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Why Wal-Mart Is Right

Anyone who believes that the retailer’s RFID plans will fail is not facing the facts.
By Bob Violino
Jul 20, 2004—By Kevin Ashton

This time last year, I had dinner with a senior executive from a major research company. His firm—like many others—was about to publish a report stating that Wal-Mart’s RFID plan was unrealistic and would be delayed and hastily scaled back. When the executive explained how his company had reached that conclusion, however, I found the confident predictions were based on crude assumptions and guesswork of a quality usually seen on the back of an envelope. Here are the three main assumptions of the typical “Why Wal-Mart Is Wrong about RFID” report, and the reasons why those notions are flawed.

1. There’s no business case for Wal-Mart’s suppliers because they have to pay for the RFID tags, which are expensive.
For one thing, Wal-Mart was not the first to see the power of RFID. Two of the three founding sponsors of the Auto-ID Center were Gillette and Procter & Gamble, and they were quickly followed by Philip Morris, CHEP and International Paper—all of which supply Wal-Mart. These companies saw their own business case, not some other company’s. In addition, Wal-Mart knows that anything that increases its suppliers’ costs ultimately increases its own costs. There is no business case for Wal-Mart unless there is also one for its suppliers. What’s more, several dozen Wal-Mart suppliers have embraced RFID even though they weren’t in the first hundred to be asked. If these suppliers have a business case, so do all the others.

2. Suppliers don’t have time to get ready.
The Auto-ID Center started in 1999. Wal-Mart joined in 2000. The RFID mandate was announced a year ago. Companies that were paying attention have had plenty of time to get ready. And even if they weren’t, they still have had plenty of time. Hewlett-Packard was not an Auto-ID Center sponsor, but it started gearing up for RFID about a year ago and is already shipping tagged product. With few exceptions, companies that aren’t ready for RFID have only themselves to blame. When they realize this, they will find they still have time to deploy.

3. RFID doesn’t work yet.
Pilots and early implementations around the world have shown RFID is good enough now. True, it is not perfect, and the whole world has not settled on a single, never-to-be changed system. But you can say that about any technology, from electricity to radio to computers. And the best way to make any technology better is to create a mass market for it. Wal-Mart is smart enough to see the value it can get from today’s technology and how the company and its suppliers will drive a competitive technology market that, in turn, will drive innovation.

But back to dinner with the research executive. Over dessert, my tablemate made a startling confession. Not only had he never been to Wal-Mart’s headquarters in Bentonville, Ark., he had never set foot inside a Wal-Mart store. To the best of my knowledge, that remains true today. Maybe it’s no wonder that he still doesn’t understand that Wal-Mart got so big because its managers are smart, even when it comes to RFID.

Kevin Ashton was cofounder and executive director of the Auto-ID Center.
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