With radio-frequency identification doyen Wal-Mart Stores Inc. midway to a January deadline to have its top 100 suppliers RFID-enable inventory, questions are looming regarding the efficacy of the effort.
Wal-Marts RFID initiative requires its top 100 suppliers (along with 37 volunteers) to deliver goods to three of its distribution centers with RFID tags that carry electronic bar codes—an undertaking that can require significant infrastructure development on the suppliers part. Because Wal-Mart is essentially the RFID test case in retail, the effort comes with some major trial and error.
For top-tier suppliers such as Bayer Corp. and The Gillette Co., a return on investment comes not in RFID implementation, per se, but in the ability to collaborate with partners on the resulting data.
"Compliance in itself is nothing more than a significant tax on your business," said Bob Hurley, senior project manager for RFID with Bayers Consumer Care Division. "Thats why at the start [of this initiative] we tried to architect something that at least gave us the possibility of tracking down an elusive business case."
Bayer, of Pittsburgh, is using RFID middleware and device integration software from Acsis Inc. to track cases and pallets that are en route to Wal-Mart, as well as point-of-purchase displays at Wal-Mart stores. Acsis, in Marlton, N.J., also integrates RFID information with Bayers SAP AG ERP (enterprise resource planning) system. The goal for Bayer is to use the RFID data that comes back from Wal-Marts Retail Link system and compare that with its internal data for better understanding of product movement.
"I would be very surprised [if] companies that have modern and efficient supply chains are going to get significant ROI from RFID versus what they could already do in a closed-loop system," said Hurley. "Its all about collaboration."
Gillette, likewise, is expecting to extract value from its RFID implementation through data correlation. The company is using OATSystems Inc. software to capture RFID information and link it to its warehouse management and data warehouse systems.
"The approach that Gillette has taken is tag and ship, which is a little bit different than slap and ship," said Jamshed Dubash, director of technology for auto-ID at Gillette, in Boston. "We are capturing all the information were sending to Wal-Mart and taking information we pull from Wal-Marts Retail Link and comparing our reads."
Dubashs big push this year will be to determine key collaboration business processes and synchronize them with retailers.
Unlike Bayer, which had RFID plans on the back burner before the Wal-Mart mandate, Gillette is an early leader in RFID—and a big spender. While Gillette did not release the amount of money it has spent complying with Wal-Marts initiative, analysts say the company has likely spent more than any other supplier.
A study conducted by ARC Advisory Group Inc. analyst Stephen Banker in November found that about 40 percent of Wal-Marts top 100 suppliers spent between $1 million and $2 million to prepare RFID infrastructures enabling them to meet Wal-Marts January deadline. An additional 25 percent of the suppliers surveyed spent between $500,000 and $1 million to comply, while the remaining 35 percent spent less than $1 million on technology implementations.
"We have not invested a couple million dollars," said Bayers Hurley. "As we look over time, it will be a multimillion-dollar investment. What we are trying to do, as the industry is in flux, is be as measured as we can in what we invest in and in how much we invest."
Despite acting as a test case for RFID, complying with Wal-Marts initiative will pay off in the end for Bayer, as it will get the company and its supply chain initiatives "where the future is going," Hurley said.
Wal-Mart, of Bentonville, Ark., has set a deadline of January 2006 for its next top 200 suppliers to RFID-enable their cases and pallets.
While Wal-Mart will not release findings about this first phase of its RFID initiative until April, officials said suppliers are tagging an average "of 65 percent of their cases and pallets" to one of Wal-Marts three designated RFID distribution centers, said Wal-Mart spokesperson Gus Whitcomb.