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The supply-chain applications are still young, and a lot of companies successfully using the technology are reluctant to fully document their return on investment. "You can imagine that it is a competitive advantage and if you're an early adopter, why would you share the dollars-and-cents ROI?" Julie England, general manager of the RFID systems group at Texas Instruments, said.
So what is the business case for RFID?
A recent report in The Wall Street Journal stated that (NYSE: WMT) isn't saving as much from using the wireless technology to manage its supply chain as had been expected. If true, that would be bad news for both Wal-Mart in particular and the Dallas area in general, which has been trying to cultivate an image as a global destination for companies working on radio frequency identification technology.
However, officials at Wal-Mart and industry experts say the story isn't that simple.
More Than Cost Cutting
They say that RFID was never about just cutting costs but about boosting revenue by making sure that store shelves stay fully stocked.
"It's beyond our expectations so far," said Simon Langford, manager of Wal-Mart's global RFID strategy.
RFID is like a wireless bar code. Tiny computer chips and radio antennae are pasted under a paper label and slapped onto shipping pallets or packing cases.
When the chips pass by an RFID scanner, they are switched on and broadcast a signal that can detail the contents of the case or pallet they're attached to.
Because the technology is so effective at cataloging which products are actually in a store's stockroom, it's much easier to ensure that the store's shelves are never empty when customers are strolling through, say Langford and others.
In fact, Wal-Mart says it has reduced out-of-stock instances by 30 percent on the items that are being tagged with RFID chips.
The companies that supply products to Wal-Mart's stores also say they're seeing benefits.
About 1,000 of the 3,300 Wal-Mart stores in the U.S. accept RFID shipments, and only about 600 of the retailer's 61,000 suppliers nationwide are involved in the project.
Making a Case
Julie England, general manager of the RFID systems group at Dallas-based (NYSE: TXN) , agreed that there is a business case to be made for the technology.
The supply-chain applications are still young, and a lot of companies successfully using the technology are reluctant to fully document their return on investment (ROI).
"You can imagine that it is a competitive advantage and if you're an early adopter, why would you share the dollars-and-cents ROI?" England said.
She said that Wal-Mart is encouraging its suppliers to at least anecdotally explain the benefits of using RFID.
"I give Wal-Mart a lot of credit, getting these suppliers out there, telling their success stories," England said.
Irving, Texas-based Kimberly-Clark was the first supplier to send an RFID-tagged package to Wal-Mart, a case of paper towels in 2004.
"We're now shipping over 120,000 cases a month that are being tagged that are flowing into Wal-Mart," said Mike O'Shea, who oversees the RFID efforts at the company.
He said that Kimberly-Clark has a once-a-month promotion in Wal-Mart stores for certain products.
Yet, Kimberly-Clark discovered when it started shipping those products with RFID tags that only about 55 percent of the stores were actually getting the displays onto the store floor in time.
Alert System
Since then, the paper products company has set up an automatic alert system so that when the promotional products aren't on display in time, Kimberly-Clark can help the stores get ready.
As a result, 75 percent of stores are now ready to go when the promotions start.
"That's going to eventually lead to top-line sales growth for us as well as Wal-Mart," O'Shea said.
Dean Frew, chief executive at Carrollton, Texas-based Xterprise, which helps companies implement RFID systems into their supply chains, including several Wal-Mart suppliers, said a typical Wal-Mart can carry as many as 50,000 items.
The list of products to be moved from the storeroom to the shelves is always changing, however.
"Until RFID came around, they didn't really have a great idea as to what was back there," he said.
George Brody, founder and chief technology officer at Richardson, Texas-based GlobeRanger, which makes RFID software, said a lot of companies are seeing a benefit from using the technology even within their own operations.
For example, one of the company's customers, Dallas-based Daisy Brands, a maker of sour cream, uses radio frequency tags to determine the quickest way to load its delivery trucks.
"The time to load a truck was cut from 50 minutes to 20 minutes, which is significant," Brody said.
Waiting for Widespread Adoption
Even so, integrating RFID technology into an existing distribution system isn't easy or cheap.
Plus the technology is still in a roll-out phase for Wal-Mart as well as other companies and organizations that have started adopting it, and most people in the industry say RFID won't really pay off until it's adopted more.
Frew at Xterprise said that's why some suppliers may be reluctant to invest a lot of money in RFID just yet.
"They do have to now do things differently, and it's hard when you're doing it on 1 percent or 0.5 percent of your volume," he said. "It is quite painful. I understand why there's grumbling."
The complaints might subside once RFID becomes more prevalent in the next several years.
"It's like poker," Frew said. "You have to go all in. You're not going to see the return until you transform your whole supply chain."
England at TI also noted that the misgivings some people have expressed about RFID are not new.
"If you took the word 'RFID' out of that Wall Street Journal story and put in 'bar codes' and changed the date to 20 years ago, that's exactly what retailers were saying about bar codes," she said.
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