Slow but steady (page 3)

-- Logistics Management, 2/1/2005

Page 3 of 3

Accepting Reality

Wal-Mart's willingness to be flexible about its suppliers' plans may reflect a newfound recognition that the path toward adopting new technology may be slower and bumpier than industry seers had predicted. ARC's Banker, for one, thinks negotiations between the retailer and its suppliers over the pace of the rollout and the degree of tagging will continue for some time. That's partly because Wal-Mart's expectations are likely to evolve as business conditions change. "To the extent that tag prices fall and reliability improves, they [suppliers] will be susceptible to rolling this stuff out faster," Banker says.

Even as it engages in behind-the-scenes accommodations for its suppliers, Wal-Mart will be compelled to maintain its outspoken advocacy for the technology. "They are realistic about this," says Woods. "But Wal-Mart has to maintain a public image. If Wal-Mart publicly said, 'we only want you to do this if it makes sense,' it would knock the wind out of the sails of the RFID initiative," he observes. "They have to keep the tough front up or the suppliers won't push as hard."

ROI still the biggest barrier to RFID

Companies involved in Wal-Mart's RFID project are concerned about the technology's costs and benefits, according to the results of a December 2004 survey of Logistics Management readers. The survey results largely agreed with the findings of a study conducted by ARC Advisory Group, which concluded that most participants in Wal-Mart's program are tiptoeing into RFID.

Twenty-six of the 93 respondents to LM's online survey said they were taking part in Wal-Mart's initiative to ship items marked with RFID tags to three of the retailer's distribution centers.

Slightly less than two-thirds (61.5 percent) of those respondents reported that they were shipping less than 25 percent of their stock-keeping units (SKUs) with RFID tags. Another 11.1 percent indicated that they were marking between 25 and 49 percent of their SKUs, while 7.4 percent were tagging between 50 and 74 percent. Just 3.7 percent said they were marking between 75 and 99 percent of their products. And only four respondents said that they were tagging all of the items they ship to Wal-Mart.

When asked to name their greatest concern about Wal-Mart's RFID mandate, 42.3 percent cited a lack of return on their investments. "The technology is still being developed while current tag costs are too high for an ROI," wrote one respondent.

The high cost of the technology was a concern for 23.1 percent of the survey respondents. "There's a 20-percent failure rate for tags that cost initially $0.60 per tag," commented one survey participant. "The tags do not pay out for low-cost consumer products," added another.

Another 11.5 percent of respondents saw no benefit for their company in complying with the program's requirements. "It's typical of Wal-Mart to make everyone else meet their needs and squeeze your profits out to make theirs better while telling you how good it is for you," wrote one dissatisfied survey taker.

An RFID Pioneer

Beaver Street Fisheries prides itself on being an "early adopter" of radio frequency identification (RFID) technologies. The wholesale distributor asked to take part in Wal-Mart's tagging initiative—the first company that was not a top 100 supplier to join the program.

Based in Jacksonville, Fla., the privately held company recorded about $400 million in sales last year. The company ships "hundreds of thousands of cases a month" to customers, says Chief Information Officer Howard Stockdale. Product generally moves over the road via motor carriers that specialize in handling frozen foods.

Rather than fully commit itself right away to the costly new technology, Beaver Street is testing the RFID waters in Wal-Mart's pilot program. "We're only piloting three products initially," Stockdale says.

Before it began tagging its products for Wal-Mart, Beaver Street assembled an RFID implementation team. Members of that team come from warehousing, production, administration, and information technology.

The shipper also brought in some outside help. It hired the Danby Group to handle systems integration and worked with Franwell, an RFID systems developer. Franwell used a middleware platform from GlobeRanger to build an event management solution. That application aggregates the data from individual RFID events to convey information to the warehouse management system, which Beaver Street developed in-house. The wholesaler uses Zebra Technologies' printers to apply the tags.

As for the tags, Beaver Street has experimented with different makes, including those from Alien Technologies and Matrics. According to Stockdale, the price for individual tags has ranged from 50 cents to $1.50.

Right now, the seafood distributor applies the RF tags to cases at the end of its production line. The application process is similar to that for placing a bar-code label on a case, Stockdale notes.

Those shipments are part of Beaver Street's three-stage implementation plan for RFID. The first phase involves meeting Wal-Mart's requirements for shipping cases and pallets marked with RFID tags. In the second phase, Beaver Street will examine ways to make the process for applying RF tags more efficient. In the third phase, the company will begin using the tags to improve its inventory tracking.

Stockdale believes that early adopters of RFID will have a head start on learning how to use the technology and get benefits from it. "In the last year, I've seen the technology improve dramatically," he says. "It's going to take early adopters to get out there and make this work. We chose to be proactive."

For more on the pros and cons of RFID implementations, read "TAG—you're it" from the February 2004 issue of Logistics Management.

Previous 1 2 3