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Soldiering On

When RFID burst onto the food retailing scene in 2004 the year Wal-Mart Stores launched its RFID program in Texas the expectations around the technology were sky-high, perhaps rivaling the buzz about the Internet a decade earlier. Here was a technology that allowed you to identify anything product, case or pallet by just slapping on a tag and putting it within range of a stationary, unmanned reader.

When RFID burst onto the food retailing scene in 2004 — the year Wal-Mart Stores launched its RFID program in Texas — the expectations around the technology were sky-high, perhaps rivaling the buzz about the Internet a decade earlier.

Here was a technology that allowed you to identify anything — product, case or pallet — by just slapping on a tag and putting it within range of a stationary, unmanned reader. No line of sight required. RFID promised to relegate bar codes to the dustbin of history.

Three years and countless conferences, white papers and webinars later, RFID is far from realizing its outsized promise, at least in the retail industry. “It's slower than any of us anticipated,” said John Fontanella, vice president of research, AMR Research, Boston.

Despite reports to the contrary, Wal-Mart remains committed to the technology, which it has used to reduce out-of-stocks. The program is now led by Rollin Ford, who replaced Linda Dillman as chief information officer last year. Ford said in May that Wal-Mart planned to equip an additional 400 stores with RFID readers by next January. Wal-Mart declined to disclose the current number of stores with readers, but several industry sources put the total at about 1,000. About 600 suppliers are now reportedly sending pallets and cases bearing RFID tags to Wal-Mart.

Through its pioneering efforts, Wal-Mart has become the barometer of retail RFID activity in the U.S., sources say. “Large grocers are sitting back and waiting to see the results from Wal-Mart,” said Fontanella. “If they see value and believe it's transferable to their companies, then they'll jump in.” He expects that RFID processes established at Wal-Mart will be transferable to other retailers.

Peter Blair, director of marketing for Reva Systems, Chelmsford, Mass., an RFID technology provider, observed that retailers he talks to “are waiting for someone other than Wal-Mart to move the bar.”

Beyond Wal-Mart, the most notable retail users of RFID in the U.S. remain Target and Best Buy. Several major food retailers are known to be testing the technology, though few have publicly acknowledged it. “All of the top five supermarket companies have active RFID programs in different stages of maturity,” said Sandeep Dadlani, associate vice president, retail and CPG, Infosys Technologies, Fremont, Calif.

A few major retailers have commented on their RFID activities. In May, Wegmans Food Markets, Rochester, N.Y., described an RFID pilot it conducted last year tracking meat deliveries from its manufacturing plant to a distribution center and on to stores. The retailer plans to proceed with another RFID project, but has “not yet engaged all the necessary parties,” said Don Reeve, Wegmans' CIO. Publix Super Markets, Lakeland, Fla., has engaged in an RFID project tracking produce shipments, though it is currently not doing so.

But other U.S. retailers are holding back. Piggly Wiggly Carolina, Charleston, S.C., is interested in applying RFID at the warehouse level but won't do so until it finishes implementing advance shipping notices and voice-based picking, said Rachel A. Bolt, director of information services. Price Chopper Supermarkets, Schenectady, N.Y., has no plans to test RFID at this time, according to its CIO, Dick Bauer.

While retailers contemplate their RFID futures, the technology itself continues to make advances. The electronic product code (EPC) — the standard for product data contained in most of the RFID tags being used in food retailing — is now well entrenched in its second generation. So-called Gen 2 tags and readers have overcome some of the technical barriers that had limited the success of the first generation of EPC-based RFID equipment.


Perhaps the biggest RFID program to be announced this year comes from outside the United States. Metro Group, Dusseldorf, Germany, an ardent proponent of RFID, began an extensive rollout of the technology that by the end of the year will encompass about 180 stores operating under the Metro Cash & Carry and Real banners in Germany, according to Gerd Wolfram, managing director of MGI Metro Group Information Technology. The rollout will also include eight warehouses in Germany, said Blair of Reva Systems, one of Metro Group's RFID technology suppliers.

“We are aiming at an extensive integration of RFID in our processes in our home country,” said Wolfram, in an email communication. “We are convinced that RFID is the key technology for the future of retail.”

Metro Group believes RFID “has the potential to significantly increase the efficiency along the entire supply chain due to faster and more transparent processes,” said Wolfram. By giving Metro real-time visibility to the movement of its products, “RFID helps to reduce inventories and costs,” he said.

Beyond supply chain efficiencies, Wolfram expects RFID to enable a further improvement of quality assurance and a reduction of counterfeiting. “And RFID will help retailers to offer an improved and more individualized service to the customers as soon as it is applied on the item level,” he added.

Metro Group conducted a study, in conjunction with IBM and Procter & Gamble, that looked at RFID's financial return. According to the study, the combined use of RFID and electronic data interchange (EDI) could potentially save $11.7 million annually in Germany for Metro Group's Metro Cash & Carry and Real banners, as well as its warehouses. That calculation only accounted for two of eleven “process stages,” said Wolfram.

