Walmart is Right About RFID
An article
on the RFID Journal website, written by Kevin Ashton, co-founder
and executive director of the Auto-ID Center, claims Walmart has it right
when it comes to its radio frequency identification technology program
and all those who have questioned its implementation are working under
three flawed assumptions including:
- Tag
cost kills the business case for RFID with suppliers; - There’s
not enough time for vendors to prepare; - The
technology is not ready for the real world.
On the first
point, Mr. Ashton said that it was vendors including CHEP, Gillette, International
Paper, Philip Morris and Procter & Gamble that adopted RFID first and not Walmart. The
retailer started to see the promise of the technology after observing its
use by suppliers. A key point was that the technology was able to help
vendors lower costs, which could be passed on to the retailer. It would
make no sense for Walmart to push a technology that increased costs for
suppliers since it would eventually have to pick up the tab.
Companies
have had since 2000, when Walmart first began to explore RFID, to get ready
for its conversion. Even those who only got started when Walmart unveiled
its mandate last year have had plenty of time, according to Mr. Ashton. “With
few exceptions, companies that aren’t ready for RFID have only themselves
to blame,” he
wrote.
On the final
point of whether or not RFID works, the author claims that numerous
studies from “around the world have
shown RFID is good enough now.” The technology may not be perfect
but the best way to improve on it is to create a mass market for it. Walmart
is in the process of helping to create that market and, Mr. Ashton posits,
so should its vendors.
Discussion Questions:
Are Walmart and other advocates of RFID right? Are critics, as suggested
by the RFID Journal article, operating under a set of “flawed
assumptions?”
I take exception with the three assumptions that Ashton is using. These are not the ones that I’ve heard come up in complaints from both manufacturers and other retailers. It’s not the tag costs that are too high–though that certainly helps the business case. It’s the use-cases that have been selected as the starting point. Pallet and case visibility? Come on. The extended retail industry could have much deeper visibility into its supply chain today – right now – without pasting a single tag onto a single box. What is needed to make that happen is better integration of existing systems and better use of data that is already available in the supply chain. A better magnifying glass doesn’t help you if you’re blind. THAT was my critique of the Walmart mandate–that by focusing on case and pallet in the supply chain, rather than use-cases in the store that could help justify the move to item-level tagging, too much money was diverted from supply chain integration that is needed no matter what and into expensive tests that did not yield the step-level improvements that were needed to justify the costs. The whole point of RFID is to reduce stockouts at the shelf–to improve visibility in that place that is the hardest of all to see: the shelf. Tagging at the case level benefits only one company in that scenario, the company that has the volume that requires it to replenish at the case level to the shelf. And that company is Walmart.
If Walmart has it right there wouldn’t continue to be out-of-stock problems and suppliers wouldn’t complain to me about the Walmart distribution centers that are not yet outfitted with RFID readers.
OK, so Walmart’s got it right. RFID rules and they have the world’s most sophisticated inventory management programs. Well, then would someone please explain to me why I run into out of stocks every time I visit my local Walmart? What good does the technology do you if your buyers, warehouses and store managers can’t keep inventory flowing? I would venture to say that Walmart could increase their profits by 10% if they could cut their OOS by 50%. If someone could write a computer program that would take the place of what used to be called “walking around with your eyes open” then it might be worth getting excited about.
Ashton is a good guy and I am sure in the long run, whatever that is, his and the overall RFID vision will win out, because it just makes sense. But he is, in my opinion, wrong in many respects in this piece.
Walmart unquestionably tried to push the technology way in advance of CPG customers wanting it or being ready to justify and absorb the cost–this part of the discussion doesn’t even make sense to me. P&G and others were experimenting, but could not drive value without a reader network at the retailers. Most importantly, P&G said from the early stages that RFID made sense for some products (Advantaged, they called them, and they were high value and or promotional displays), but not for most/other SKUs yet.
Walmart totally failed to discriminate. Its mandate required suppliers to tag everything at the case level, at tremendous cost and–as it turns out now–to no purpose, as the program folded. Its competitor, Tesco in the UK, took a much more strategic approach, working with specific suppliers/SKUs where it thought it could drive value for both parties, but even that effort, from all I can tell, seems to have stalled.
I have never heard anyone really say vendors didn’t have enough time–not sure where that is coming from. They did have a good amount of time, and Walmart’s mandate was never really a mandate anyway. No one was penalized (as it appears they now will be with Sam’s Club compliance) for not tagging products, and manufacturers always told me WMT was open to dialog about timing. Ashton is arguing against a point I don’t think anyone really cited as a barrier to RFID.
I have it on good authority from someone inside WMT that the approach WMT took on RFID was driven by now disgraced exec Tom Coughlin, over the objections of then CIO Linda Dillman. That is very interesting in that Dillman ultimately became the public point person on RFID and took a lot of heat–and eventually lost the CIO spot. Last I know, she was in another role at Walmart–not sure today.
In addition, WMT’s story on where the benefits were for the manufacturer kept changing, and in some cases specifically was positioned as “we are doing this to find out where the benefits are.” In other words, it was a “pilot” project that was positioned as a real program. In the end, it was the manufacturers (P&G, Kimberly Clark) who kept saying that the value for now was in promotional execution, and voila, WMT finally made a shift in that direction in late 2007.
So, netting it out, we can agree Ashton (and Walmart) are right about the ultimate vision, but think this is an inaccurate view of the history. As we’ve written in SCDigest and I think covered here, WMT’s original program as structured was doomed to fail for many reasons that should seem obvious now.
In the consumer goods to retail supply chain, it appears there is solid RFID justification now in some areas, especially item level apparel. RFID will take off in this chain more generally when the costs of tags drops dramatically so that to do it for the retailer becomes a far more inconsequential expense (that will happen some day, maybe sooner than we think); and when manufacturers really do find a lot of value integral to their own supply chain operations.
SCDigest and Wright State University are looking at that latter issue right now.
(Disclosure: RAM Communications is the public relations agency for CHEP, which is mentioned in the column.)
The potential for RFID has never really been in doubt by anyone in the industry, it’s just the timing that has been argued. RFID in the retail supply chain is an evolution, rather than the revolution many early evangelists (including Kevin Ashton) were expecting. There are many reasons for this, including market conditions and problems with establishing standards.
All along, however, the business case for RFID has been solid at the supply chain level. Tracking the movement of trucks, unit loads and cases that cost thousands of dollars makes sense. Knowing exactly when a shipment of promoted items will arrive at the store to fill in an out-of-stock position, or exactly which locations received tainted pharmaceuticals, is critically important. Any technology that can solve this challenge will be implemented. Again, it’s just a question of timing.
The good news is that Walmart moved the use of RFID forward by helping create standards for tags and readers (Gen 2 UHF). The bad news is that Walmart focused on the supply chain at the case and pallet level. Supply chains were and are already very efficient, and the cost of the RFID infrastructure, not so much the tags, has made generating a Return on Investment difficult.
Where is the real value for RFID? It is in retail store operations–preventing stock-outs and overstocks. Item-level tagging is required to get to the level of granularity needed to solve these problems. It is not the cost of the tag that is holding up the acquisition of item-level data–once again, it is the cost of the infrastructure required to read the tags at the shelf.
Several companies are developing or now have technology that is directed at acquiring item-level tag data at the shelf or display for high value, high volume and perishable or seasonal items, e.g. apparel, CDs, DVDs and video games. As the value of these solutions is documented with the items above, the real value of RFID will be discovered.