We covered the recent splat over Wal-Mart’s RFID program with interest over the past few weeks. For those who haven’t followed, we had:
- A negative story in the Wall Street Journal on Wal-Mart’s rollout, saying it was going slow, consumer goods manufacturers were grumbling that there was no ROI, and RFID wasn’t significantly reducing supply chain costs.
- Wal-Mart and others responded, with a letter to the editor from CIO Rollin Ford, who basically said the program is on track, vendors see the value, and it’s all about reduced out-of-stocks, not operational cost savings. Wal-Mart also mustered up support from a few CPG companies, such as positive statement from Campbell Soup’s CIO
Doreen Wright, who said "It's hard to dispute the value of this technology," referrring specifically to RFID use to track store promotional displays.
- Meantime, the CIO of Sara Lee said tagging costs were too high and performance of reads too spotty to deliver value right now.
As a publisher, it’s been fun.
We are going to take a new look at all of this over the next few weeks. If you have anything you would like to share, publicly or privately, please contact me at the feedback button below, or at our new office number (937-350-7915). As always, we’re going to be objective, analytic, and hopefully thought-provoking.
That said, we thought it would make sense to review the perspective SCDigest Technology editor Mark Fralick and I shared back in 2005, when we sensed a lull in the EPC movement, and offered our suggestions on The 10 Things Needed for EPC/RFID to Thrive (see the full report).
To be clear, this was specifically related to the Wal-Mart and other retail-related programs, not RFID in general.
Here are the 10 factors we identified then, with updated comments:
- Clear identification must emerge of the incremental benefits of RFID over other auto ID technologies and/or the general benefits of new supply chain software applications - Then: “Today, this is often too muddled.” Now: Some progress in specialty applications, like tracking promotional displays, but not much progress for identifying unique RFID benefits for core logistics/distribution processes. Analyst firm Gartner has previously and persuasively suggested RFID has the most benefit in addressing “chaotic” processes.
- Total supply chain costs must be lowered - Then: “This means net of variable tag and fixed infrastructure costs – regardless of who nominally pays for the tags.” Now: almost no one is talking about supply chain costs anymore. It’s all about increased sales through reduced out-of-stocks.
- Reference to the “five-cent tag” should stop - Then: “At this point, it’s almost counterproductive.” Now: We don’t hear much about the 5-cent tag. Sara Lee’s CIO noted that with tag, label and application costs in the DC, it’s running about 50 cents per carton.
- Tag and tag application costs must come down - Then: “Obvious, perhaps, but there just can’t be real ROI at current variable costs.” Now: tag prices have dropped marginally, though they are still not much above actual tag supplier production costs. But, the added cost of putting them in a label, plus applying tags as part of distribution processes, means it’s still very costly. Not nearly enough volume yet to move tagging into manufacturing and automate the application process.
- Real global standards must emerge - Then: “Getting close with EPC Gen 2, but not quite there yet.” Now: Gen 2 has helped. We may not have a true global standard, and companies may have to upgrade technology later, but we're not sure this is really a huge barrier today.
- Technical performance must improve - Then: “Still too much a science project.” Now: it’s better, but still not reliable. Most have given up on the idea of “x-raying” a pallet full of cartons, unless you put an array of readers around a stretch wrap machine and turn it for a good while.
- Roll-outs should be pushed at a measured, ROI-driven pace – Then: Must be more sync between costs and benefits for manufacturers.” Now: Funny, that’s what’s actually happening, in a sense, though more from vendor resistance and the fact that Wal-Mart has many other things also on its plate than this is actually the strategy. U.K’s Tesco does approach it a lot more this way, while most other U.S. retailers besides Wal-Mart are treading EPC water.
- Thought leaders need to share more specifics about ROI - Then: Let’s hear more detail from those companies that think they really have the insight. Now: Only marginal progress. The one area where this is not true is on tracking promotional displays from vendor to aisle floor. Is this the main area where the value prop is clear, or are those in the know keeping quiet to gain competitive advantage? Procter & Gamble said last year that for a group of its products, the benefits of EPC were clear, but we haven’t heard a lot of detail besides that statement. We really need more openness here.
- RFID-centric business applications must emerge - Then: “RFID doesn’t provide value, business applications using it do, and these are very immature right now.” Now: We are still very early in the RFID software game. There has been some progress in analytics, but the deployments are still so small that it’s hard to really see a lot of progress in RFID-enabled software yet.
- Ecosystems to enable upstream tagging must develop - Then: Efforts to get upstream/offshore suppliers to tag (where it makes most sense) will be very hard.” Now: We think this will emerge as an issue for many companies when volumes finally ramp, but since everyone is pretty much tagging as a postponement process now it doesn’t have much impact.
Net, net: In retrospect, we think we nailed this list pretty well, and we’ll keep them just as they are here in 2007. The fact that only marginal if any progress has been made in most areas explains why, two years later, volumes even at Wal-Mart are low, and not many other retailers are breaking down the RFID gates. Agree?
More on this over the next few weeks. We’ll note RFID is being used with increasing regularity in myriad other applications outside the vendor-to-retail chain.