Wal-Mart study says RFID improves availability of goods

Wal-Mart study says RFID improves availability of goods    A new study shows that Wal-Mart’s implementation of radio frequency identification technology in several of its stores and distribution centers this year has resulted in a 16 percent reduction in out-of-stock situations that can hurt customer satisfaction.
   The results quantify for the first time how RFID is improving the availability of merchandise to maintain customer satisfaction.
   The study, sponsored by Wal-Mart and conducted by the University of Arkansas, also showed that out-of-stock items with electronic product codes were replenished three times faster than comparable items using standard bar code technology, Wal-Mart said earlier this month.
   The world’s largest retailer also experienced a 10 percent reduction in manual orders, resulting in a reduction of excess inventory.
   “All we are trying to do is get merchandise out of the back room and on the shelf for a customer to purchase,” Kerry Pauling, Wal-Mart’s vice president of information systems, said Monday in a presentation during the Council of Supply Chain Management Professionals conference in San Diego.
   “That last 90 yards is where we often have breakdowns” getting merchandise from the storeroom to the shelf, Pauling said.
   When freight is in the back and not on the shelf it sometimes gets ordered again, which increases inventory levels. RFID helps flatten out order cycles, he said, especially during Christmas season when it's often easier for an employee to order from the shelf rather than go to the back room to find out if merchandise is available.
   On a busy Saturday afternoon only one in 12 out-of-stocked items may get replenished without an RFID system for tracking inventory, Pauling said.
   Wal-Mart launched its first wave of RFID implementation in January and required its Top 100 suppliers to use RFID tags on shipments to help the company track its inventory. A total of 104 stores, 36 Sams Clubs, and three distribution centers were equipped with the technology — totaling some 14,000 pieces of hardware.
   Wal-Mart has received 5.2 million tagged cases, according to Pauling.
   The study covered a 29-week period at 12 pilot stores and 12 control stores without the technology.
   By the end of October Wal-Mart will have completed its expansion of working RFID systems to more than 500 stores and clubs, and five distribution centers, Wal-Mart said. More than 1,000 stores, clubs and DCs are expected to be using RFID by the end of 2006.
   In January, Wal-Mart will bring its next 200 top suppliers into the fold and require them to use RFID tags on their shipments. Another 300 suppliers will be required to start shipping tagged cases and pallets by January 2007, bringing to 600 the number of RFID-compliant suppliers. Wal-Mart said it expects suppliers to tag more volume as it increases its facilities with the ability to read RFID tags and as costs fall.
   Some suppliers are using a slap-and-ship approach towards complying with Wal-Mart’s RFID mandate because they don’t want to lose the giant retailer as a customer, but others are looking to integrate RFID into their own operations to improve efficiency.
   When Wal-Mart reads a tag anywhere within the supply chain it updates Retail Link, its portal for exchanging data with suppliers, within 30 minutes, Pauling said.
   The Bentonville, Ark.-based company is in the final stage of testing the next generation of RFID tags, and plans to be able to read the new tag standard by January.
   Pauling said Wal-Mart will phase out Generation 1 tags by the middle of 2006 and use Generation 2 tags. The company is encouraging suppliers to transition to the new technology as soon as possible.
   “We have continued to encourage our suppliers to purchase hardware that was easily upgradeable to Gen2. We also asked them to consider this fact when purchasing tags,” said Linda Dillman, Wal-Mart’s chief information officer, in a statement.
   Wal-Mart officials said the cost of RFID tags and infrastructure continues to drop. Gen2 tags now cost about 7 to 8 cents, depending on the quantity purchased, Pauling said. The price of the new tags is lower than the current price of Gen1 technology, he added.
   RFID proponents have said the cost of a tag would need to fall below 5 cents for the technology to become more widely adopted.
   Pauling encouraged companies to start an RFID lab to test the best way to implement the technology in their business environment, saying it doesn’t require a huge capital investment to get started.
   Among the engineering challenges Wal-Mart is working through are how to bolt readers to the floor so a forklift doesn’t run over them, and how to bolt readers on a forklift without cables and still generate accurate transmissions.