February 1, 2009

RFID shows signs of life

Although some companies have backed away from planned RFID initiatives, others are moving forward.

By Toby Gooley

If you've been wondering whatever happened to RFID, here's the answer: It's still alive, but it isn't exactly kicking.

Some companies that had planned to implement RFID have backed away. One prominent example is Albertsons, the Western U.S. supermarket chain. In 2004, Albertsons launched an RFID initiative that would require major suppliers to tag cases and pallets for delivery to the grocer's distribution centers. But retail giant Supervalu Inc., which bought Albertsons in 2006, was not sold on the value of RFID, and the program was discontinued.

That doesn't mean Supervalu has written off RFID altogether. Although it has backed off for now, the retailer may revisit RFID in the future, Matt Smith, Supervalu's vice president of supply chain, told DC VELOCITY. "We currently do not view RFID as a cost-effective solution for our grocery distribution operation and have allocated our investments toward other technologies that help us become more efficient and provide the best service to our customers. That said, we continue to follow the advancements in RFID technology and remain open to the possibility of incorporating it into our distribution environment at a later time," Smith said.

Concerns about the cost/benefit ratio have led to some foot-dragging among suppliers. Most of Wal-Mart's suppliers are only tagging 10 to 15 stock-keeping units (SKUs), said Sean Campbell, a partner in IBM's Global Business Systems unit, at a recent meeting of the Council of Supply Chain Management Professionals' New England Roundtable. But others are picking their battles, using RFID to address a specific problem rather than adopting it across the board, he said. Some of the successful applications he's seen include asset location and tracking, triggering events in manufacturing environments, and improving the accuracy of retail floor data. RFID has also been helpful in preventing out-of-stocks and reducing the incidence of "phantom inventory"—inventory that software says is in a retail store but is actually elsewhere in the distribution system.

Co-presenter Donald Biggs, director of customer logistics at Welch Foods Inc., said that Wal-Mart's RFID mandate has cost his company money, and he doesn't expect a clear ROI on Welch's investment in tags, hardware, and software. Now, Welch Foods is gearing up for compliance with a similar mandate from Sam's Club, which required pallet-level tagging as of January with case-level tags by October and some itemlevel tagging next year. Biggs joked that although Sam's Club—Welch's third-largest customer—buys only seven SKUs, tagging will be so costly that paying the retailer's $2 perunit fine for "non-participation" might be cheaper than compliance. (Sam's Club has since reduced the fine to 12 cents.)

Welch Foods is getting some benefits from RFID, though. Combining RFID data with software analysis, for example, has helped the company reduce out-of-stocks and boost sales of its juices, jams, and jellies at some Wal-Mart stores.

The Sam's Club mandate, like its parent company's fiat, undoubtedly will spur more investment in RFID. And Campbell said nobody should consider RFID to be down for the count. The development of standards, collective industry action, technological improvements, and open sharing of information will boost adoption, just as it did for bar coding, he predicted. "When coupled with process change, RFID is going to be an enabling technology," he said.

About the Author

Toby Gooley
Contributing Editor
Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.

More articles by Toby Gooley

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