250 million reasons for Wal-Mart’s RFID exploits

Harnessing RFID (radio frequency identification) technology to reduce retail shelf out-of-stocks and improve inventory profitability could generate an additional $250 million in annual sales, on a global basis, at Wal-Mart Stores Inc.

“This is certainly grabbing our attention,” said Nicole O’Connor, Director of ISD at Wal-Mart Canada Corp.

Wal-Mart is the largest retailer, largest private employer and second largest corporation in the world (after ExxonMobil).

O’Connor was speaking at the Collaborative Supply Chain Forum held earlier this week in Mississauga, Ont.

In an address titled Using EPC/RFID to Increase Product Visibility, the Wal-Mart executive detailed the tremendous benefits – current and anticipated – Wal-Mart and all its stakeholders are experiencing from this technology.

In the case of Wal-Mart customers, she said, the gains are very tangible.

For instance, the retail behemoth estimates that of the seven million people who shop at Wal-Mart stores each week, around 100,000 currently need to make a second trip because the merchandize they seek is not in stock the first time.

“If [by improving inventory management via RFID technology] we could eliminate the extra trip for these 100,000 customers, we could [collectively] save them 15,097 litres of gas – and $5.7 million a year,” O’Connor said.

Wal-Mart’s early adoption of RFID, she said, is inextricably linked to the retailer’s “everyday low price” objective.

“Sam Walton (Wal-Mart founder) said years ago that we [serve as] an agent for our customers. That focus hasn’t changed, and it’s demonstrated in our everyday low price mandate.”

At Wal-Mart Canada, she said, RFID is being used to execute on that mandate in four key ways:

Reducing out-of-stocks – O’Connor cited findings from a 2003 University of Arkansas 29-week study that RFID enables a 32 per cent reduction in out-of-stocks.

She said Wal-Mart’s U.S. stores have validated this conclusion with their own internal tests that show similar dramatic improvements in stocks through RFID.

This has a poweful and positive impact on sales, the Wal-Mart executive said.

She said studies show out-of-stocks result in a minimum two per cent loss in sales – a significant number given the scope and breadth of Wal-Mart’s operations. (Wal-Mart’s annual sales revenues are estimated at around US$350 billion)).

“That is why we are focusing on out of stocks.”

Promotional displays – Placing RFID tags on promotional displays and tracking and measuring their effectiveness, is a second focus area at Wal-Mart Canada. O’Connor said there’s a significant “sales lift” associated with placing a display on the sales floor on time.

“Through RFID, we can track the visibility to a display in the supply chain and through automated tools we can determine whether the display is on the sales floor when it should be.”

Speed to shelf – This strategy is akin to promotional displays, the Wal-Mart exec said. “We have lots of product launches at Wal-Mart, and the key is getting the new product on the shelf for the effective start date.”

Perpetual inventory – Greater control over order management is yet another focus area at Wal-Mart Canada stores. This involves better visibility into backroom inventory, O’Connor said.

“Ensuring we don’t needlessly order, when we have inventory in the backroom increases our inventory profitability,” she said, adding that RFID supports this process.

The benefits of RFID in improving inventory awareness and reducing out-of-stocks have been experienced by several Wal-Mart Canada vendor partners as well, the Wal-Mart Canada executive said.

She showed a video during her presentation that featured Mark Jamison, vice-president of supply chain at Kimberly Clark, recounting these benefits.

Health and hygiene products vendor Kimberly-Clark, headquartered in Dallas, Texas, has used RFID data to support its forecasting, replenishment and store operations processes.

The goal was to improve sales by reducing retail shelf out-of-stocks for the firm’s global consumer product brands (including Kleenex, Scott, Huggies, Pull-Ups and Kotex).

RFID data – processed by a forecasting tool from TrueDemand Software Inc. – offered Kimberly-Clark greater insight into vital metrics including: perpetual inventory by retail store and selling floor, a daily forecast by product and store, and out-of-stock root causes, and lost sales by product and store and retail distribution centre.

“We have successfully confirmed that RFID data can give us visibility to shelf level out-of-stocks and help us to understand [its] root cause,” said Jamison. “This enables us to identify appropriate corrective action.”

Current status

As of now, O’Connor said, Wal-Mart’s RFID initiatives are far more extensive south of the border.

In the U.S., she said, Wal-Mart “has 1,000 RFID-enabled stores, five Distribution Centres and 37 Sam’s Club stores (a chain of warehouse clubs that sells groceries and general merchandise, often in large quantities).

“They are working with 600 vendors, top suppliers and volunteers and the whole focus is business process improvement.”

For instance, she said, at the Sam’s Clubs, RFID-enabled forklifts that track every pile of merchandize – with very practical benefits in terms of time savings.

There’ve been huge customer service improvements, O’Connor said.

“In tests where the customer’s merchandize needs to be filled, they’ve actually been able to serve customers in four minutes as opposed to the 20 minutes it used to take.”

At Wal-Mart Canada stores, by contrast, the scale of the RFID implementations is much smaller.

“In Canada,” O’Connor said, “we currently have four RFID-enabled stores, and will be rolling out the technology in 20 stores by the year end.”

She said the immediate goals at Wal-Mart’s Canadian stores is to broaden the stakeholders experience and knowledge of RFID. “We’re not as seasoned as our US associates, who’ve been working with the technology for many years.”

Despite their relatively late forays into this field, she said Wal-Mart’s Canadian stores can make a distinctive contribution to the development of this technology.

For instance, she said, the unique structure of several Wal-Mart stores here gives RFID tracking a whole new meaning. “We have some stores that are two-levels, as opposed to the typical Wal-Mart U.S. stores that are one level. Tracking merchandize in a two-level store is far more complex.”

Likewise, she said, the weather in Canada is also unique – extremes of hot and cold – while most of the stores in the U.S. are in southern states, with more uniform climes. The sharp contrasts in climate here and this could have an interesting impact on tracking as well.

Canadian stores are also experimenting with unique positioning of RFID readers, O’Connor said.

These include:

A dock floor installation – with two floor mounted portals on each side of the door, which leads from the stock room into the sales floor area; and,

An over the door wall-mounted portal – “Canada is the first country to get this kind of reader – and we’re looking to get more deployments,” she said.

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