Marchewka (2015)

CHAPTER 3 / MEASURABLE ORGANISATIONAL VALUE & THE BUSINESS CASE Pages 85-86

Wal-Mart’s RFID Supply Chain

Wal-Mart of Bentonville, Arkansas announced its vision for an RFID-enabled transparent supply chain. The
company decreed that its suppliers would be required to have a system in place for attaching radio frequency
identification tags to a portion of its products destined for Wal-Mart stores. Unfortunately, as the deadline grew
closer, many of the company’s suppliers knew that they were not going to be able to meet that deadline.

Unfortunately, some of Wal-Mart’s suppliers stuck RFID tags on just enough pallets to satisfy Wal-Mart’s
mandate and were not confident that the tags would even work. It was estimated that approximately 30 percent of
Wal-Mart’s suppliers will integrate RFID fully, while the rest will follow the practices of “slap and ship” as just
described. As a result, the efficiencies Wal-Mart envisioned for the RFID supply chain may not be realised any time
soon.

In addition, the mandate by Wal-Mart has become a moving target. Originally, only Wal-Mart’s top suppliers
were required to put RFID tags on all products shipped to specific distribution centres in Texas. Wal-Mart now wants
its suppliers to attach tags to only 65 percent of their products. Several suppliers have confided that the percentage
of their products shipped with RFID tags would be much lower – about 10 percent. The method of slap and ship will
involve only a small percentage of products shipped to Texas, minimal data integration, and leave the supply chain
blind to the movement of product. Not surprisingly, Wal-Mart is not pleased with the slap and ship approach many of
its suppliers are taking. Critics believe that RFID standards are incomplete and that the technology isn’t fully
developed. Other companies are struggling with the cost of implementing RFID.

The failure of the deadline for RFID could mean more bad press for the retail giant when it could use some
positive publicity. Wal-Mart’s reputation has received bad press in the past because of allegations of unfair wage
practices, hiring illegal immigrants, and discriminating against female employees. Many believe that Wal-Mart made
a critical mistake when it imposed a top-down mandate on its suppliers before the technology and business needs
matured to the point where RFID technology made good sense for Wal-Mart and its suppliers and customers.

MIT’s Auto-ID Centre began to look at how RFID technology could help organisations track and manage
products using embedded sensors. The centre proposed an electronic product code (EPC) that replaces bar codes by
utilising radio frequencies to identify computer chips placed in tags. In a controlled environment, RFID works quite
well. Although tags can vary in size and shape, they can be affixed to cases and pallets as stickers or labels, or like thin
plastic wrist bands. Each tag contains a small antenna and a chip with a unique string of numbers to identify each
product. Active tags contain a battery, while the more common passive tags acquire their energy from a reader and
are less expensive. Readers are antenna devices that identify the tags as they pass by. The tag transmits its digital
electronic product code to the reader and then to a computer system.

The promise of RFID is to help reduce the number of products that are misplaced or misdirected in a supply
chain. Supporters of RFID contend that millions of dollars can be saved by increasing supply chain inefficiencies. An
RFID system can reduce the likelihood of picking the wrong inventory item and having to manually count inventory. It
can also mean finding products more easily in a warehouse.

Before the year 2000, the price of RFID tags was about $1 to $2 apiece. Recently, the cost became as low as
25 cents, depending on the volume of the purchase. However, many suppliers contend that the price of an RFID tag
much be even lower before they make economic sense.

Assuming a cost of 30 cents per tag, a supplier that ships 15 million items to Wal-Mart per year would spend
about $4.5 million in RFID tags. Adding to the problem is Wal-Mart’s one-size-fits-all strategy, where there is no
difference between such consumer products as razor blades, tires, or computers. Each pallet will require and RFID tag
when shipped. While large ticket items like flat screen TV’s and lawn mowers make RFID cost effective, using an RFID
tag for relatively smaller, less expensive items like razor blades can be prohibitive.
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CHAPTER 3 / MEASURABLE ORGANISATIONAL VALUE & THE BUSINESS CASE Pages 85-86

Another problem with RFID is that no standard for the technology currently exists. Not all tags and readers
are compatible. As a result, Wal-Mart may need more than one reader in its warehouses to read different tags.
Moreover, the radio waves that are the foundation for the technology have not lived up to expectation in several
pilots. One RFID technology provider wasn’t getting a good read rate, so its engineer kept increasing the power and
adding more antennas. The read rate still never go higher that 50 percent and one reader kept drowning out another
reader. Radio frequency also tends to act abnormally when it’s near certain elements like liquids, metals, or porous
objects. Many believe that the next generation of tags, which will supposedly be available in two years, will overcome
many of these problems. Unfortunately, no one is sure how much they will cost.

Some of Wal-Mart’s suppliers need to consider some unpleasant alternatives. If they wait for RFID to mature,
they can lower the costs of developing an RFID system that meets Wal-Mart’s demands. However, by waiting they
may jeopardise their relationship with Wal-Mart and open the door for their competitors to slip into their place. As a
result, some are complying with the mandate via slap and ship.

1. What were the problems associated with Wal-Mart’s RFID strategy?

2. How would having a clear MOV and business case help Wal-Mart and its suppliers decide whether and RFID
supply chain makes good sense for everyone?

3. What would be a good example of a clear MOV for Wal-Mart’s suppliers?

Sources:
Wailgum, T. “Tag, You’re Late”. CIO Magazine. November 15, 2004.
Vijayan, J & Brewin, B. “Wal-Mart to Deploy Radio ID Tags for Supply Tracking”. Computerworld. June 12, 2003.
Gaudin, S. “Some Suppliers Gain from Failed Wal-Mart RFID Edict”. Computerworld. April 28, 2008.
Sliwa, C. “RFID Tag Prices Must Fall Fast for Users to Reap Rewards, Exec Say”. Computerworld. April 18, 2005.