Cover Story: Wal-Mart's Faltering RFID Initiative - ' Where Next'

Where Next?

Hardgrave says it will take more time to do that as retailers figure out how best to deploy the technology. Wal- Mart's decision to focus less on outfitting every distribution center with RFID and more on RFID-enabling complete supply chains makes sense based on early results, he says.

Other retailers are taking a similarly cautious approach to RFID while focusing on gaining store-level intelligence. Best Buy, an early RFID booster, has been pleased with the results of pilots conducted to date, says Paul Freeman, the company's RFID program director. But the company plans to conduct more pilots and is still a long way from full-scale implementation.

"In the next 18 months I think we're going to see big gains in cost and quality," he says, "but no matter what, it's realistically going to take about five years to get real business integration." By that, Freeman means it will take time to integrate RFID data with core company systems such as enterprise resource planning, supply chain management and general ledger applications.

That doesn't mean early insights won't be acted on in the meantime. Best Buy, for example, used an RFID pilot to find out if its strategy for displaying new DVD releases was working, and the results were eye-opening, Freeman says. The retailer's practice was to place 90% of new release inventory on a large feature wall, with the rest going into alphabetical DVD display cases or other areas, such as the home theatre section. When the company tracked new releases of the TV series Smallville, though, it found only 47% of sales came from the feature wall, while 32% came from the display cases. By the second week, sales from the display cases rose to almost twice those from the feature wall.

"We thought we knew where our sales were coming from—it turns out we didn't," Freeman says. "That's what this can do. It has given us great data to work with."

The bottom line for RFID appears to be this: Despite it being more than three years since the first cases of RFID-tagged products rolled down the conveyors at Wal-Mart's Sanger distribution center, RFID remains in the pilot phase for most companies. Prices on tags, readers and software are coming down, but not as fast as initially predicted. And while the technology has made great strides, companies are still struggling to determine how best to apply that technology.

Mass adoption is not right around the corner, but perhaps another five to 10 years away.

For its part, Wal-Mart seems determined to press ahead and retain its lead, but not blindly. Langford, the company's RFID chief, says the company will continue to adjust its strategy if needed, but for now it believes that by completing the RFID supply chain picture, migrating the technology out from the distribution centers to stores in a hub-and-spoke fashion, it will gain more supplier adoption.

Wal-Mart CIO Ford also insists the company is commited to the technology. "The train has left the station," he says. "Imagine in the future being in a checkout line at Wal-Mart and you're out in 30 seconds. Now that's utopia—and we'll get there."

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