SCDigest Editorial Staff

The News: A major Wall Street Journal article last week summarizes Wal-Mart’s RFID/EPC (electronic product code) program status, and finds it is moving very slowly, largely due to a vendor reluctant to participate because they see limited value thus far.

The Impact: This is not news to most honest observers – we’ve been reporting on what is clearly a slow pace of adoption for some time (see RFID Adoption: Slower, Better). This WSJ article is likely to have some strong repercussions in the industry, however. Executives at hundreds of consumer goods companies, including CEOs, will read see this article, and it may likely embolden those dragging their feet on adoption to wait still longer.

The bigger question is whether this will have any impact on Wal-Mart itself – that is, will the PR cause Wal-Mart to redouble RFID efforts, and get tougher on suppliers? Or back off?

The Story: Last week, the Wall Street Journal, the second largest newspaper in the U.S. by circulation and the most read by business executives, ran a major story titled “Wal-Mart's Radio-Tracked Inventory Hits Static,” which gave a pessimistic assessment of the rollout to date.  “Wal-Mart Stores Inc.'s next leap forward in ultra-efficient distribution is showing signs of fizzling,” the Journal wrote.

“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.” 

As always, we reiterate Supply Chain Digest’s stance that RFID is an excellent technology that overtime will largely replace bar codes. That said, this Wall Street Journal piece is only stating the obvious for anyone that has actually talked to or worked with most consumer goods vendors – a fact that the “hype” side of the media has simply ignored.

The story notes that while Wal-Mart hopes that the program will reduce its costs and improve availability on the shelf, the story for manufacturers is far less rosy – and there is a growing rebellion from the troops.

“As Wal-Mart searches for an answer to its rising costs, suppliers are saying RFID isn't it,” the Journal wrote.

Summing up the situation, the Journal added: “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.”

When individual manufacturers reach the magical “tipping point,” at which it becomes cost-effective to apply tags as an step in the production process, then at least the warehouse costs to apply tags will disappear. But with other retailers RFID programs lagging even further behind Wal-Mart, that day seems far off for most consumer goods manufacturers.

The Journal said Wal-Mart declined to make a supply chain or IT exec available for an interview for its story, but did through a spokesperson say that the RFID program had improved product availability on store shelves. "We look for our RFID expansion to build on these results," the spokesperson replied via email.

The Journal had trouble finding any vendors that would state their concerns about RFID on the record (as has Supply Chain Digest), given Wal-Mart’s share of most their business. “Suppliers are being careful not to publicly criticize a company that buys $260 billion worth of products annually,” the Journal story said, “but they say they don't expect any return on their RFID investments for years, if at all. Some say Wal-Mart hasn't achieved any savings, itself.”

The story noted that last summer, VF Corp., maker of Wrangler jeans and other brands, greatly scaled back its own internal RFID development efforts, concluding a payback wasn't on the horizon. "We'll let others drive the technology," the Journal quotes Martin Schneider, VF's recently named global chief information officer, as saying.

The story does quote one anonymous manufacturer as saying, “"It's a big black box with nothing out there for a return [on investment]. A lot of people, if given a true choice, would not be in it."  The story does cite a few examples of smaller companies, such as Thomasville Furniture and Blyth Wholesale Group, which are being proactive with RFID just to be good partners Wal-Mart, without much hope of direct economic prospects from RFID.

The article ends as it began – on a pessimistic note: “As a result, the enthusiastic announcements two years ago of new RFID pilot programs have become a wall of disappointed silence. Retailers are expected to move more cautiously in expanding their use of the technology. "They're not going to say, 'Stop' " to suppliers, says Mr. Donnan [ex-president of RFID-supplier Checkpoint Systems], "they'll say, 'Go slower.' "

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See also Supply Chain Digest’s report 10 Things Necessary for RFID/EPC to Thrive.