As a mark of its commitment to RFID, Metro Group, following Wal-Mart's example, has issued a mandate to its top suppliers that they must place Gen 2-based RFID tags on all pallets shipped into Germany by Oct. 1. Currently, about 50 suppliers are tagging pallets, including big companies like Procter & Gamble as well as midsize enterprises like Papstar. “We are very confident that the number of suppliers will rapidly rise in 2007,” said Wolfram. “Those suppliers who don't use RFID will be charged with the higher process costs.”

One of the lingering concerns about RFID technology centers on the effectiveness of readers in accurately reading tags. But Wolfram said he is satisfied with the RFID rates Metro is achieving. “The transition to the new generation of RFID chips — the so-called Gen 2 — led to a significant improvement of read rates,” he said. “By now, we are achieving constant read rates of over 98.5% at the pallet level.” The introduction of Gen 2 standards on a broad scale was a big factor enabling Metro to roll out RFID, he noted.

Wolfram also observed a drop in the cost of RFID tags over the past few years, from 30 cents to about 7 cents each. “In the future, we will be able to buy tags for a price close to 1 cent, making new applications possible,” he said. Readers have also seen a price reduction, he added.


While retailers have been able to play a conservative hand with regard to RFID, many manufacturers have been dragged into using the technology by retail mandates. That has left numerous manufacturers feeling that RFID holds no real value for them apart from appeasing their large retail customers. However, a few manufacturers have found some applications of RFID from which they can gain a significant return, while benefiting retailers at the same time.

One such application is using RFID to ensure that promotional displays are placed on the sales floor at the designated time, rather than left to sit unused in the back room, as often happens. Kimberly-Clark and Procter & Gamble have both achieved results with this process.

Over the past year, Dallas-based Kimberly-Clark has improved its compliance rate for promotional displays at about 120 RFID-equipped Wal-Mart stores from 55% to over 75% by employing RFID, said Mark Jamison, K-C's vice president, customer supply chain. In addition, there was a corresponding increase in sales, giving K-C and Wal-Mart “a significant payback,” he said.

The manufacturer plans to roll out the process to the rest of the roughly 1,000 Wal-Mart stores that are RFID-enabled, Jamison noted. By the end of the year, K-C expects to partner with three other retailers on the same process, and it eventually plans to include other stockkeeping units.

Till now, K-C's RFID program has focused on 48-by-40-foot pallet displays of its incontinence products, Depends and Poise. The displays are used in conjunction with week-long advertising at the beginning of the month, which coincides with when seniors receive their Social Security checks, said Jamison. “It's very important to us that the product gets out on the sales floor to meet the ad date.”

By putting an EPC-based RFID tag on a display pallet, K-C or the display manufacturer can track its movement from the manufacturer to the store's back room, sales floor and trash compactor. K-C thus knows whether — and when — a pallet is placed on the sales floor. The company works with its merchandising partner, Crossmark, Plano, Texas, to correct stores that have failed to place displays. “We get real-time information that tells us where we need to act,” Jamison said.

Over time, Jamison believes, RFID tracking of displays will bring compliance to more than 90%. Some stores were found to be unable to accommodate the dimensions of the incontinence-product display. “We're designing a footprint that will work for all stores,” he said.

In a separate RFID program with Wal-Mart, K-C is working on reducing its out-of-stocks. This program, in its early stages, combines RFID read data from cases with POS data to “understand out-of-stocks and their root causes,” said Jamison. In 2005, the University of Arkansas determined that Wal-Mart was able to reduce out-of-stocks in its RFID-enabled stores by 16%.

Canada's RFID Test

An eight-month RFID pilot conducted for the Canadian grocery industry concluded that a business case for RFID can be made for retailers, but not necessarily for manufacturers.

Manufacturers that aren't facing major issues with out-of-stocks, for example, may not need to invest in RFID, the study said. Payback for manufacturers is also dependent on whether tagging can be automated or not. In-line printing of tags offers the best long-term solution, while “slap-and-ship” is best suited for low-volume scenarios, the study reported

The pilot, completed in January, took place at a distribution center and two stores operated by Loblaw Cos., Brampton, Ontario, as well as at DCs operated by General Mills Canada, Maple Leaf Foods, Kruger Products and Unilever Canada. The project was supported by the Canadian Council of Grocery Distributors, Food & Consumer Products of Canada and EPCglobal Canada. Solution providers included Motorola, IBM and Intermec Technologies.

In the pilot, 10 stockkeeping units were tagged at the case and pallet level, and tracked from manufacturer DC to retail DC and then on to stores. Products included dry, canned, processed meat and frozen items.

Over the course of the pilot, read rates of RFID tags improved from 71% to 89% on average through better tag placement. “This gives us the confidence that when a business case is ready, functionality will not be a barrier,” said David Wilkes, senior vice president, trade and business development, Canadian Council of Grocery Distributors, Markham, Ontario.

Confirming the results of other tests, the Canadian pilot demonstrated that RFID can bring about improvements in promotion execution and reductions in out-of-stocks.

The pilot also showed that RFID can improve the effectiveness of shipping and receiving processes.
— M.G.

TAGS: Walmart