Wal-Mart and eight product manufacturers have begun testing electronic product codes, or EPCs, at select Supercentres in the US. If successful, the concept will change forever the manner in which manufacturers and retailers operate - though some manufacturers continue to harbour reservations, writes Anthony Fletcher.
"This pilot is the next step in Wal-Mart's addition of radio frequency identification, also known as RFID, to improve product availability for Wal-Mart customers" said Linda Dillman, executive vice president and Chief Information Officer. "The real-world trial follows extensive testing at the company's RFID lab and months of collaborative preparation by Wal-Mart and its suppliers."
A total of 21 products will initially be included in the trial. Cases and pallets containing these products will feature EPCs when delivered to Wal-Mart's Sanger, Texas regional distribution centre where RFID readers installed at dock doors will automatically let Wal-Mart's operations and merchandising teams as well as suppliers know this exact shipment of products has arrived and is inside the building. Cases will then be removed from pallets and processed as usual through the distribution centre.
Wal-Mart is targeting 100 per cent readability of pallet tags through dock doors and 100 percent readability of case tags on distribution centre conveyor belts. The company has set a January 2005 target for its top 100 suppliers to be placing RFID tags on cases and pallets destined for Wal-Mart stores, and believes that the implementation of this pilot scheme will pave the way for achieving this goal.
Retailers such as Wal-Mart believe that the widespread implementation of RFID technology marks a sea change in the supply chain, much as the introduction of bar codes was as seen as revolutionary two decades ago. But while bar codes can tell a retailer that it has two boxes of product XYZ, Wal-Mart's EPCs can help distinguish one box of product XYZ from the next. This allows retailers greater visibility in monitoring product inventory from supplier to distribution centre to store.
"If you think about it, this is really repeating the steps we took in introducing bar codes into our stores back in the early '80s" Dillman said. "We're confident that EPCs will prove to be just as valuable to retailers and, more importantly, to their customers as the bar code."
RFID technology - which facilitates EPC - has been in use since the 1940s. Anyone using a toll tag or unlocking a car door using a keyless remote is already using RFID. In the supply chain application, passive RFID chips with small antennae are attached to cases and pallets. When passed near a "reader," the chip activates and its unique product identifier code is transmitted back to an inventory control system. Readers used by Wal-Mart have an average range of 15 feet.
"We can certainly understand and appreciate consumer concern about privacy," Dillman said. "That is why we want our customers to know that RFID tags will not contain nor collect any additional data about consumers. In fact, in the foreseeable future, there won't even be any RFID readers on our stores' main sales floors.
"However, down the road there are so many possibilities to improve the shopping experience that we hope customers will actually share our enthusiasm about EPCs. As we look forward five, 10 years, we see the possibility of offering expedited returns, quicker warranty processing and other ways to minimise waiting in lines."
The seemingly inexorable move toward RFID in the supply chain is not supported by everyone, however. Market analyst Forrester recently carried out a study to find out if manufacturers are as enthusiastic about RFID as leading manufacturers such as Wal-Mart, and found that many were not. Some feel that they are being railroaded into implementing the technology, which will cost them millions.
Forrester , which interviewed supply chain executives at $1 billion-plus companies, also found that many firms do not expect RFID mandates to enhance supply chain visibility.
"Within our own firewall, there are enough warehouse information systems in place that we don't really lose things of great enough value that RFID would make sense," said one CPG manufacturer. "What is important for us is to use RFID to tag containers for inventory visibility or to enable direct-to-store delivery."
Other manufacturers believe that supply chain RFID projects can distract from efforts to match supply to demand. "RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain," said another manufacturer interviewed by Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks. Then the extra RFID data can be helpful."
But with retail giants such as Wal-mart calling the shots, it seems likely that suppliers will have little option but to implement.
EPCglobal is a joint venture of EAN International and the Uniform Code Council. It is the organisation chosen by industry to develop standards for RFID technology in the global supply chain based on user needs and business requirements.
As a charter member of EPCglobal, Wal-Mart fully adheres to its core principles related to privacy issues, including consumer notice, consumer education and consumer choice. Wal-Mart's Linda Dillman and HP's Dick Lampman serve on the board of directors of EPCglobal.