your-news image

RETAIL VIEW: Shippers shouldn't delay move to RFID, says Wal-Mart

Unless shippers think the top retailers in the nation are mistaken about the future, they shouldn't delay in at least getting started on an RFID system, according to Bruce Peterson of Wal-Mart.

Mr. Peterson, who is the giant chains well-known senior vice president and general merchandising manager of perishables, is also an outspoken advocate of radio frequency identification  the technology that allows for the tagging of merchandise with a computer chip and the tracking of that product through a base station with no human input.

Wal-Mart and the U.S. Department of Defense issued well-publicized mandates to their major suppliers a couple of years ago that they were moving in this direction. Wal-Mart specifically asked its top 100 suppliers to be in compliance by Jan. 1, 2005, with the next 200 to be on board by Jan. 1, 2006.

Mr. Peterson told The Produce News that as a practical matter very few produce companies, if any, are in the companys list of top 300 suppliers.

But that doesnt mean they should get a free ride. He clearly believes the top companies in the industry  indeed any major company  should be moving ahead with their RFID programs. In fact, the Wal-Mart executive said that produce industry suppliers are in a unique position to get ahead of the game and figure out how this system will work for them before they are faced with a deadline.

"The number one question suppliers should be asking themselves is: Do you believe Wal-Mart, Metro, Albertsons, the Department of Defense and Target when we say RFID is the logistics platform of the future? Or do you think we are just kidding or that we are wrong?" Mr. Peterson asked.

For those companies which believe it is the future, he said they ought to secure some type of expertise in the RFID platform and start discovering the advantages of RFID within their own walls.

Gary Fleming, vice president of industry technology and standards for the Produce Marketing Association, said that the involvement of these top retailers is basically a guarantee that RFID is here to stay. Those buyers touch virtually every major supplier [in all disciplines]. For that reason alone, RFID is going to move ahead.

The PMA expert predicted that RFID at the case and pallet levels will be commonplace within two years, and that at the item level, it will enter the marketplace as an industry standard in five to eight years.

Many news articles in the technology trade press and in financial circles in recent months have taken a different slant on the issue. One article was recently headlined, Benefits from RFID not matching hype. That article stated that adoption has been slower than anticipated and that there is already a shake-out occurring in the tag-making industry.

Sentiment this year is very negative on RFID, stock market analyst Philip Alling said in the story.

The article said that some of Wal-Marts top suppliers, including Tyson Foods, are finding the cost difficult to justify. Tag costs are paramount because we are in a very low-margin business, was the quote from Tyson Foods Chief Technology Officer Gary Cooper, who added, A lot of folks believe they are just wasting money. I dont think I have found anyone who has found a return based on the current tags.

Another article analyzed the budgeted outlays for many major companies over the next couple of years and suggested that RFID does not appear as if it will take off until 2008. That article suggested that innovation driven by retailer mandates rather than support from the users is not the ideal model and does not create an environment of progress.

One technology trade magazine ran an article in July titled, The Great RFID Experiment That Wasnt. That article opined, You know a technology is hyped to the hilt when pundits call for a shakeout before the market has even had a chance to build.

It continued, Consolidation seems inevitable because the current level of spending wont support the number of vendors clamoring for a piece of the market.

Quoting some of the same sources as the previous article, the opinion piece offered that suppliers are more likely to consider RFID solutions as a business strategy instead of a compliance issue if the cost of deployment drops.

Mr. Peterson believes that the mindset leading to the aforementioned articles is a perception issue rather than an indication that RFID is failing to live up to its promise. In the late 60s, bar codes first came on to the scene. It took 20 years for them to become commonplace.

He reiterated that the Wal-Mart mandate was for these major companies to start moving in the RFID direction, not to be fully operational on all products this year. He believes that any objective analysis of the situation would conclude that progress on RFID is moving at a very rapid pace.

In fact, he is optimistic about the future and the involvement of many produce companies, though he clearly believes more companies should get on board. There are many [produce] companies that are looking at this as a competitive advantage and are doing their research.

It is this research about what it can do for me that both the Wal-Mart executive and the PMA executive believe is the key for produce suppliers. If a supplier is just looking at this as a 'slap and ship compliance issue for his customers, there is not going to be [a return on investment] and it is just going to be a cost, said Mr. Fleming. But if they go beyond that and internalize it to see what it can do for them within their own four walls and fields, they will find an ROI.

Toward that end, PMA is in the process of developing an RFID video that will spell out what it is, the retailer mandates and potential uses throughout the supply chain. Mr. Fleming clearly believes that there is a lot of information to be garnered through RFID which suppliers will be able to use to their advantage.

For example, I just read about a new packaged good with a 45-day shelf life. Through RFID, the manufacturer realized it wasnt getting on the [retail] floor until it only had six days left. Thats information you can use.

Of course, he agreed that a key to the information gathered through RFID will be whether the retailer is willing to share that information with the supplier. But there will be visibility throughout the supply chain. You will be able to track and monitor your product much better through the entire supply chain.

But even before that, he said that many companies will find advantages in real-time inventory at their own facility. This information can save money at the outset. And there will have to be some true savings for this technology to pay for itself. Mr. Fleming said that he has heard initial cost outlays estimated at anywhere from $100,000 to $3 million. Lately I think a more accurate estimate puts the initial investment at between $500,000 to $700,000 for a medium to large company. And of course, there will be ongoing costs in the price of the tag.

The cost of the tag is expected to drop as demand increases from its current level of 20-40 cents to a much more manageable number in the 5- to 15-cents range. Mr. Fleming believes that these costs, if accurate, will be sustainable through the savings a shipper can realize. And make no mistake about it, the shipper will have to cover the cost.

Retailers are mandating the use, but like other innovations they are not going to pay for it as a separate add-on cost to the product. Mr. Peterson admitted as much when he said that produce suppliers will find themselves behind the eight ball if they do no research on which benefits they can derive from the system and merely come along for the ride when it becomes an enforceable retailer mandate.

Another issue that a 52-member PMA task force group is considering has to do with specific problems associated with fresh produce. Current RFID chips and readers have a problem passing through water, which is inherent in most fresh produce items. There is a solution, but its expensive, Mr. Fleming said.

The quarterly meeting of the task force is identifying similar issues and solutions. He said that the chip industry is working on this problem, and he expects that the price of the solution will come down. One way to solve it is with an active [programmable] chip on the pallet. Again, as the cost of those chips drops, the economic factor is expected to lessen.

Mr. Peterson said that this is a given, and so the economic issue will not be a long-term factor in his opinion. He said that the price of virtually every product born through technology has fallen and become economically sustainable.

I remember when microwave ovens were first introduced and people didnt think they could afford one. We sell one in our stores now for 38 bucks. Thirty-eight bucks, he repeated. Thats amazing.

Also amazing is the information and efficacy that can be realized through RFID if Wal-Mart, Albertsons, Target, Metro and the U.S. Department of Defense have correctly read the future.