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Commentary: RFID's win at Wal-Mart

The megaretailer's endorsement represents the real tipping point for adoption of radio frequency technology, as its top 100 suppliers must now embark upon or expand their own RFID efforts.

Commentary: RFID's win at Wal-Mart
By Forrester Research
Special to CNET
September 8, 2003, 9:15AM PT

By Christine S. Overby, Senior Analyst

Wal-Mart Stores CIO Linda Dillman announced earlier this year that the retailer will require its top 100 suppliers to use radio frequency ID tags on pallets and cases by January 2005.

Other major players, most notably Gillette and Benetton, have recently made public their support of RFID, which has been met with mixed reactions from technology optimists who trumpet the possibilities and from consumer privacy advocates who cry foul. But Wal-Mart's endorsement represents the real tipping point for retail adoption, as its top 100 suppliers must now embark upon or expand their own RFID efforts.

Wal-Mart's announcement will cause some sleepless nights for CIOs who are anticipating the data overload on today's IT systems. But help is on the way, as new applications that provide RFID data management and integration will become a low-cost reality in 2004--thanks to the Uniform Code Council (UCC) and EAN International's new role in Auto-ID standards and the launch of the UCC subsidiary Auto ID.

With nearly 1 million member companies in more than 140 countries, UCC and EAN constitute the epicenter of global standards for product data. Auto ID will aggregate the learnings of today's regional RFID initiatives--including the U.S. Auto-ID Center Field Tests and the U.K. Chipping of Goods projects--to address country-specific system modifications for North America, Asia, Europe and Latin America.

Later this month, Auto ID plans to release the standards and specifications for the electronic product code (EPC) network--the data standard the Auto-ID Center and its sponsors developed, which Dillman cites as "retail's implementation of RFID." This is a critical step, as Dillman took an open-standards-or-bust position by stating, "(Wal-Mart) won't implement anything that's proprietary."

Related story

The technology could, in due
time, generate billions of
dollars for software makers.

The standardized EPC network will make it economically feasible for technology companies to develop the applications and middleware necessary for mainstream trade-unit RFID tagging. The news that Microsoft will lend its considerable product development and partnership network to UCC's Auto ID underscores the near-term reality of low-cost packaged software.

Wal-Mart's other decision, to scrap its test of smart-shelf technology and RFID-tagged Gillette razors, bears little impact on near-term RFID uses but underscores the need to focus on its real benefits in the supply chain. The decision unleashed victory cries from consumer privacy advocates and defensive posturing among RFID early adopters. Forrester believes that most of the media storm amounts to a tempest in a teapot. RFID provides companies with big opportunities to operate their businesses more effectively.

Still, companies piloting or considering RFID implementations should take away some key lessons.

• Focus efforts on supply chain visibility. As Forrester has long maintained, RFID projects yield the biggest immediate benefits when they support order fulfillment and logistics. Why? Because these activities, which span the supply chain and require fast decision-making, lack visibility. As such, most near-term RFID testing should concentrate on pallets, cases, distribution centers and warehouses--not items and store shelves.

• Stop talking smart refrigerators and start talking real consumer benefits. Talk of refrigerators that monitor food consumption smack of an Orwellian society and will only fuel more protests against the implicit collection of consumer data. More responsible dialogue must center on the most valuable benefits of item-level RFID, such as tamper prevention for prescription drugs and the elimination of smuggling rings that distribute stolen goods throughout the developing world.

• Create an RFID privacy policy--now. Packaged-good manufacturers and retailers must address privacy concerns by adhering to best practices like outlining uses of RFID data and providing consumers with opt-in and opt-out choices. By doing so, companies will avoid missteps like Benetton's: The Italian clothier put its item-level rollout on hold, because it had not adequately addressed consumer privacy concerns.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.