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  - September 30, 2007 -  

RFID Compliance in Retail Supply Chain Follows Bar Code Trajectory of 15 Years Ago


Hugely Optimistic Projections almost Always Fail to Materialize; Steady rather than Exponential Adoption is the Rule



SCDigest Editorial Staff

SCDigest Says:
The big issues: consumer goods manufacturers complained that there wasn’t enough (if anything) in it for them, and the technical challenges turned out to be much greater than anyone expected.

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The world’s largest mass merchandiser announces a new program that requires unique identification of pallets and cartons entering its distribution system. Thousands of vendors are expected to comply with new mandates over a period of a few years. The initiative is expected to revolutionize the retailer’s supply chain, and dramatically improve supply chain visibility and the flow of goods while reducing supply chain costs and out-of-stocks at the shelf.

Wal-Mart’s RFID initiative over the past three years? No, it’s Kmart’s bar code compliance program of the early 1990s.

Déjà vu All Over Again

The parallels between today’s RFID market in retail and the bar code compliance movement in the early 1990s are remarkable, and hold lessons worth considering in the present day.

Many don’t remember that it was not Wal-Mart but Kmart, then the largest mass merchandiser in the US, which led the bar code compliance movement of the early 1990s. There were actually two forms of bar code compliance at the time: UPC item labeling, which all told went relatively smoothly, and UCC-128 labeling, which was more difficult and offers a much closer parallel to today’s RFID movement.

UCC-128 labeling was part of the “Quick Response” industry initiative that in the early 1990s involved marking pallets and cartons from consumer goods companies with a unique bar code serial number (a special Code 128 format developed by the Uniform Code Council, stewards of the UPC code and partner in today’s EPC Global RFID standards group).  Usually, these requirements for bar code pallet and carton labeling was also tied to mandates for Advancement Ship Notices (ASNs) to be sent via EDI – a new technology at the time.

Kmart pushed the program aggressively, telling thousands of vendors they would be forced to comply with the new bar code and EDI requirements, often within months. Seeing a potential gold rush, many vendors quickly emerged, offering “Compliance Labeling Systems” that for a modest investment would enable consumer goods companies to meet the new retail requirements.

Roughly in parallel with Kmart, a number of other retailers joined in with similar requirements. That includes Target, major department store chains (now all merged with one another, it seems), and Sears, now combined with Kmart. Interestingly, and misunderstood by many, Wal-Mart sat on the sidelines for all of this. To this day, it has not required UCC-128 carton labeling from its vendors.




What Actually Happened

Kmart, which had the largest vendor base by far of those retailers mandating bar code compliance, had tremendous trouble getting the program off the ground.

The big issues: consumer goods manufacturers complained that there wasn’t enough (if anything) in it for them, and the technical challenges turned out to be much greater than anyone expected.

Sound familiar?

In fact, years after the Kmart mandates, thousands of its vendors had never complied.

Ultimately, however, many retailers did receive many benefits from Quick Response and UCC-128 carton labeling, but it took many years. In that sense, the four years that have passed between Wal-Mart’s 2003 announcement of a partial mandate for its largest suppliers to beginning tagging cartons with EPC/RFID tags, and the modest progress that has been achieved by this point in 2007, shouldn’t seem unusual at all. In fact, Wal-Mart has actually invested more in its own supporting systems for RFID in DCs and stores than most retailers in the 1990s did in support of Quick Response. Back in the 1990s, many consumer goods manufacturers were surprised and sometimes angered to visit Kmart distribution centers at the time and find that the UCC-128 labels they were fined substantially for if missing or incorrect were simply not being used as part of the receiving process.

The “gold rush” for vendors offering UCC-128 compliance system also didn’t materialize. A few had a brief run at success, but the expected number of customer sales, which most expected to be in the thousands, just never happened. Companies delayed adoption, found home grown ways to achieve compliance, used third-parties, or otherwise identified ways to avoid making an investment they didn’t see paying off in the short term.

Indeed, it wasn’t until bar coding and data collection solutions became common in distribution processes as a whole, and embedded in Warehouse Management Systems, that consumer goods vendor support for UCC-128 labeling and ASNs gained critical mass.

That took time, and says that rather than moving RFID adoption in logistics process from Wal-Mart compliance back into the DC, as many expected or hyped, RFID tagging for retail will take off when consumer goods manufacturers can use EPC tags for their own benefit in the DC, at which point Wal-Mart compliance comes for nearly free.

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