On June 11, 2003 Wal-Mart CIO Linda Dillman announced the retailing giant?s EPC (Electronic Product Code) initiative to a packed room. Wal-Mart?s top 100 suppliers have until the end of 2006 to label all cases and pallets with EPC compliant RFID (Radio Frequency Identification) tags. Wal-Mart?s mandate will fundamentally enhance the global supply chain.
RFID systems present a number of logistical advantages over current supply chain technology. Today retail distribution centers use a combination of barcode and manual inventory tracking systems. Unlike a barcode, RFID does not require a line of site, allowing an item to be identified further away and from a number of angles. As RFID is not also dependant on delicate optical systems, tags can be used in harsh environments, embedded in a case or pallet and reused indefinitely. Combined with advances in computer networks and databases, RFID systems streamline the supply chain, reducing out-of-stocks, theft, and unused inventory. As these new systems track items as they pass from one location to the next, shipment status is updated in real-time.
Wal-Mart revealed specific details of the program several months after the initial announcement. The company will use a Uniform Code Council standard 96-bit GTIN (Global Trade Identification Number) and the RFID tags will operate in the UHF spectrum (from 868 MHz to 956 MHz). Wal-Mart will require EPC class 1.2 tags, although the standard has yet to be finalized. Until the 1.2 specification is completed, the company will allow the use of EPC class 0, class 0 plus, and class 1 tags. In a February 2004 interview, Ms. Dillman announced its top 129 suppliers will be participating in a Dallas market pilot in January of 2005. All other suppliers are asked to comply by year-end, 2006.
Wal-Mart aims to eliminate what is called the “bullwhip” effect. Retailers, distributors and manufacturers form a literal chain through which products move. The goal of each party is to have the minimum inventory adequate to meet demand. Research shows that small variations in demand at any point in the chain can cause massive aberrations in the supply at other points. The algorithms that cause incorrect orders are not flawed– the failure is a reflection of inadequate information on current inventory. Because RFID readers can be embedded throughout facilities, items can be tracked in real time. The data used to predict demand is thus accurate to the moment rather than the last inventory check. Companies incorporated in Wal-Mart’s RFID system will be able to “produce on demand,” determining manufacturing schedules in real time
Others following Wal-Mart’s lead
On September 15 of 2003 the United States Department of Defense announced that any new or renewed supplier contracts will mandate the use of RFID tags on all cases and pallets by 2005. The system will use the military?s UID (Unique Identification) numbering and will be based on ISO standards, making it incompatible with existing EPC systems. While the ISO and EPC standards will merge in the future, the lack of continuity may force companies who supply both EPC based retailers and the ISO-based DoD to use redundant, incompatible systems.
German retailing giant Metro Group will have RFID networks live at its 10 central distribution centers and 50 of its stores by November of 2004. Its remaining stores will be outfitted with RFID systems over the following three years. Like Wal-Mart, Metro Group will require its top 100 suppliers to deliver EPC tagged cases and pallets by 2005. The company has announced partnerships with SAP, Intel, IBM, Microsoft and 40 other hardware and software firms in the deployment.
Just weeks ago, another mega retailer, Target, announced that it would require its top suppliers to utilize EPC-compliant RFID tags on all pallets and cases. Trials are to begin next spring with spring 2007 as the mandatory compliance date.
Who will be the benefactors of this move to EPC
A number of companies stand to gain from the popular shift towards incorporating RFID into supply chains. According to industry analysts IDC, RFID supply chain spending reached $91.5 million in 2003 and will grow to $1.3 billion by 2007. Established business software companies like Microsoft, Oracle, SAP, PeopleSoft have all made investments to incorporate RFID functionality into their offerings. Manufacturers like Philips and Texas Instruments are beginning to take orders for millions of tags at a time. Smaller manufacturers like Alien, Matrics and Sirit have established themselves by producing cutting edge tags and readers.
Perhaps the only losers are manufacturers and distributors forced to cover the costs of RFID deployments. An EPC compliant RFID can range from tens of thousands to millions of dollars per installation and show little return in the short term. The tags themselves cost more than $.25 each, even in great bulk. Updating software packages to meet minimum EPC network requirements will be a daunting task that some suppliers may not be able to afford.
A modernized supply network offers substantial benefits for retailers, distributors and manufacturers. As other organizations follow the giant’s lead, Wal-Mart and its suppliers continue to lead the relentless pursuit of retail dominance by investing in emerging technology.