Everyone knows that Wal-Mart Stores Inc. has the magic touch when it comes to retail sales. Now the company is in the midst of pulling another rabbit out of the hat – one that could be worth a cool $250 million annually in global sales – through a bit of high-tech sorcery known as RFID (radio frequency identification), which will help the firm reduce retail shelf out-of-stocks and improve inventory profitability.
“This is certainly grabbing our attention,” said Nicole O’Connor, Director of ISD at Wal-Mart Canada Corp, who spoke at the Collaborative Supply Chain Forum held last month in Mississauga, Ont. In an address titled Using EPC/RFID to Increase Product Visibility, the Wal-Mart Canada executive detailed the tremendous benefits – current and anticipated – the company and all its stakeholders are experiencing from this technology.
In the case of customers, she said, the gains are very tangible. For instance, the retail wizard estimates that of the seven million people who shop at its stores each week, around 100,000 currently need to make a second trip because the merchandize they seek was not in stock the first time.
“If we could eliminate the extra trip for these 100,000 customers, we could save them 15,097 litres of gas and $5.7 million a year,” O’Connor said.
The company’s early adoption of RFID, she said, is inextricably linked to the retailer’s “everyday low price” objective. RFID is being used at Wal-Mart Canada to execute on that mandate in four key ways:
1 Reducing out-of-stocks. O’Connor cited findings from a 2003 University of Arkansas study that RFID enables a 32 per cent reduction in out-of-stocks. 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 powerful and positive impact on sales, 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, with annual sales revenues estimated at around US$350 billion.
2 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.”
3 Speed to shelf. This strategy is akin to promotional displays, O’Connor 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.”
4 Perpetual inventory. Greater control over order management is yet another focus area at Wal-Mart Canada stores. This involves better visibility into backroom inventory. “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.
BENEFITS TO VENDOR PARTNERS
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, said O’Connor.
She showed a video during her presentation that featured Mark Jamison, vice-president of supply chain at health and hygiene products vendor Kimberly Clark, recounting these benefits. Headquartered in Dallas, Kimberly-Clark 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.”
CANADIAN STORES LAG U.S.
As of now, O’Connor said, Wal-Mart’s RFID initiatives are far more extensive south of the border. In the U.S. the company has 1,000 stores, five distribution centres and 37 Sam’s Club stores that are RFID-enabled. The company is working with 600 vendors, top suppliers and volunteers and the whole focus is business process improvement.
For instance, at the Sam’s Clubs stores, a chain of warehouse outlets that sell groceries and general merchandise, RFID-enabled forklifts track every pile of merchandize, with very practical benefits in terms of time savings. There have 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 twenty 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 twenty stores by the year end.”
She said the immediate goal at the company’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,” she admitted.
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, the unique structure of several 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 climates. The sharp contrasts in Canadian climate could have an interesting impact on tracking as well.
Canadian stores are also experimenting with unique positioning of RFID readers. 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. It won’t be long before some Canadian rabbits start popping out of that hat. 078228
Joaquim P. Menezes is Web editor of IT World Canada.