This Week in SCDigest:

April 17, 2008 - Supply Chain Digest Newsletter
SupplyChainDigest - Your first stop for supply chain information

Become a Sponsor Click here for information on how to become a Sponsor
Send to a Friend Send this newsletter to a friend. Click here!
Not already subscribed? It's free! Click here.

Archives | Events | Feedback

Featured Logistics and Distribution Solution

Sponsored by: enVista

Looking to Improve Supply Chain and Distribution Performance?

enVista provides the expertise and approach needed to tackle the toughest supply chain challenges, and select and implement the technology support needed to make it happen.

Please visit our Viewpoints page to gain insight on a wide range of distribution and supply chain topics, from supply chain strategy to warehouse automation to supply chain execution.

First Thoughts by Dan Gilmore, Editor

Wal-Mart and RFID: Seems Obvious Now

I can’t be the only one to notice that the once ubiquitous news about Wal-Mart and RFID seems to have considerably fallen from the front pages and the podiums of late. The company’s Simon Langford, who was heading up RFID efforts, was seemingly everywhere for awhile. Ditto with then CIO Linda Dillman, who became the lead spokesperson for the press on RFID. Now former Supply Chain exec Rollin Ford is CIO, and while certainly supportive, he has been noticeably less vocal on the topic (Dillman took a spot as head of risk management).

Gilmore Says:

"If you don’t have a clear idea what the real value is, it isn’t a program/mandate, it’s still a pilot."

What do you say?

Send us your comments here

As most of us know, Wal-Mart has rethought its RFID strategy. Most of the old carton-level mandate approach is out. What is “In” instead is a focus on promotional items (following the lead of Procter & Gamble, Kimberly-Clark and others), some experimentation with category management applications, and a new mandate for now around pallets for Sam’s Club stores.

So, getting myself in trouble as usual, I will just say this: that Wal-Mart’s initial plan was likely to fail was actually quite apparent at the time, and should seem obvious now.

We were certainly somewhat cynical here at SCDigest all along. I will say I talked with many others back in the 2004-2005 timeframe who felt the same way, but who were generally afraid to say anything that was at all critical of Wal-Mart. That’s too bad.

So, here are my observations on both the fundamental problems and some key lessons learned.

  • Don’t Announce a Huge Initiative and Major Mandate on Unproven Technology: We are still experimenting with the EPC form of RFID today, and working to fully understand performance, read characteristics, software requirements, etc. That’s in 2008. We knew far less in 2004, when the Wal-Mart initial strategy/mandate was first announced. How can you possibly announce that sweeping of a program with the technology still in the state of flux it was in then?
  • Under-Promise and Over-Deliver: I have no real idea what the dynamics were inside of Wal-Mart at the time. The stock price was struggling. This was certainly positioned to Wall Street as a key initiative that would help the bottom line. But given where the technology and understanding were back then, clearly Wal-Mart should have kept expectations to a modest level. It did the exact opposite. So, the many attacks started coming because the company over-promised and under-delivered. Big mistake, and one Wal-Mart seems to have finally grasped.
  • Beware SCM Initiatives that are Only Touted by CIOs: Did anyone else notice that, especially at the consumer goods company level, that the only vocal supporters of RFID seemed to be CIOs or others on the IT side of the house? When a negative Wall Street Journal story appeared last year, and of course which now seems to have been spot on, Wal-Mart rounded up some supporters, each of whom was a CIO. The lack of support from supply chain, merchandising and other operational execs should have raised a lot of questions all along.
  • Get the ROI Story Straight: A mandate really only has any chance of working if there is a clear ROI story. That ROI doesn’t even have to be for the supplier – they can be convinced, and the retailer will be more effective in using its leverage, if there is a clear, strong return even just for retailer. But there was no clear ROI story from the beginning, and the story kept changing, as Wal-Mart hoped University of Arkansas studies would find the answer. So, if you don’t have a clear idea what the real value is, it isn’t a program/mandate, it’s still a pilot. In which case, you work with your suppliers much differently, and don’t roll out a mandate to 600 of them eventually while you are still, in fact, in pilot mode. The initial “pilot” with eight large CPG companies was really just to get the basics understood, not to really quantify value and nail down needed business process changes.

