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Wal-Mart has and will have a major effect on how RFID technology is adopted because of several factors:

  First of all, Wal-Mart is a titan. Its sales ($256 billions in 2004) are greater than the gross domestic product of Austria. Wal-Mart imports more goods from China ($14 billion) than Japan does ($10 billion). Finally, it employs 1.6 million associates worldwide (more than Ford, General Motors, Exxon Mobil and GE combined).

  Moreover, Wal-Mart is serious about RFID and is known to be one of the best at using technology to its advantage. For instance, instead of wasting millions of dollars in going full throttle for the worldwide web like other Fortune 500 companies, Wal-Mart proceeded slowly with its Internet strategy.

So what is the story?

Linda Dillman Wal-Mart CIO

In 2003, Wal-Mart became one of the first companies to ask its top 100 suppliers to put tags carrying Electronic Product Codes (EPC) on pallets and cases by Jan. 1, 2005. Wal-Mart CIO Linda Dillman announced it at the Retail Systems 2003/VICS Collaborative Commerce conference. She hinted that it would become a mandate, telling the suppliers “if we can’t track your product with [EPC tags], it’s an added cost for us that we have to pass on to our customers." The first goal of the implementation of the technology was already to reduce out-of-stocks by providing visibility into the location of goods with RFID tags. Dillman also made clear that it was a global directive: once implemented it the United States it would be deployed in the rest of its overseas operations, starting with Europe.

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Then, in 2004, Wal-Mart worked with the then-called Auto-ID Center implementing pilot project in Texas. Eight of its Top 100 suppliers were involved in the pilot:

• The Gillette company
• HP
• Johnson and Johnson
• Kimberly-Clark
• Kraft-Foods
• Nestle Purina Petcare-Company
• The Procter&Gamble company
• Unilever

During the real-world trial, once again Linda Dillman praised the benefits of RFID. "It is imperative that we have the merchandise the customer wants to buy when they want to buy it. We believe RFID technology is going to help us do that more often and more efficiently. This will help us increase customer satisfaction in the near-term and ultimately play an important role in helping us control costs and continue offering low prices."

So what happened in January 2005?

As planned, Wal-Mart began rolling out the first applications and process changes based on radio frequency identification data at the original seven Wal-Mart stores locqted in Texas that were outfitted with RFID readers. Then, in February, to the other 140 RFID-enabled stores (106 Wal-Mart and 34 Sam’s club stores).

Simon Langford Manager of Wal-Mart’s RFID strategy

According to Simon Langford, Wal-Mart’s manager of RFID strategy, by the end of January, 94 suppliers (out of the Top 100 and the 37 volunteers) had shipped tagged products to Wal-Mart stores or distribution centers (DCs). He explained that a few suppliers were late because they hadn’t been able to order tags on time or did their testing late and found they needed a special form factor, which takes time to develop and manufacture. More than a 100 suppliers shipped tagged goods in the following months.

Of course, some suppliers are reluctant to put a 50-cent RFID label on cases shipped to retail partners. ROI is still is not there yet. However other suppliers are fervent. For instance, Hewlett-Packard plans to tag all products it ships to Wal-Mart, even if those products aren’t going to stores with RFID readers. HP believes it will benefit from tracking the goods within its own supply chain.

Next Steps:

  Wal-Mart plans to RFID-enable 600 Wal-Mart and Sam’s Club stores and 12 distribution centers by the end of the year 2005.

  The retailer is currently carrying out tagging reviews with the “next 200” suppliers to define how they will use RFID in 2006. The minimum requirement would be to tag cases and pallets shipped to the three distribution centers and 140 stores that currently RFID-enabled. Obviously Langford declared that if a supplier wants to ship to all 600 RFID enable stores, he will be welcome to do so. The Wal-Mart’s manager of RFID strategy proudly acknowledged that “some [suppliers] are eager to move quickly. The perception of RFID is changing. Certainly, the next 200 suppliers have more support and are probably more educated and are in better shape that the first 100, who were the trailblazers. The technology companies, integrators and consultants have learned a lot and are in a better position to help the next 200 suppliers."

Deployment Time Line

Today’s Wal-Mart “major effect on how RFID technology is adopted”:

All along Wal-Mart’s RFID project, a lot of companies decided to wait, letting the others go first and make all the mistakes. In January, Wal-Mart proved it was not backing away from RFID and saw it at the future way of doing business in the retailing industry. Waiting turned out to be a good strategy with the Internet since most of the early adopters got burned and a lot of those who moved more slowly, like Wal-Mart, did okay. However, this times the scarcity of experts in supply chain management, radio frequency engineers, knowledgeable RFID integrators, and efficient technology manufacturers may be a threatening flaw for companies willing to catch up on RFID.

In addtion to Wal-Mart, retailers like Albertson’s, Best Buy, Metro, Tesco, Target have plans to use RFID in their supply chains.