SCDigest editorial staff

Since we published our review of the Dec. 2005 University of Arkansas' study of the impact of RFID on out-of-stocks (OOS) at a group of Wal-Mart stores, we've received several dozen letters on the topic. Many of them have been excellent, some agreeing with our analysis, some not. A handful of readers suggested we put the letters together in one place so that other readers can see the range of opinion about RFID and the Wal-Mart OOS study. The RFID study itself is available at the University of Arkansas web site.

So, below you will find about 20 of the most interesting letters we received. We'd still like your opinion - use the Feedback button on the bottom of each page. We'll keep adding to this page as we receive more feedback on the Wal-Mart RFID study.

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Interesting analysis. However, you don't take it far enough. Your numbers ($300 billion in revenue, a 0.54% increase in sales and a 10% operating profit margin), would imply $163 million per year in additional sales. Now, I don't know the total cost of Wal-Mart's implementation program but I would be very surprised if the Net Present Value (NPV) of $163 million in new annual pre-tax sales (or ~$100 million after tax net income, assuming a 35% corporate tax rate) would not be substantially greater than the NPV of implementing an RFID system.

Just a quick back of the envelope analysis, but it does seem to argue for RFID rather than against. Albeit, my analysis relies solely on Wal-Mart and your assumptions and also looks at the cost/benefit solely from the perspective of the retailer, thereby excluding the costs and benefits achieved by the other supply chain participants (i.e., the suppliers) where implementation costs may exceed benefits (although real studies have yet to be done).

Andrew Matorin
Bear Stearns Equity Research

One of the things that I see more and more retailers get fired up about in this arena is fill rate from supplier. I know that fill-rate is a sore subject with us in our application specific high cost and tight inventory world where the customer will go to another retailer if we don't have the
part on the shelf. Yes, my store could be messed up and have 1 unit in the system and none on the shelf. Yes, my DC could be messed up (not likely) and show quantity in the system and none on the shelf. But, what is RFID going to do to the 75% overall unit fill rate that I see from our vendors today?

Please, someone tell me, what will RFID do in improving the fill rate from a supplier?

I saw a demonstration of the item level RFID pilot project that IBM is doing with Best Buy where as the item is pulled off the shelf at retail all sorts of actions are triggered. But riddle me this: If I have a solid POS driven PIR system, and I have the right practices in inventory receipt and
inventory control (like accurate and timely cycle counts) what is Item Level RFID going to tell me? Just that the item left the shelf, and when, and perhaps which cash register is processed through and when.

Again, not to "rain on the parade" but where is my payback?

David K Schneider
Director – Logistics

Pep Boys

Like you, I too think that RFID has a tremendous future for improving operational efficiency and inventory management, and it is clear that someone has to invest in proving the technology. Thanks to Wal-Mart for that. But, like David Sandoval, I kept asking why most of the process
improvements couldn't have been achieved with good business practices and well proven technologies at a much lower cost. Maybe it was the limited amount of information that could be shared in a report like this, but it seemed to be overselling to imply that you needed RFID to achieve the bulk of these benefits.

Randy Arthur
Director of Supply Chain
American Tire Distributors

Good points -- but if Wal-Mart really wanted to make the case they'd share a little more data about how the 3.4% figure relates to their operations.

If they are as good as they claim to be, that may be high. And what types of goods they typically run short of would be good to know as well.

Barnaby Feder

New York Times

I enjoyed your piece on Wal-Mart and reducing OOS. That 0.054% is worth a measly $162 Million - not exactly chump change.

That's 0.054% of their current sales of $300 Billion, since you took 0.54% increase in total sales, at a profit of 10% of sales.

And that's before the other benefits of clearer demand visibility, DC labor productivity, and traceability for food and drugs. So, if the pilot is valid, and there is limited Hawthorne effect, this might be a pretty decent idea after all.

Nick Seiersen

KPMG

Page 2 of letters on Wal-Mart RFID Study

Do you have additional comments on the Wal-Mart out-of-stock study, our review, or any of these reader comments? Let us know your thoughts.