WAL-MART: 57 SUPPLIERS MEET JANUARY RFID MANDATE

MICHAEL GARRY

NEW YORK -- Two weeks into 2005, 57 suppliers were shipping pallets and cases affixed with radio frequency identification tags to three Wal-Mart Stores' distribution centers in the Dallas/Forth Worth market in compliance with the retail giant's January 2005 mandate.

This update on the closely watched program, the first major retail supply chain rollout of RFID technology in the United States, was provided here last week by Linda Dillman, chief information officer for Bentonville, Ark.-based Wal-Mart, at the National Retail Federation's 94th Annual Convention & Expo. Dillman's presentation at the Jacob K. Javits Convention Center was followed by RFID reports by technology executives from U.K.-based Tesco and German retailer Metro Group.

The 57-supplier figure cited by Dillman actually falls short of the goal Wal-Mart has held fast to since announcing its RFID program nearly two years ago: that by January 2005 its top 100 suppliers would be delivering products on pallets and in cases equipped with RFID tags. Moreover, the company has stated in recent months that 37 other suppliers had volunteered to meet the January 2005 deadline.

Dillman, however, pointed out that the January deadline for compliance "means the month of January, not Jan. 1." Wal-Mart spokesman Gus Whitcomb told SN that Wal-Mart "will hit our goal of 100 by the end of the month." However, deviating somewhat from the original formulation, he acknowledged the 100 suppliers "will be a mix of top 100 and volunteers," noting that two of the top 100 suppliers were given an extension.

Pete Abell, senior partner and co-founder, ePC Group, Boston, said he expects "at least 10" of Wal-Mart's top 100 suppliers will likely not meet the deadline by the end of January.

RFID technology, a potential successor to bar-code scanning, enables retailers and their suppliers to automate the tracking of goods through the supply chain. Information on the tags, stored in a microchip, is transmitted via radio waves to nearby readers located at dock doors and back-room entrances. The information is encoded on the tag according to a new standard called the Electronic Product Code (EPC). Wal-Mart has made improving in-stock levels a key goal of its RFID initiative.

Wal-Mart began receiving RFID-tagged pallets and cases of 21 products from eight suppliers last April at its DC in Sanger, Texas, and shipping them to seven Dallas-area supercenters. Those numbers did not grow significantly until the calendar turned to 2005.

Numerous manufacturers have reported finding little payback so far in meeting Wal-Mart's RFID tagging requirements for pallets and cases. Those reports were included in a study issued last November by Grocery Manufacturers of America, called "A Balanced Perspective: EPC/RFID Implementation in the CPG Industry." (SN, Nov. 29, 2004, Page 1.)

However, the release last month of a new "Generation 2" standard for EPC-based RFID technology raised hopes that the tags would become less expensive -- they now cost upward of 25 cents apiece -- and more widely adopted. "People are waiting for Gen 2 tags to be available in the second or third quarter of this year," said Abell. "That will make a big difference." EPC standards are overseen by EPCglobal, Lawrenceville, N.J., a joint venture of the Uniform Code Council and EAN International.

In setting its January mandate, Wal-Mart made clear that it did not expect suppliers to tag pallets and cases for all of their items. Whitcomb confirmed reports that the average supplier is tagging about 65% of volume shipped to the three Wal-Mart DCs. He also confirmed that 40 suppliers would tag all of their volume, while some would tag as little as 2%.

Abell pointed out that among the vendors tagging all of their products are those with only a handful of stockkeeping units. "In general, most people slap a label on a pallet, and ship it, and do not read or verify it," he said.

Miles of Cable

In her NRF presentation, Dillman reported that RFID-tagged pallets and cases are being delivered to 104 Wal-Mart stores and 36 Sam's Clubs in northern Texas and south-central Oklahoma, in addition to the three DCs. Those facilities have all been equipped with more than 14,000 pieces of hardware connected by 230 miles of cable. Thus far, she said, Wal-Mart has read 7,161 tagged pallets, 210,390 tagged cases and 1.5 million EPCs, the information on each tag.

In a few instances, items that remain in their original cases, such as printers and lawn mowers, are placed on the sales floor and sold to consumers with the RFID tag still attached. Bulk items in tagged cases are also sold to consumers at Sam's Clubs. In those instances, consumers are advised of the tag's existence and told it can be removed post-purchase.

Wal-Mart has stated that it plans to expand the RFID rollout this year to include up to six DCs, and up to 250 stores and clubs by June, and up to 13 DCs, and up to 600 stores and clubs by October. No additional geographical locations have yet been announced. In addition, Wal-Mart plans to add its next top 200 suppliers to the program -- some are already participating -- by January 2006.

