Wal-Mart Strategy
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Over the last few years the cost declines of Radio Frequency Identification (RFID) technology, combined with improvements in sensitivity, range and durability, have enabled widespread RFID use in the logistical planning and operation of supply chain processes in the manufacturing, distribution and retail industries, and helped move its adoption into services such as security and access control, tracking, and monitoring/management.An RFID tag consists of a microchip and an antenna, often in the form of a tiny ribbon that can in turn be packaged into many forms, such as a label, or imbedded in between the cardboard layers in a carton.On the microchip is stored information about the product that the tag is affixed to, which can then be “read” when the tag passes within proximity of an RFID “reader,” with that information being relayed back to a computer system that updates the location status of the associated product.This enables great efficiencies and cost reductions with respect to inventory management and control in a physical product environment, and enables innovative applications in locating and tracking people and assets in a services environment.
Up until recently, though, the adoption of such technology has been somewhat scatter-shot; some companies use it, some dont; within any given company that does, it may be used for some types of supply chain operations but not others; or is used only with some types of customers – its adoption has been a relatively immature “hit-or-miss.”
This environment changed dramatically last June when Wal-Mart Stores announced that it would require its top 100 suppliers to put RFID tags on shipping crates and pallets by January 1st 2005, and earlier this month announced that it will expand its RFID efforts to its next 200 largest suppliers by January 1st, 2006. Each tag would store an Electronic Product Code (EPC) which is a bar code successor that would be used to track products as they enter Wal-Marts distribution centers and then in turn are shipped to individual stores. As the worlds largest company in terms of revenue, Wal-Mart in one decision changed the strategic foundation of many companies.This article discusses the strategic implications of this mandate for business, not just Wal-Marts direct suppliers but also many other types of companies that will be affected (whether they know it yet or not), including GIS providers.
There are four main dimensions of strategic impact from this mandate.
Volume and Cost.The economics of RFID manufacture will radically change based on the mandate. Volumes of RFID tags will surge; the volume of shipments from its top 100 suppliers is estimated at 1 Billion tags per year.With such volumes, a major player guaranteeing a large and growing market and setting standards for manufacturers and others to follow, costs for tags (and RFID readers) will fall, and fall dramatically.Current average cost per RFID tag ranges roughly between 25 to 50 cents.While the costs per tag have fallen considerably over the last few years, the mandate and associated ripples are likely to quickly drive costs down towards the five cent per tag range, with the “nirvana” of one cent per tag visible within five to ten years.This cost reduction will have enormous implications in terms of expansion of RFID into new applications and markets (more on this later).
(Upstream) Supply Chain Extensions. As the largest 300 direct suppliers transform (and for many it is a transformation) to RFID, the demand to track products prior to their arrival in Wal-Marts distribution centers will grow.This includes tracking products once they leave a suppliers shipping dock to the time they arrive at Wal-Marts distribution docks, then even further “upstream” into the manufacturing and distribution processes of the supplier themselves.
Tracking products in transit will involve the combination and coordination of RFID and GPS technologies, a potential boon for GIS providers to integrate manufacturing/distribution center mapping with broader geographic fleet management tracking and routing-type mapping.The idea is to enable an end-to-end visibility of shipments, as well as provide a single vendor secure chain-of-custody, in addition to the trucking fleet management benefits.As a crate moves out of the shipping area past the “final” RFID reader into a truck, it would continue to be tracked via GPS monitoring of the location of the truck, until it finally reaches a Wal-Mart distribution center where it would be “read” into Wal-Marts inventory management system (and internal distribution center mapping), and the supplier being informed of a successfully received shipment, in turn triggering billing and other accounting activities.
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