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Don't Let Misperceptions of RFID Become Reality

A recent article by the Wall Street Journal portrays Wal-Mart's RFID efforts as failing. That's not the case, of course, but there is a danger that misperception could become reality.
By Mark Roberti
Feb 19, 2007The venerable Wall Street Journal ran an article last week entitled "Wal-Mart's Radio-Tracked Inventory Hits Static." The article says, "Wal-Mart Stores Inc.'s next leap forward in ultra-efficient distribution [RFID, that is] is showing signs of fizzling."

That couldn't be further from the truth, but there's a danger that stories like this—and we've seen many—can have a chilling effect on RFID adoption. Many companies don't want to change the way they do things, so this becomes a reason not to examine RFID's potential. That's obviously bad for the RFID industry, but it's also bad for the companies that are misinformed.

The big evidence cited for Wal-Mart's "fizzling" RFID effort is that Wal-Mart had planned to RFID-enable 12 of its distribution centers and 1,000 of its stores by January 2006, but that "so far, it has installed the technology at just five [DCs], plus 1,000 stores."

True, Wal-Mart has not yet rolled the technology out to 12 DCs, but it has started a pilot in Canada, and its RFID team has handed off the RFID rollout to its operational teams, meaning RFID is not just a small science project, but rather part of the way Wal-Mart does business. I spoke to Simon Langford, Wal-Mart's manager of RFID strategies, at a conference in the fall, and he said the operational teams want to move faster because they see the benefits RFID brings.

The article goes on to say that Wal-Mart "needs another breakthrough in its logistics operations, the main driver of its pricing advantage," and points out that Wal-Mart's expenses have risen slightly faster than Target's.

But Wal-Mart's RFID efforts are not primarily about cost-cutting. They are about reducing out-of-stocks, and yet the story never mentions how RFID has reduced out-of-stocks by as much as 60 percent on some fast-moving items. They're also about using the same labor, or less, to make sure the 5 billion cases of goods Wal-Mart handles each year are where they are supposed to be, when they are supposed to be there. Any labor saved will likely be redeployed to more value-added jobs, such as helping customers. (Different companies will use RFID in different ways, and others might focus first on labor savings and later on other benefits.)

The article quotes an unnamed supplier spending $200,000 a year to comply with the RFID tagging requirement as saying this of the RFID mandate: "It's a big black box with nothing out there for a return [on investment]. A lot of people, if given a true choice, would not be in it."

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