The future of RFID Is now at least a bit clearer. As a followup to their stunning announcement last June that Wal-Mart would require major suppliers to affix RFID tags (known as chips) to all incoming cases and pallets, Wal-Mart executives met with their top suppliers and some technology vendors last month to lay out their plans for rolling out RFID technology throughout their distribution network. Although Wal-Mart did not back off from its insistence that its biggest suppliers be ready to comply with its RFID mandate in 2005, it did scale back plans for the initial rollout, limiting it to a group of three Wal-Mart DCs in the Dallas area that serve about 150 stores. (The one exception is pharmaceutical companies that supply Wal-Mart pharmacies with narcotic drugs, which must be RFID-enabled by March 2004.)
For many vendors, the chance to get some details and ask questions helped allay anxieties. "It had reached almost mythical proportions for weeks," says Greg Gilbert, a product manager for Manhattan Associates, a large supply chain execution software company. "For suppliers, it was good to learn the exact size, scope and scale of the initiative."
Like Gilbert, Tom Coyle, vice president of supply chain solutions for Matrics Inc., a company that provides RFID tags, readers and related software, came away from the meeting convinced that Wal-Mart is moving ahead aggressively with its RFID initiative. Coyle says he was surprised to learn that many more than the 100 suppliers covered by the initial Wal-Mart mandate are launching efforts to comply with the RFID requirements.
But not everyone is convinced that the industry is ready to roll where RFID is concerned. Kara Romanow, a senior research analyst for AMR Research in Boston, contends that last month's meetings left a number of questions unanswered and caused additional confusion for some suppliers."[Wal-Mart] did scale back on its expectations," she says. "But I don't think everyone will make the deadline."
Romanow characterizes the Wal-Mart decision to begin implementation in a single region as both "good news and bad news" for suppliers. It's good news, she says, because consumer packaged goods (CPG) companies that sell to Wal-Mart won't have to deploy RFID systems quite as quickly as they had expected. The bad news is that it could create added work for suppliers that ship to Wal-Mart. Just how much work will depend on the type of distribution network a shipper has in place. Shippers that move goods into the targeted Dallas-area facilities out of a single regional DC will face no additional tasks. But those shipping from productspecific DCs in different parts of the country will have to segregate and tag freight bound for the target DCs. Romanow also questions whether the technology currently available can realistically meet Wal-Mart's demands and provide returns for businesses that make the substantial investment required. "The technology's not ready for prime time," she asserts.
Romanow insists that she's not skeptical about RFID technology in general. "It's not that I don't believe in the technology—it is a revolutionary vision and it will have a revolutionary impact," she says. "Wal-Mart is just pushing it too fast. They're a little unrealistic. That's OK. It gets things moving now rather than five years from now. The issue is what happens in January 2005 when some suppliers can't comply."
Cashing in on the chips
Though some may question the technology's readiness, it's clear that the game's afoot, and most observers agree that consumer goods companies have little time to waste. That's particularly true for businesses that are in the early stages of RFID implementation.
And it appears that a lot of companies are in those early stages. Coyle estimates that 80 percent of the company representatives who approached Matrics at a technology fair associated with the Wal-Mart meeting are still fairly new to the technology.
Though nobody expects this initiative to go off without a hitch—Mike Dempsey, an industry strategy leader for software maker RedPrairie, advises suppliers to hedge their bets by affixing both RFID tags and bar codes to their initial shipments—the earlier RFID adoption efforts get under way, the better. Coyle urges shippers to get going right away. "You need dedicated staff and a dedicated budget," he says. "You want to get to the action phase as soon as possible." Coyle cautions that it's more than a matter of sticking tags on pallets. "The whole purpose is to get visibility and be able to take corrective action," he says. "You need to figure out what you're going to do with the data you collect."
Romanow says she is urging her CPG clients to focus on their internal processes and systems rather than on the actual RFID technology. "The technology will resolve itself," she says. "The standards will resolve themselves." She suggests that businesses examine their current infrastructure and internal systems to find ways to get the maximum return on their RFID investment. "Figure out how you're going to leverage the [electronic product code] coming back from Wal-Mart," she urges. "If there's any ROI, that's where it's going to come from."
As anxious as suppliers may be for quick returns on their investment, ROI could prove elusive for many. Though costs are difficult to pin down because of wide variations among applications, Coyle says DCs can expect to spend $3,000 to $4,000 per read point and 30 to 40 cents per tag. Beyond that, many companies will also have to invest in middleware needed to link the RFID system with a WMS or ERP system.
Given the level of investment required, Coyle cautions buyers to investigate technology providers' claims carefully. "Ninety percent of what you hear is not valid," he says. "The only way to find the 10 percent is to see it in place." He suggests that managers visit companies that have already implemented the technology. "Look at the implementation, ask about the ROI, and get feedback from end users. You can only believe what you can see. Do the Missouri thing."