Institute For The Future

"Yesterday, the future of RFID; today, the reality"

The Wall Street Journal reported yesterday that Wal-Mart's RFID rollout is hitting some major snags.

Wal-Mart has pushed its suppliers to use exotic radio-activated tags to chop labor and inventory costs anew. But tests using the tags aren't showing any savings, and suppliers forced to invest in the relatively expensive technology are grumbling....

Wal-Mart once hoped to have up to 12 of its roughly 120 distribution centers using the Radio Frequency Identification, or RFID, technology by January 2006. But so far it has installed the technology at just five, plus 1,000 stores. Wal-Mart expects to add a further 400 stores this year....

Wal-Mart has long been one of the biggest advocates of RFID. I think it's no secret that some of the company's suppliers have been less enthusiastic about the technology: they worried that they would bear most of the costs, while Wal-Mart would get most of the benefit. But at the same time, none of the retail giant's partners felt they could resist the mandate. So what we're seeing now is colored by this lingering resentment.

Wal-Mart is pushing the RFID technology on the idea it will increase efficiency and eventually save everyone money -- manufacturers as well as Wal-Mart. Yet as Wal-Mart searches for an answer to its rising costs, suppliers are saying RFID isn't it.

The current generation of RFID tags cost about 15 cents apiece while bar codes cost a fraction of a cent. Beyond the tags, suppliers have had to bear the cost of buying hardware -- readers, transponders, antennas -- and computer software to track and analyze the data. The suppliers have had to pay for additional programming to integrate that software with their current inventory and manufacturing applications. On top of that, suppliers say that instead of saving labor, RFID tagging actually takes more: While bar codes are printed on cases at the factory, because most manufacturers have yet to adopt RFID, those tags have to be put on by hand at the warehouse....

John Fontanella, a vice president at AMR Research Inc., a Boston firm that studies supply chains, [says that the] "payoff is reducing human labor and replacing it with technology. For most companies, there are no software applications that can even approach the problem like that."...

More problems have come into play in recent years, including the high cost of retrofitting warehouses and stores with electronic readers, and consumer concerns that once the tags are on each item on a store's shelves -- from tubes of toothpaste to personal computers -- that they could be used to track individual buyers.

My understanding is that the retrofitting problems have actually been pretty substantial in some cases: warehouses can have a lot of background electrical noise from generators, aging wiring, and the like, which can interfere with tag-reader communications.

 

This certainly represents something of a setback, but hardly a mortal blow to the technology or the industry.