Cost, Glitches Slow Wal-Mart's Adoption of RFID

Jan. 1 deadline might not be the big bang introduction RFID advocates hoped for

An RFID tag carries tiny silicon microchips attached to antennas.

Wal-Mart Inc. set off a scramble in the retail supply chain last year when it summoned its top suppliers to its Arkansas headquarters to lay down the law: Cases and pallets shipped to Wal-Mart by Jan. 1, 2005, would carry tags based on technology known as radio frequency identification, or RFID, to better track products.

Today, a week before the deadline, the so-called "Wal-Mart mandate" to replace bar codes with the bookmark-sized RFID tags is moving forward in fits and starts. But the Jan. 1 start-up date is shaping up as something less than the Big Bang many had expected for a technology that had its roots at MIT's Auto-ID Center and has been championed by a retailing goliath known for its ruthless efficiency.

Faced with technology hurdles, foot-dragging by suppliers, and costly up-front investments with little short-term return, Wal-Mart has confined its initial launch to pilot programs at a few distribution centers in Texas and seven stores in the Dallas-Fort Worth area. The retailer's 137 lead-off suppliers will be tagging cases and pallets for, on average, only 65 percent of products, with laggards tagging 1 or 2 percent. Not all will commence shipping on New Year's Day; some will start as late as February.

"It's bare-minimum compliance," said Kara Romanow, research director for consumer products at AMR Research in Boston, who has been surveying Wal-Mart suppliers. "They will get the tags on; the tags will have the right data. But they're not rolling out the technology throughout their product lines. They're trying to buy some time."

While some Wal-Mart suppliers, like Boston's Gillette Co., are doing extensive in-house RFID research and implementation, many others are hiring third-party subcontractors to do their tagging on the cheap, in a practice that has become known in the industry as "slap and ship." Wal-Mart is not endorsing the practice, though in their public statements, company officials profess to be patient and understanding -- at least for now.

"One thing we've tried to get suppliers to do is to look into their own enterprises," said Simon Langford, Wal-Mart's manager for global RFID strategy, who with other Wal-Mart executives has been meeting with suppliers to work out implementation schedules. "The suppliers should work out a road map about how they're going to implement this in the short, medium, and long term."

RFID tags, carrying tiny silicon microchips attached to antennas, can be read via radio signals from a greater distance than bar codes, which they eventually will replace. Unlike bar codes, which identify product categories, the tags can transmit unique identification numbers for each case or pallet, and eventually each individual product. In the early years of their adoption, RFID tags will be used only in factories, trucks, warehouses, and the back rooms of stores, invisible to consumers, though privacy advocates have begun to organize against plans to ultimately tag individual items.

For retailers and manufacturers of consumer goods, RFID promises to cut costs, boost efficiency, reduce theft, and make the journey of products from factories to store shelves more transparent. It also should reduce dramatically the frequency of items being "out of stock" when consumers want them, a major problem for companies like Gillette, which was quick to embrace RFID and has been one of its steadfast advocates among Wal-Mart suppliers.

"We're using this transformational technology to re-engineer our own supply chain," said Richard J. Cantwell, vice president of Gillette, which has tested RFID technology at a Devens warehouse and expects to ship Wal-Mart about 450 products in RFID-tagged cases by Jan. 1. "This gives us the tools to increase the availability of products. We see the meat of the pork chop as the ability to know the location of our products at any point in time."

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