The RFID Promise

By Mel Duvall  |  Posted 2007-10-03 Print this article Print

In 2003, Wal-Mart became the great hope of a new technology. But things haven't worked out exactly as planned.

The RFID Promise

When Wal-Mart announced its RFID strategy in 2003, it was just one of many retailers that had become enamored of the technology. The concept seemed so simple few questioned its merits or Wal-Mart's ability to strong-arm suppliers into compliance. By placing RFID tags on cases and pallets shipped from manufacturers to Wal-Mart distribution centers, companies would be able to keep close tabs on their shipments. In turn, that would allow Wal-Mart and its suppliers to streamline their supply chains and ultimately ensure shelves were always fully stocked.

RFID tags represented the next big step forward from bar codes, the ubiquitous stripes on the sides of packages that provide basic product and pricing information. The simplest tags, passive RFID tags, require no internal power supply. Incoming radio frequency signals from RFID readers can transmit a minute electrical current, enough to power the integrated circuit in the tag and transmit a response. The key benefit is that the bar code on a case or pallet no longer needs to be swiped to identify the contents; the tag just needs to come within range of a reader—usually up to a few meters. In addition, RFID tags can transmit far more information about a product, including price, serial number and even when and where it was made.

Many industry analysts predicted spending on RFID tags, readers, and associated hardware and software would create a bonanza for the computing industry. The reality, at least to date, has not been so spectacular. Meanwhile, other retailers such as Best Buy, Target, and Albertson's that initially planned aggressive RFID strategies have since scaled back plans or are moving more cautiously toward implementation. Best Buy, for example, is choosing to conduct more pilots in areas such as compact disc sales and cameras, while Albertson's' pilot was halted following its acquisition by SuperValu. Target, which also instituted a program in 2004 requiring top suppliers to apply RFID tags to cases and pallets, did not respond to calls from Baseline for an update on its program. However, at least one industry analyst, Lora Cecere of AMR Research, has reported that Target has delayed its RFID implementation.

One fallout is that some of the hoped-for decline in RFID technology costs failed to materialize. Tags, in particular, remain at 10 cents to 15 cents—a price retailers find too steep for investments in item-level tagging. As a result, companies say it will take longer for them to cost-justify rolling out or expanding their RFID efforts.

Cecere says AMR Research had predicted RFID would achieve widespread adoption by 2008. Now her firm predicts the industry will probably need another five years of conducting pilots to determine how best to deploy the technology. "There was a lot of hype when Wal-Mart unveiled its plans," she says. "Now that the dust has settled, it's clear that Wal-Mart has not been able to produce on its original value proposition."

The high cost of tags and readers is a continuing factor, as is readability of RFID tags on certain products such as those containing metal, liquids or frozen foods. But Cecere says the overriding factor for the slower-thanexpected adoption rate is that Wal-Mart hasn't proven the value proposition through improved logistics, fewer out-of-stock incidents or better intelligence on consumer buying patterns—at least, not enough to convince suppliers to come on board without being pushed. "Until [Wal-Mart] can do that, I think the rest of the industry is going to stand back and watch," she says.

Next page: Making its Case

Contributing Editor
Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.


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