Making its Case

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.

Making its Case

If that does finally happen, success stories will have to start flowing from Wal-Mart's initial rollout in stores fed by its five RFID-enabled distribution centers in Texas and Oklahoma.

Hanna's Candle Co. is one of the companies serving as a proving ground for the technology. Despite its quaint name, the privately held company is a big business. From its 660,000- square-foot manufacturing plant in Fayetteville, Ark., about 30 miles from Wal-Mart headquarters in Bentonville, it pours out more than 20 million candles a year to Wal-Mart and other retailers around the country under its own brand names and private labels.

James Gleghorn, supply chain manager for Hanna's, says the company is getting a payback from its investment in RFID, particularly when it comes to preventing out-of-stock incidents. However, he acknowledges it is taking time and a lot of trial and error to determine how best to deploy the technology. The biggest lesson Wal-Mart and its suppliers have learned to date is that benefits gained from just RFID-enabling the company's giant distribution centers are not that great.

As it turns out, Wal-Mart's distribution centers are extremely well run, says Simon Ellis, head of the RFID program for Unilever USA, which supplies Wal-Mart with such products as Dove soap and All detergent. There are simply not a lot of pallets sitting around in corners waiting to be discovered. "RFID tells us the pallets are in the [distribution center], but so what," Ellis says. "There isn't a lot you can do with that information."

Ellis says the real gains will come from knowing when pallets arrive in a store and, in turn, knowing whether they have moved to a store's shelves or are just sitting in a back room. Gleghorn, too, isn't losing a lot of sleep over whether Hanna's pallets are languishing in Wal-Mart's distribution centers. "I used to work in one and know how well they're run," he says. But he does worry about whether his products have moved from the back rooms of individual stores to display cases at the right time, and he says RFID tagging is finally giving him a window into that black hole. Gleghorn points to a row of pallets stacked on shelves five high in the company's warehouse. The RFID-tagged pallets, destined for a fall promotion at Wal-Mart stores, are filled with display cases that will sit at the end of aisles. Companies pay retailers a premium for prime end-cap space, and Gleghorn says what he really wants to know is, Did the display cases arrive on the sales floor in time for the scheduled promotion?

"If it's the end of the first week of a three-week promotion, and sales are not what we expected, then I'm going to want to dig deeper to find out why," Gleghorn says. If the RFID-lifecycle report shows that display cases are still sitting in the back rooms of some Wal-Mart stores, for instance, a field sales rep can be sent to move the display cases onto the floor.

Gleghorn says there have already been several promotions where this has happened, but rather than send in a field sales rep, he was able to simply call and ask the store manager to check into the situation. The company has also been experimenting with handheld devices, such as a unit supplied by Symbol Technologies that would allow a field rep to go into a storage room and locate an individual case through its RFID tag. Like a locating beacon, the handheld can narrow a search down to a few feet.

Other Wal-Mart suppliers have been experimenting with similar initiatives to gain more ROI from their RFID investments. T3Ci, a Sunnyvale, Calif., provider of software systems that help companies analyze data retrieved from RFID tags, is working with several large Wal-Mart suppliers, including Procter & Gamble, Kraft and Colgate-Palmolive, to track and analyze promotions at the shelf level. CEO Jonathan Golovin says the company retrieved and analyzed its one-billionth tag earlier this year, a milestone it took about three years to reach. Now, Golovin thinks the company will read one billion tags every three to four months. OATSystems of Waltham, Mass., has similarly been working with such suppliers as Kimberly-Clark on using RFID to analyze the effectiveness of promotional displays.

This exemplifies both the power and the problem with Wal-Mart's RFID initiative. Suppliers are keen to get that window onto the sales floor through RFID, but until late 2006, Wal-Mart had only installed RFID systems in about 600 of its 4,000 Wal-Marts, Supercenters and Sam's Clubs in the U.S. Even Hanna's, an aggressive partner in Wal-Mart's RFID initiative, only applies RFID tags to products shipping to Wal-Mart's Sanger, Texas, distribution center, northwest of Dallas.

Stores supplied by that distribution center were the first to be outfitted with RFID. Gleghorn says that as other Wal-Mart distribution centers RFID-enable their supply chain, Hanna's will extend its RFID tagging to those centers. "The fact is, we're just not getting the benefits unless we can see the complete picture," he says.

Next page: Sales Floor ROI

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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