A Wal-Mart Stores Inc. spokesman this week downplayed reports that the Bentonville-based retailer's radio frequency identification program is not progressing as quickly as planned.
Both Information Week and The Wall Street Journal have run recent articles saying Wal-Mart's RFID program has hit snags — with the Journal going so far as to say the program has "fizzled."
"Since its first RFID pilot three years ago, Wal-Mart has learned a valuable lesson: RFID's ability to improve the supply chain is limited by business partners' willingness to participate. The giant retailer is now focusing its radio frequency identification technology efforts primarily on in-store applications, while moving much more slowly with its distribution centers," Information Week wrote Monday.
Radio frequency identification uses a decoder, a radio frequency tag and an antenna that emits radio signals to activate the tag and read and write data to it. It is expected to eventually replace the bar code.
When Wal-Mart first introduced its RFID program in 2004, the company said it hoped to have the system in use on pallets and cases at 13 distribution centers and in up to 600 Wal-Mart stores and Sam's Clubs by October 2005.
Since then, Wal-Mart has RFID in use at only six distribution centers, while it has increased its use in 1,000 stores. Out of more than 20,000 suppliers, only about 600 are using the technology, according to Information Week.
Wal-Mart spokesman Kevin Gardner said the recent stories were "not a fair representation of where we're going" with the RFID program.
"We're leading the industry, and these are changes that don't happen overnight. We're moving ahead, and you can expect to see continued expansion by the end of the year," Gardner said.
Gardner did confirm what Simon Langford, Wal-Mart's manager of global RFID strategy, told Information Week, that Wal-Mart is finding more benefits using RFID at the store level than in distribution centers.
"We initially thought we'd install (RFID) into distribution centers as we installed it in stores," Langord said in the article.
Wal-Mart's initial hope for RFID to speed and improve the distribution process does little good unless there is a "critical mass" of suppliers using it, Langford said.
Gardner said the article neglected to include any statistics from the RFID study carried out by the University of Arkansas that found using the tags can reduce out-of-stock inventory by 30 percent, instead of the 16 percent originally thought.
Chantal Polsonetti of ARC Advisory Group, a Maryland-based research and advisory firm that specializes in supply-chain solutions, wrote in 2006 that the "hype" surrounding the use of RFID had cooled since Wal-Mart first informed its top 100 suppliers about its tagging mandate.
ARC focuses on the benefits of RFID for Wal-Mart suppliers. Polsonetti told The Morning News this week that what their clients are finding now is that RFID may have more use at the store level than in the supply chain.
"The kind of suppliers who were targeted (for Wal-Mart's program) already had efficient supply chains so the benefit of RFID was minimal. They have focused more on the in-store benefits, and that requires a lot of horsepower as regards data collecting and processing," Polsonetti said. "We find that our customers have largely had to figure this out themselves. There were a lot of promises when RFID was first introduced, but a lot of manufacturers had to come up with their own ways to get return on investment. In our experience to date (other RFID benefits) have yet to be realized."
Polsonetti said the primary source of return on investment on RFID for manufacturers will be its in-store use, and that depends on Wal-Mart sharing the data.
Supply Chain Digest also chimed in on the RFID issue. It said at its Web site Thursday that the Bear Stearns investment research firm has issued a cautionary note about RFID, confirming that the program is "moving slowly."
"RFID industry participants remain frustrated about lower-than-expected tag volume growth in the retail supply chain, in particular for Wal-Mart-related mandate activity," Bear Stearns wrote. "While the retail giant continues adding suppliers to its pallet and case level tracking rollout, and more stores, the number of (stock-keeping units) tagged by most participating suppliers remains low, according to industry observers."
Management consulting firm A.T. Kearney released a study in 2004 estimating that large regional and national retailers would have to spend approximately $400,000 per distribution center and $100,000 per store on RFID.
The RFID market is expected to grow to $2.7 billion by this year, according to the American Business Journal.