Wal-Mart lays down the law on RFID

Although radio frequency identification (RFID) has been around for decades, it mostly sat on the technological bench until retail giant Wal-Mart Stores Inc, began to mandate that its key suppliers would adopt and implement these chips on every pallet shipped to Wal-Mart’s Dallas, Texas based distribution centers (DCs) with the eventual goal of having RFID deployed in every Wal-Mart DC and retail store. While many suppliers have complied to date with Wal-Mart’s dictates that compliance has been half hearted at best leading the retailer to take forceful approach to its arm twisting. Beginning with a Sam’s Club DC in the Dallas area, every supplier who fails to tag their shipments with RFID devices will be fined $2 per pallet beginning October 2008.

The tags basically are designed to help locate stuff, with the obvious benefits being improved visibility into available backroom stock. Reducing out of stocks and keeping the shelves replenished is the be all and end all of retail theoretically there should be a trickle down effect that results in increased sales of the manufacturers as well, but those sales are somewhat muted by the significant costs of purchasing as well as affixing the tags on every shipment to Wal-Mart or any of the other large retail chains with an RFID mandate.

In a bid to demonstrate the tangible worth of RFID, Wal-Mart is sponsoring a research effort at the University of Arkansas to demonstrate the positive effects the technology has no improving inventory accuracy. Preliminary analysis at the university’s RFID Research Center indicates that an automated RFID enabled inventory systems in test stores improved accuracy by 13%.

With RFID technology in place at its distribution centers Wal-Mart believes it can significantly reduce unnecessary inventory its backrooms. The test stores were equipped with RFID readers and antennas the key backroom locations, such as receiving doors, sales floor doors and box crushers. A perpetual inventory adjustment system automatically adjusted understand inventory. The test stores were compared to an equal number of control stores with similar demographics which were not equipped with RFID technology.

Emphasizing the importance of more accurate inventory management techniques Hardgrave points out that the net result of inventory inaccuracy is an estimated 10% reduction in profit

To date, Wal-Mart’s suppliers have been required to apply RFID tags to cases and pallets but that could change in the future early results fm the RFID Research center’s efforts indicate that tagging individual items could potentially eliminate some of the root causes of inventory inaccuracy. One recent study from RNCOS predicts that the market for item tagging will grow by 55% over the next 10 years. The costs for suppliers to tag every item shipped to a Wal-Mart DC would of course increase significantly.

The Wal-Mart Way

Wal-Mart’s Bentonville warehouse is the entry of most retailers worldwide. The building covers 1.2 m sq ft the area of 24 football fields. It’s 19 conveyor belts and ship 360 cartons a minute; 264 dock doors take in goods from suppliers trucks, 116 shipping lanes send them out to the store. This center distributes general merchandise goods to 125 Wal-Mart superstores. The seasonal merchandise once received is unloaded and a bar code is stuck ion each case. This bar code helps in identifying the destination store. The merchandise moves on a roof level conveyor system for as little as 10 minutes before passing to the shipping area. Here, there are scanned and computer controlled pushers which guide them on the appropriate off ramp. This leads to a door assigned to an individual store, from which trucks leave often 24 hours a day.

For the staple stock merchandise the computer generates an order based on the previous day’s sale. The distribution center receives them in the morning and ships them later that day or on the subsequent day. Thus, stores are replenished within 48 hours allowing them to hold very little stock.

A large central database analyses years of past data to see how factors like weather and holidays affect sales in every outlet. The weather forecast is fed into the system; if a heat wave is expected more soft drinks are supplied to the appropriate store.

More importantly for its supply chain Wal-Mart shares information with its suppliers Through the process called CPFR, it sends them data electronically each day, enabling them to see how much of their goods have sold and how much it expects to sell.

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