Soup's On?By Larry Dignan | Posted 2003-12-15 Email Print
Campbell Soup Co. is two-thirds of the way through a technology overhaul. Next up: Meeting Wal-Mart's product-tracking deadline.
You can't put a radio tag on a can of soup.
That's just one technical tidbit Campbell Soup Co. is digesting as it investigates using so-called smart labels to better track its products from factory to retail outlet. It affects how Campbell will find a suitable way to put metallic tags on all its products–to satisfy its biggest customer, Wal-Mart Stores.
Wal-Mart accounts for 12 percent of Campbell's annual sales of $6.7 billion. The world's largest company has given Campbell and the rest of its 100 largest suppliers until January 2005 to track their products using tiny pieces of circuitry that contain identification codes and can be scanned by radio waves at any time.
At a meeting at its Bentonville, Ark., headquarters in November, Wal-Mart told suppliers that the requirement for using such radio-frequency identification (RFID) tags stands—and that suppliers who comply early will have a leg up on those who don't. The company also said it started RFID trials at three distribution centers in Texas, with one unnamed supplier already agreeing to participate.
The problems with putting radio tags onto Campbell's soup cans are twofold: the soup and the cans. Radio waves bounce off the cans and don't move through liquid well.
That means that the Camden, N.J., company has no plans to track individual cans of chunky or thin broths. "You can tag cases and pallets,'' but not cans, says the company's chief information officer, Doreen Wright.
Nevertheless, the tags are expected to be a big step up from the bar codes used today. For example, taking inventory at a warehouse, in a truck or supermarket aisle today can mean scanning each package individually. With tags, packages don't even need to be touched when a company takes stock. In theory, a retailer will know exactly how many cans, jars and boxes are on shelves or racks at any time. Radio waves can be sent out from stationary antennae that grab individual identification codes.
In distribution, this means Wal-Mart can know the exact contents of a pallet without ever opening it, speeding up routing and loading procedures.
For Campbell, the first steps will include a hybrid approach. The tags will be on pallets and cases, for tracking products from warehouse to store. But a retailer will only know the whereabouts of an individual can when it is sold, and the bar code is scanned at check out. Industry executives say Campbell is talking to IBM about how to best implement its smart-tag system, as well as RFID consultants such as ePC Group in Boston. Campbell may brief its potential technology partners on how it would like to proceed in upcoming weeks, these executives say.
Even these minimal steps are proactive compared to the wait-and-see approach of other suppliers. More than half of Wal-Mart's top 100 suppliers haven't budgeted for the additional costs of radio tags or researched the implications of their use, says AMR analyst Kara Romanow.
Tags have come down dramatically in price in recent years. But the initial tags are still likely to cost 5 cents apiece. A million tags, as a result, can increase costs $50,000.
Conventional identification systems are based on Universal Product Codes (UPC ). Those are simply stripes of ink that can be printed with other product information on any package. Smart tags, by comparison, must be separately affixed, at this point, with some type of adhesive.
What is Campbell's business case for the tags? Keeping or growing its share of the soup market. Wal-Mart, with annual sales of $244.5 billion, can make or break a supplier's year. Efficiency in moving its pallets could also help Campbell's bottom line. Last year, the company recorded $595 million in net income, down from $724 million in 1999.
If Campbell moves quickly, it could also gain favor withWal-Mart. Its chief rival is Progresso Soup, a unit of General Mills. General Mills gets 13 percent of its $10.5 billion in annual sales by doing business with Wal-Mart.
To be sure the stakes are high. But Campbell says it's not worried if Progresso moves faster to satisfy Wal-Mart than it does. "Come on, I don't think [smart tagging] is a competitive advantage—it's a minimum [requirement]," says Wright.
Demand for its products has much more influence on the decision-making of a retailer—even one as big as Wal-Mart, says Wright.
Nevertheless, Wright fully intends to meet Wal-Mart's deadline. Analysts say no Wal-Mart supplier will play radio-wave chicken with the retailing giant, especially a company in a competitive dogfight such as Campbell.