Dillman also addressed the issue of read-rates -- the percentage of RFID tags being read by RFID readers -- still considered a weak spot in some applications of RFID technology. Thus far, read-rates at the pallet level have been "near 100%," she said. At the case level, read rates on stockroom carts have been greater than 90%; on DC conveyors, greater than 95%; and on store compactors, greater than 98%. The least success for case read-rates -- an average of 66% -- is on fully loaded pallets, though "that's higher than we thought we'd achieve," she said.

She acknowledged that Wal-Mart has been addressing technical issues related to tag technology, such as tag placement and tag selection for given products.

According to Dillman, Wal-Mart has observed a number of internal improvements as a result of the RFID implementation. For example, the technology has "eliminated questions" about the accuracy of shipments to stores from DCs, she said. "Distribution folks love RFID for that reason."

One key benefit to the stores, Dillman explained, is that store associates will not be able to order goods already in the back-room inventory to replenish shelves. Because RFID-tagged goods are tracked as they enter the store, Wal-Mart has hard data on what was delivered to each store.

"We are already running 'automated pick lists' where we can tell a store you have merchandise in the back room that you need to take out to the floor," said Dillman. Tyson chicken was the first product included on an automated pick list, she noted. In 60 days, Dillman said, Wal-Mart's policy will be that stores will not be able to manually order goods for which inventory is known to exist in the back room based on RFID tracking.

RFID also allows Wal-Mart to determine whether a product left in the back room was simply not moved to the store floor in a timely fashion, or was not required by the store in the first place, she said. In addition, handheld RFID readers, working like "Geiger counters," can be used to locate particular SKUs in the back room. Suppliers will be able to receive reports "in near real time" about the status of their products via Wal-Mart's Retail Link portal.

Dillman said Wal-Mart, as well as other retailers implementing RFID like Tesco and Metro Group, believe in the technology's potential. "I don't know if anyone knows the size of the impact yet, but we all believe it's there in a very significant way," she said. She advised other retailers to get started testing the technology to find out "whether it works and where it works in your organization."

In the United States, besides Wal-Mart, Albertsons and Target are planning tests in the Dallas market, while other food retailers are still in an exploratory phase.

RFID at Tesco and Metro Group

NEW YORK -- So far, European retailers are pursuing radio frequency identification (RFID) programs more actively than their U.S. counterparts outside of Wal-Mart Stores.

At the National Retail Federation's 94th Annual Convention & Expo here last week, executives from two of those companies, Tesco and Metro Group, joined Wal-Mart's chief information officer, Linda Dillman, in reporting on their RFID initiatives.

London-based Tesco, the U.K.'s largest food retailer, began its supply chain RFID project late last year and currently has tag readers installed at 14 stores and one distribution center, said Colin Cobain, Tesco's CIO. Tesco plans to continue the rollout in February, aiming at equipping more than 1,400 stores and 30 DCs with readers by the end of the year. Tags are applied to trays stacked on rolling dollies.

Unlike Wal-Mart and Metro Group, Tesco is initially focusing its RFID supply chain efforts on internal distribution from its DCs to stores, excluding incoming shipments to DCs from suppliers. In addition, Tesco is concentrating first on "high-value, high-shrink" items, said Cobain. Suppliers will be added later by product category.

Tesco intends "to ensure that the technology can perform to the required level before asking our suppliers to join us," said Cobain.

Tesco has also piloted RFID tags at the item level on CDs and DVDs in two stores, and plans to expand the test to 10 stores later this year, said Cobain.

Metro Group, based in Dusseldorf, Germany, launched its RFID supply chain initiative in November with more than 20 suppliers shipping RFID-tagged pallets to three DCs and 25 stores across three retail divisions, said Zygmunt Mierdorf, CIO and member of the management board for Metro Group. The three retail divisions include Metro Cash & Carry, Real Hypermarkets and Kaufhof Department Stores. Suppliers include P&G, Kraft, Gillette and some medium-sized German manufacturers.

Metro Group is also noted for its Future Store, an Extra supermarket in Rheinberg, Germany, where it has tested RFID at the shelf and item level since April 2003. Metro also opened an RFID Innovation Center in Neuss, Germany, last year where it is testing various RFID concepts.

In the fourth quarter, Metro Group plans to extend its rollout to cases as well as pallets, which will be equipped with Generation 2 RFID tags. Application of tags to items is not planned for the near future.

Metro reported that RFID has so far speeded up receiving and helped eliminate "weak spots" in distribution. "It is our common interest that RFID can and will prevail in the market," said Mierdorf.