Wal-Mart to deploy radio ID tags for supply tracking

Wal-Mart Stores Inc. is working with its top 100 suppliers to deploy new radio frequency identification (RFID) tags for tracking crates and pallets in its supply chain beginning January 2005.

The company announced its plans yesterday at the Retail Systems 2003/VICS Collaborative Commerce conference here.

RFID uses low-powered radio transmitters to read data stored in tags, at distances ranging from 1 inch to 100 feet. The tags are used instead of bar codes and can contain a lot more data, allowing manufacturers, suppliers and retailers to track and manage assets more efficiently.

Wal-Mart’s decision to ask its suppliers to support RFID tags could lead to a faster adoption of the technology and a common standard around it, according to Kevin Ashton, executive director of MIT’s Auto-ID Center in Cambridge, Mass.

The Auto-ID Center is working with the Uniform Code Council to develop a standard Electronic Product Code (EPC) for carrying information on RFID tags. The center’s sponsors include companies such as Wal-Mart, The Gillette Co. and Procter & Gamble Co.

“Everybody is looking for clarity on this technology and its future,” Ashton said. “The fact that the largest (retail) company in the world is publicly adopting EPC open standards should give companies confidence that the day of a single, interoperable RFID system is close at hand,” he said.

By asking its top 100 suppliers to support RFID technology, Wal-Mart hopes to improve inventory management and gain better visibility into the supply chain, said Pam Kohn, vice president of the company’s global supply chain operations. Though RFID tags can be used to gather and track a variety of product-related data, Wal-Mart’s initial effort will be narrow, focusing mainly on better inventory management.

Deploying RFID tags at the pallet and crate level with its top 100 suppliers will involve about 1 billion tags, she said.

Scaling up to meet Wal-Mart’s RFID requirements will prove a “major challenge” for the RFID industry, according to Bill Allen, marketing communications director for the RFID division of Texas Instruments Inc. “These are the numbers that boggle the mind,” Allen said, pointing out that TI has to date shipped 200 million RFID tags.

Meeting Wal-Mart’s price of 5 cents per tag could be another hurdle, Allen said, since they now sell in the range of 30 cents to 50 cents. Allen said only economies of scale could drive the price down further, and Wal-Mart’s plans certainly meet the volume requirements.

But neither TI nor the Philips semiconductor division of Philips Electronics NV in Amsterdam, the other large RFID chip manufacturer, has the capacity right now to meet Walmart’s requirements — let alone the needs of other retailers who may jump on the RFID bandwagon following Wal-Mart’s pioneering move.

The current lack of capacity could mean TI would have to build a new semiconductor fabrication facility, an investment requiring careful analysis, since the facilities can cost more than US$1 billion to build, Allen said.

Gary Robertson, executive director of global infrastructure at Delphi Corp., a Troy, Mich.-based vehicle electronics manufacturer that uses RFID technology in its manufacturing operations, said Wal-Mart’s decision to use RFID in its supply chain “will legitimize (the technology) and push it into the mainstream.”

Wal-Mart’s move to adopt RFID comes at a time when a growing number of companies are considering the technology.

For instance, Marks and Spencer PLC, one of the U.K.’s largest retailers, has just completed a rollout of RFID technology in the company’s food supply chain. The project involved the deployment of 13.5-MHz RFID tags on 3.5 million new plastic trays used for shipping food, said Keith Mahoney, the company’s food logistics controller, at a presentation on the project during the conference.

The company started testing RFID in its supply chain in 2002 and has subjected the tags to a variety of temperature, moisture and read-distance tests before deploying them, Mahoney said. Eventually, they will help improve accurate item tracking, visibility and availability in the supply chain.

While the lack of common protocols and standards around RFID is an issue, “we could not allow the lack of them to hang up the project,” he said during the presentation.

Kraft Foods North America Inc. is also looking at the possibility of using RFID in its supply chain, said David Hutchins, senior director of enterprise systems at the company. “There is a huge benefit to deploying it,” said Hutchins, who is a member of the Auto-ID board. He said Kraft is conducting a benefits analysis relating to RFID.

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