technology that is still years away from becoming mainstream in food retailing.
Just 8% of respondents to SN's 2008 Technology Survey said they were piloting RFID technology incorporating the Electronic Product Code (EPC), though nearly half of those not testing RFID said they expect to do so by 2010.
A few food retailers — such as Wegmans and Supervalu — are known to be dabbling in radio frequency identification, and others are thought to be working quietly behind the scenes. In Germany, Metro Group is engaged in a major implementation of RFID in the supply chain.
But among North American food retailers, the real action on the RFID front is where its has always been: at Wal-Mart Stores, Bentonville, Ark.
Wal-Mart doesn't seem to mind its lonely spot in the RFID landscape. “We're the lab for everybody,” said John Simley, director of media relations and primary RFID spokesman for Wal-Mart. “There's a development cost to that, but there's a huge benefit to having technology implemented ahead of others.”
Wal-Mart started its RFID journey back in 2003 when it boldly announced its first mandate for suppliers, asking them to equip pallets going into a major Texas distribution center with RFID tags by 2005. Since then the initiative has had its ups and downs, and Wal-Mart has been subjected to withering critiques from the Wall Street Journal and others for failing to meet its RFID objectives.
Yet the retailing goliath has made some undeniable strides. RFID readers are installed in about 1,300 of Wal-Mart's 3,600 U.S. stores, and the technology is “fully implemented” in more than 900 outlets, according to Simley. All 3,600 stores will eventually be RFID-enabled, he added, without saying when that would happen.
Wal-Mart's top 600 suppliers are “implemented in some fashion,” he added. While that's just 1% of the 60,000 companies that do business with Wal-Mart, those 600 account for 75% of the retailer's volume. Simley acknowledged that far less than 75% of the volume is being equipped with RFID tags.
Wal-Mart remains steadfast in its commitment to RFID and is convinced of the technology's long-term importance. “RFID is going to become the new standard,” said Simley. “It will replace the bar code.”
Indeed, Wal-Mart's latest move indicates that it is hardly pulling back from its RFID agenda, as some critics have suggested. That move — described in a detailed letter to suppliers in January — makes Sam's Club and its 600 outlets the next major frontier in the company's RFID rollout.
The letter required Sam's suppliers to apply RFID tags on full pallets containing single items by Jan. 30, 2008, for pallets headed to the DeSoto, Texas, Sam's DC. Those tags are based on the EPC standard and contain a serialized global trade identification number (SGTIN), identifying not just the manufacturer and product but also the individual instance of the product. This requirement and deadline also applied to all direct-store-delivery products.
As of Oct. 31, the same tagging requirement will apply to single-item pallets headed to four other Sam's DCs (Kansas City, Mo.; Dayton, Texas; Searcy, Ark.; and Villa Rico, Ga.). It will apply to the remaining 17 Sam's U.S. DCs as of Jan. 30, 2009. Sam's DCs support 27 clubs each, on average.
Single-item pallets are just the beginning of the Sam's RFID rollout. The next step is twofold: tagging of pallets with mixed cases (different products) and the tagging of cases with either one item or an assortment of items. Cases with one item will get tags with an SGTIN, while cases and pallets with varying items will gets tags with a serial shipping container code (SSCC), which is a license plate used to track a shipment of products.
The deadline for cases/mixed pallets is Oct. 31 for the DeSoto DC, Jan. 30 for the next four Sam's DCs and Oct. 31, 2009, for the remaining 17 Sam's DCs.
Finally, the Sam's rollout will venture where no RFID implementation has ever gone en masse: the item level (though Sam's 5,000 stock-keeping units are club-size bulk packs, not conventional store items). Suppliers are expected to put tags with a GTIN on items going to the DeSoto DC by Oct. 31, 2009; on items going to the next four DCs by Jan. 30, 2010; and on items headed for the remaining DCs by Oct. 31, 2010. “Sam's will carry the lead on the item level,” said Simley.
Suppliers failing to meet these requirements are being charged $2 per pallet through Oct. 30, then $2.50 per pallet through Jan. 30, 2009, and $3 per pallet thereafter. Simley did not disclose the level of compliance with the initial Jan. 30 deadline.
Category Rollouts
In addition to the Sam's rollout, Wal-Mart is making other changes in its RFID program. For example, over the past year and a half, RFID has “moved out of IT and into merchandising and operations, which now defines the requirements for stores and clubs,” said Simley.
Wal-Mart also plans to start rolling out RFID in a new way for its stores and supercenters: by categories rather than by DCs, said Simley, who didn't give a timetable for this rollout. The thinking behind this change is that when manufacturers tag pallets by DC, some pallets are tagged and some are not. But if all pallets (or cases) are tagged, then there is “economy in the manufacturing process,” he said. The test category for this program is air fresheners, reported RFID Journal.
Wal-Mart stores and Sam's Clubs that are RFID-enabled have readers positioned at the receiving dock and at the transition door leading to the sales floor, allowing delivery and entry onto the sales floor to be verified.
“We are heading for handheld readers on forklifts inside the store as well,” said Simley.
A more recent innovation is putting tags at “hot spots” on the sales floor where promotions are supposed to go. If a pallet is earmarked for a certain hot spot, a store employee will read the tag on the pallet and the tag at the hot spot to determine if they are the correct match. “So, we'll know if it made it to the right spot,” said Simley.
Wal-Mart takes credit for spearheading the development of the EPC Gen 2 standard for RFID tags used in supply chain applications around the world. Not only is the standard being widely adopted, but many observers believe it has addressed the readability obstacles that made RFID tags less effective on metal- and water-based products. With precise tag positioning, readability is not an issue, said Simley. “But if you're off by a fraction of a percent, you won't get a read.”
Gen 2 tags are enabling a number of Wal-Mart's suppliers to achieve internal efficiencies from the retailer's RFID mandates, Simley said. Many of those companies have complained — some still do — that their mandated investment in RFID technology wasn't making them more efficient.
In addition, the cost of the tags is dropping. “It's getting down below 10 cents per tag,” said Paul Cataldo, vice president of marketing for OatSystems, Waltham, Mass., which works with Wal-Mart suppliers on RFID. Reader costs have dropped below $1,000, he added.
Asked what Wal-Mart has gained the most to date from RFID, Simley responded that the technology means “you can carry leaner inventory and there is a lower probability we would be out-of-stock.” RFID also improves product recalls, allowing Wal-Mart to determine not only whether a tainted product is “in the store, but where it is in the store.”
Simley declined to give dollar figures on Wal-Mart's investment in RFID technology, but he observed that “we wouldn't invest in this if we didn't see a return.”