"Efficiency", along with "leveraging" and "streamlining" are some of the most popular words in American corporate culture. And when it comes to supply chain operations, Wal-Mart has taken the meaning of these words to new levels and set the benchmark for other companies to follow. In recent years, the retailer’s RFID revolution has had a big part to play in this success, and the technology push looks set to intensify under the retailer’s new EVP and CIO Rollin Ford.
"There will be no slowing down. I have been a member of the Wal-Mart RFID executive steering committee for the past three years, so I know first-hand that we have a great team working on RFID," Ford, who previously served as the company’s EVP of logistics and supply chain, told the audience at a recent biannual CIO summit hosted by the retailer. "I am as excited about what lies ahead as they are."
In discussion with Wal-Mart on the retailer’s next steps in its RFID implementation, OPI+ can reveal that more than 1,000 Wal-Mart stores, Sam’s Club locations and distribution centres will be RFID-enabled by the end of 2006, in line with original estimates given last year.
In an update on its implementation of the technology, the company said: "We are steadily adding suppliers to our pilot and are approaching 300, our goal for this year… The next group of suppliers (an additional 300) are scheduled to be live by January 2007, bringing the total of participating suppliers to more than 650."
OPI+ can also reveal that – now its international arm is becoming so crucial to the business – Wal-Mart is rolling out RFID implementation overseas. In an interview with OPI+, company spokesperson Marty Heires said: "We are in the planning stage for pilots in the UK and Canada."
The advantages of RFID are clear: the technology allows vendors, suppliers and customers to agree on quantities received and arrival dates; to track individual shipments throughout the supply chain; to pinpoint high theft areas; to reduce bottlenecks; and to lower the level of out-of-stocks. Many retailers are watching Wal-Mart’s guinea pig RFID roll-out with interest to assess ROI before they implement it in their own stores.
The strategy will play an important part in Wal-Mart’s plans to seek further reductions in its levels of backroom stock it holds at its US stores, a goal announced last week by the company’s vice chairman and head of US operations John Menzer. The move aims to reduce clutter, give a better return on invested capital, reduce the need to cut prices on old merchandise, and increase the speed at which goods move through the stores.
The worldwide RFID market, which was expected to be worth $1.95 billion in 2005, is estimated to be worth as much as $26.9 billion in 2015, with a lot of the profits coming from the sale of RFID hardware components. Wal-Mart, however, would release no figures on how much it has spent on RFID to date, nor what it expects in terms of ROI. But last year analysts suggested that the company’s $5 billion rollout would take nine to ten years to bring a return, although sooner if the cost of tags continues to plummet.
Wal-Mart has made massive headway in the rollout so far. By the end of October 2005, 460 Wal-Mart stores, 30 Sam’s Club locations and five distribution centres were live with RFID. In addition, more than 140 of the company’s suppliers were live with the technology; more than 200,000 tagged pallets and more than 8.5 million tagged cases had been received; and more than 80 million EPC reads had taken place by the end of 2005.
The pilot began originally in April 2004 with Wal-Mart’s 100 largest suppliers and more than 150 Wal-Mart stores and Sam’s Club locations in and around Dallas, Texas.
Wal-Mart decided last year to use the EPC Generation 2 (Gen 2) standard tags, the first standard to be ratified by the International Standards Association, because this will lower the cost for the retailer’s suppliers and create a truly "global" tag. They were accepted at the beginning of January 2006 and this month, Ford confirmed that Wal-Mart will be "sun-setting" Gen 1 on 30 June this year.
And, true to corporate culture, the company has spoken loud and proud on the already positive impact the technology is having on its supply chain efficiency levels. "RFID is already having a positive impact on inventory," Wal-Mart said in its update. "Manually placed orders have declined 10 per cent in pilot stores, eliminating excess product at the stores and unnecessary replenishment orders from suppliers."
It added that RFID helps make sure promotional displays are delivered and in place so products are ready when promotions begin. It also aids proof of delivery and purchase order reconciliation by showing where the product is, even after it has left the receiving dock. Furthermore, new products get to store shelves three times faster than non-tagged products.
"We think RFID will have broad applications," said Heires, although he would give no specific details of his company’s expectations. "The US Department of Defence, for instance, already has a programme under way."