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RETAIL VIEW: Wal-Mart's RFID initiative on track

When Wal-Mart asked its 100 top suppliers to be moving aggressively toward RFID-readiness by Jan. 1, 2005, many in the chip industry doubted it was possible.

And it was somewhat of a foregone conclusion that no produce industry firms would be able to comply " nor were they asked to.

But just as the giant chain?s general merchandise suppliers began to move toward radio frequency identification, so did some of Wal-Mart?s top produce suppliers. And in the first week of January, some produce shipments did go to the chain with an RFID attached.

'When we started working on this project with Wal-Mart, we agreed to start with just one SKU to one [distribution center],' said Tom Casas, vice president of information technology for Tanimura & Antle in Salinas, CA. "How far have we come? Starting the first week of January, we have sent a carton of lettuce with [RFID] tags to Texas. It's going OK; it's not going great, but it's going OK."

Mr. Casas? characterization is based on the fact that he wants it to work perfectly. A further examination of how it is working reveals that "it's working far better in these early stages than I had hoped."

In fact, the reason he is giving the early effort an average grade has little to do with the technology itself. "We?re getting 98 percent reads at out end. That?s much better than I ever expected at this early stage. We will probably get some feedback from Wal-Mart at the end of next week and we?ll see what kind of reads they are getting."

The biggest hurdle thus far is keeping the tags on the returnable plastic containers in which the lettuce is shipped. "You need a glue that keeps the tag on, but you need that tag to be washed off when the RPC goes through the return process."

In the early going, Mr. Casas said that the tags are not staying on the RPCs. "It is a solvable problem, but it has been the biggest one so far."

In fact, in the early going, Mr. Casas said "There is nothing I've seen that would make me think this isn?t going to work. Wal-Mart has asked us to be very frank. So far nothing has come down the pike that would give me reason to call up Mr. [Bruce] Peterson and say, "This isn?t going to work." We are going to work through the issues. It is going to be a process, but it is going to work."

From his perspective, Wal-Mart?s Mr. Peterson sees the same picture. "We aren?t backing off from our timetable and suppliers are complying. It was really gratifying to see our initiative with our top 100 suppliers bleed over to the produce side," he said. "But what I am really happy about is there appears to be general agreement in the produce industry that RFID technology does have some real supply-side management advantages."

Mr. Peterson said that Wal-Mart is moving "full speed ahead," and there are numerous produce companies, trade associations and universities also working on the produce-specific hurdles associated with the RFID technology.

One of the bigger hurdles has to do with the water content of most fresh products. Soft drinks and other liquid products have a similar issue, and that is that the RFID readers have trouble reading through liquid. T&A has solved this through careful placement of the tags on the RPC and then a specific stacking pattern on the pallet.

?Basically you have to have line of sight," said Mr. Casas. "If the reader can see the tag, it can read it."

With many dry products, this is not necessary. In fact, the whole idea behind radio frequency identification is that a line of sight is not necessary.

For the time being, water-based products will have to be careful with tag placement. But as noted above, Coca-Cola and other major suppliers have similar problems, so long-term solutions are in the development stage.

In fact, one of the amazing things about RFID technology development is that suppliers all over the country are working together to come up with solutions. The RFID effort is not progressing as a competitive advantage for one company over another, but rather a collaborative effort to resolve the issues at hand.

Mr. Casas is on a peer group committee with IT professionals from many different companies such as Clorox and Microsoft. "I?ll be getting together with them next week via phone to discuss some issues about RFID," he said Jan. 18.

In addition, Mr. Casas is the co-chair of a produce industry RFID committee through the Produce Marketing Association that is also working on common problems. He will also be meeting with that group the week of Jan. 24 to discuss his successes and problem areas.

?Sure I?ll tell that group of the problems we?ve had with the glue," he said. "It has been a pleasant surprise how well we are all working together."

Another issue sure to be discussed at both meetings is the price of the tags, which basically include a silicon chip and a metal tag that allows it be attached to the container. "Right now they cost between 35 and 50 cents," said Mr. Casas. "That?s expensive, and with the low margins in this industry that is a difficult problem."

For users of RPCs, Mr. Casas said that the cost could be greatly reduced if a programmable chip is imbedded into the container. The multiple trips that each container takes would clearly drive the per-trip cost down to a reasonable level.

?I've told our RPC suppliers that this could give them a competitive advantage [vs. corrugated containers]. They need to be working on that. Frankly, I don?t know how it is going to pencil out with corrugated. Plus if you add a silicon chip and a metal tag to a corrugated container, how are you going to be able to recycle that?? he asked. "These are questions that have to be answered."

On the other hand, T&A has done some testing with corrugated containers and they offer another advantage. "The tag sticks to a corrugated carton perfectly," he said.

If the price of chips falls low enough " such as to a nickel or so apiece " then the cost on a one-time chip for a corrugated container would not be a big issue. But the recyclability problem might still exist.

In any event, Messrs. Casas and Peterson said that RFID technology is moving ahead, and it is not a pipe dream. The next generation RFID standard has been ratified by EPC Global and is on its way to becoming implemented worldwide. The next generation is in the development stage and will result in a standard RFID chip that will work anywhere in the world. The new standard utilizes ultra-high frequency bands, and those standards are being coordinated with the International Standards Organization.

Mr. Casas said that many companies, including T&A, are holding off making major investments in readers and other peripherals for RFID with the realization that the technology is improving.

The uniform standard will also bring new chip makers into the business, which should drive the price of the tags lower.