    During that time, the Gillette/Procter & Gamble's and Kimberly-Clark's were, in fact, doing real research and pilots, and guess what - they came up with answers.
  • Make Sure the Economics Seem Reasonable to Everyone: As I have written before, at the time of the first mandates and roll-out, the cost of just the tag itself was in the 20-25 cent range. Now, it’s come down, but is still probably at that level if you include the labor and other effort to tag each case in distribution. For CPG companies for which the total cost to receive, store and ship a case is at, or not much above, that level, how could anyone expect they could just start absorbing that cost? Companies may resist but are more likely to support customer requirements that involve a one-time investment. But a huge on-going increase in variable costs? That’s something very different, and why Wal-Mart’s program was never likely to scale as designed.

I could add a few more, but you get the idea. Wal-Mart is on a much better path now. The big CPG companies have some excellent insight about where this can all go and how, but are doing it smartly, methodically, in tune with the resulting benefits at each step, and keeping expectations aligned with results delivery. Meanwhile, I note this week an announcement from Lowry, a large systems integrator but still in the grand scheme of things a relatively small company, that they have installed an active RFID system at their 200th customer.

So, do I have this wrong? If not, why didn’t more commentators say so?

Also, please note we have updated very nicely SCDigest’s home page ( Please take a look. It’s more accessible than ever, as always is packed with valuable content, and features our revised line-up of expert columnists/bloggers.  Make it your home page, or at least visit often.

What’s your reaction to Dan’s list of observations on Wal-Mart’s RFID efforts? Do you think most of this was obvious at the time, or only now in retrospect? What lessons learned would you add? Let us know your thoughts at the Feedback button below, and as always we’ll keep your comments anonymous upon request.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Inventory Optimization Videocast Series

Session 1
of the 3-Part
Videocast Series

April 29, 2008


Featured Megatrend:
Supply Chain Alignment

Watch Gilmore, Tyndall, Collins Discuss and Debate the Issue

View Supply Chain Megatrends Focused Web Page, Download the Executive Brief


This Week’s Supply Chain News Bites – Only from SCDigest

April 17, 2008
Supply Chain Graphic of the Week - Impact of Carbon Bill on US Manufacturing

April 17, 2008
Supply Chain by the Numbers: April 17, 2008


All the major indices on Wall Street suffered last week following GE's disappointing first quarter report and our Supply Chain and Logistics stock index was no exception.

In the software group, Ariba and i2 were both down 9.6%.  In the hardware group, both Intermec and Zebra were down (4.7% and 3%, respectively).  In the transportation and logistics group, the rising price of oil resulted in a slip of 8.7% for JB Hunt, 5.8% for CNI, and 5.1% for Yellow Roadway.       

See stock report.


Each Week:

-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
April 15, 2008

Discussion Question

"Diversion" Buying Strategy at Costco

Do you think the "diversion" buying strategy at Costco is savvy or a little sketchy? Should they keep doing it? If so, should or can other retailers mimic it?


Q. In classic Inventory Management theory, what is the total increase in inventory for a distribution network of 5 DCs versus serving the market with a single DC?

A. Click to find the answer below


Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.

Or, ask your question



Do use an RSS reader? Do you have a MyYahoo! or personalized Google page? For these and more you can have SCDigest delivered right to your personal pages, all week long.

You can subscribe to our RSS feeds in two ways:
Copy our RSS link into your RSS reader - it's easy!
Click on a button below to quickly add it to your favorite reader.
Add to My Yahoo! Subscribe with BloglinesSubscribe in NewsGator Online

New feature - feedback is also published right on the story page, in near real-time. Take a look! Add your comments!

The Feedback continues to come in at high levels and we're really behind again - bear with us. But keep the letters coming!

We received some excellent letters resulting from our First Thoughts piece on “The End of a Supply Chain Era,” which discussed how a multitude of changes are forcing movement beyond what we have been considering in terms of globalization to a truly new “Supply Chain World Order.