Campbell's condensed-soup business has been under intense pressure from Progresso's ready-to-serve soups. According to Chicago-based research firm Information Resources, Campbell condensed-soup sales were down 5.4 percent in dollars and 7.1 percent in units for the 52-weeks ended Nov. 2, compared to the previous year. Meanwhile, sales of Progresso's ready-to-serve soups were up 11.2 percent to $451.8 million. Campbell ready-to-serve products were up 4.7 percent to $1.05 billion. The total market for ready-to-serve soup was up 6.4 percent to $1.86 billion.
Campbell's share of all soup sales is about 67 percent, of the $3.1 billion a year market in North America, compared to 14.5 percent for Progresso. But Campbell's share for the year ending Jan. 3, 1999 was 74.5 percent—while Progresso's was 9.2 percent, according to Information Resources.
Progresso's encroachment is one reason CEO Doug Conant began to overhaul Campbell nearly three years ago. In July 2001, Conant cut the company's dividend from 90 cents a share to 63 cents a share to partly fund an overhaul of Campbell's factories and its technology. The company also launched new products such as Campbell's Select in a microwaveable bowl and portable "Soup at Hand" lunch bag containers.
Before Conant, Campbell didn't consider information systems strategic, says Roger Berry, a former Campbell chief information officer now in the same post at Walt Disney Co. As evidence of the strategic importance, Wright reports directly to Conant. Berry did not report to David W. Johnson, the prior CEO.
As Berry's successor, Wright moved to shake up a "classic silo-ed company" where every business unit maintained its own computing systems. Campbell had 1,400 different applications and no standard technologies.
Today, standards are set at Campbell headquarters for what e-mail applications, middleware, operating systems and networking gear to use. Wright's team also chose common applications for demand planning (Manugistics) and product-lifecycle management (Formation Systems' Optiva.)
Internet services are built on IBM's Websphere development platform. Big Blue also manages Campbell's data center and communications network and integrates and maintains Campbell's applications as well.
Next up: consolidating planning systems. Campbell still has about 1,000 applications managing its suppliers. In Campbell's North American unit alone, it would shut down about 100 applications just by installing big chunks of SAP's planning system, says Wright.
Wright's major goal is to move quickly when a supplier like Wal-Mart mandates something new. For instance, Wright says Campbell was able to synchronize information on prices and availability on all its products with Wal-Mart in about two weeks.
Prior to its overhaul, synchronizing with Wal-Mart would have required months of "writing interfaces out the wazoo" to connect its systems with suppliers, says Wright. Now, Campbell uses the eXtensible Markup Language (XML) and other standard protocols to aggregate product data and distribute it via public and private exchanges in days.
Moving to radio tags won't be simple. Analysts say Campbell must deal with an immature technology, unclear messages from Wal-Mart and the basic difficulty of adopting a new system to identify all its products, after the decades-long introduction of the UPC system.
In Campbell's case, bar codes may not go away. The radio tags will provide a clear view of where cases and pallets of soup are, in transit to warehouses. But bar codes will still have to be scanned at checkout, for the retailer and the soup maker to know when a can is actually purchased and leaves the store.
Meeting Wal-Mart's requirements also is a moving target. Wal-Mart wants suppliers to use Class 1, version 2 tags, which are expected to allow information to be added and altered when the tag is in the range of a reader. The problem: these tags aren't yet available. Suppliers must invest in "agile" readers that can handle earlier generations of read-only and programmable radio tags as well as the still-to-come version 2 tags.
Romanow says leading consumer goods manufacturers will spend from $13 million to $23 million each in 2004 to comply with Wal-Mart's mandate.
That's the way it is. "We realize we are pushing [ahead] with no apologies," says Wal-Mart spokesman Tom Williams. "We can't afford not to do it."
According to Williams, radio will make it possible for Wal-Mart to keep products customers want in stock nearly 100 percent of the time, up from 99.3 percent today. The difference isn't huge—except when you're Wal-Mart. The difference between 99 percent in stock and 100 percent in stock is $1 billion in sales.
And Wal-Mart isn't lending much of a hand to suppliers such as Campbell. "Wal-Mart has basically said, 'Here, you guys: Go figure this out,'" says AMR's Romanow.