That includes our Feedback of the Week from Fred Williams of Cummins, who said the column was “One of the most insightful articles for its brevity that I've ever seen,” (thank you), and who agrees we need to rethink current thoughts on globalization.

We print several other excellent letters on this topic as well, including one from International Paper’s Tom Carpenter, who argues the key will be if managers can well adapt to this clearly changing reality.

They are all worth a read.

Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week - On New Supply Chain World Order:

One of the most insightful articles for its brevity that I've ever seen.

You could probably write a book on the topic.  So many people in logistics are chronically consumed with making their supply chain work that they never step back and look at the truly BIG picture -- the global fit -- and take time to qualitatively, not just quantitatively, ponder where they, their company, and their industry fit in, where the trends are headed, and whether they are viable as currently configured for even a year down the road.

It's the inevitable, yet logical, outcome of globalization -- the center of the universe will move somewhere else.  In reaction, some companies will begin to insource and pull back and compete in other ways or other markets.

Those companies, however, that want to become truly global will take to it like ducks to water and move people, assets, functions, operations, and facilities wherever it makes sense to be.

I would not be surprised to see a resurgent Iraq attract a growing number of world headquarters over the next decade or two -- central location for three continents, with Dubai nearby, as well as much of the oil wealth of the world, within a day or two of most of the world's population.  The tide away from the Western Hemisphere is not surprising at this juncture in history.

Fred Williams

More on New SC World Order :

I agree to some degree with your brief article and how you characterize this "New World Order." However, what you fail (or choose not) to mention is the associated risk that accompanies these strategies.

Unfortunately, we are but one terrible day away from all of this global trade stuff potentially shutting down. One act of terrorism in or near a US port will immediately shut down every US port operation for an extended period of time. If this happens (and some would argue it's not if, but when), only those firms with resilient supply chains or redundant domestic capabilities will survive. Others will be paralyzed. Most firms are simply not prepared for this type of catastrophic event. Even when ports reopen, it will be at a crawl. Inventory will be backed up from Long Beach to Singapore and Shanghai.

Beyond this, we now know that US ports are simply not going to be able to keep pace with the growth of trade volumes and will soon become too congested without significant productivity improvements.

My point is, that having managers realizing we are entering a new era is not the epiphany needed. The real change in understanding and strategic approach that is sorely needed is "how on earth are we going to manage in this new reality, especially when supply chain shocks or even chaos could be the rule of the day?"

Tom Carpenter
Director - Transportation
Global Supply Chain - Deliver
International Paper

I agree completely. But, I would add one comment. This is about more than price pressure. It is also about service and speed and flexibility. To do it right, the reasons for any move must benefit both cost and service. This is all about “total cost to serve." Everything those of us in supply chain do must focus on this total picture. The supply chain of today is global and becoming more so. It is addressing micro level service issues, as you point out with the P&G example, as well as macro trends and issues. Only a holistic broad-based understanding will provide the right model and basis for the supply chain design.

Scott Brown CPIM, CSCP, CIRM
Manager Supply Chain Analysis & Design
Plexus Corporation

This shouldn’t be a surprise to anyone. We have been talking about the “Extended/Expanded Supply Chain” for years. With the advent of the WWW, technologies, markets, manufacturing/assembly processes - not to mention support services - can invisibly and seamlessly be provided virtually anywhere across the globe. Component sourcing can and should be a global activity whether for US companies or those in other countries.

Although it will take time, eventually parity will be reached in product and service quality, worker wages and pricing for end users. This is a good thing. The competitive playing field will be level, resulting in a more stable work/wage environment with more employment opportunities for the U.S. workforce.

David Giunta


Q. In classic Inventory Management theory, what is the total increase in inventory for a distribution network of 5 DCs versus serving the market with a single DC?

A. Inventory with 5 DCs all handling the same volumes would be about 225% of that level in a single DC network. That's just the theoretical starting point - real world could be much different.

Copyright © SupplyChainDigest™ 2003-2008. All Rights Reserved.
To Unsubscribe: Click Here
PO Box 714
Springboro, Ohio 45066