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The watershed moment for RFID

Eric Peters says Wal-Mart Stores' measured approach toward radio frequency identification technology is a harbinger that will play out across many industries in the next few years.

Earlier this summer, Wal-Mart Stores announced that by Jan. 1, 2005, radio frequency identification technology would become a requirement for doing business with the world's largest retailer. A line was drawn in the sand: RFID was going to happen. More recently, Wal-Mart said it would not put RFID technology in retail stores, and a flurry of "not ready for prime time" RFID responses followed. But Wal-Mart's retreat from shelf RFID tags neither suggests a retreat on its earlier commitment to RFID nor a signal for the halt of adoption.

Product level RFID tagging may be years away, but a technology inflection point has been reached. Many companies are now extremely interested in the technology, and the potential is just too attractive to ignore. Globally, RFID will not sell more razors or bars of soap. What it can do, however, is redistribute the market share of the different companies that sell razors and bars of soap.

The costs of not making your supply chain RFID-compliant far outweigh the costs and obstacles of implementation. As with other high-impact technologies, the early adopters will get a disproportionate share of the wealth, and the laggards will be the companies who suffer lost market share.

Wal-Mart's pragmatic decision to start with RFID tags in the warehouse at the pallet and case level is quite prudent. Instead of rushing into things, Wal-Mart's more measured approach toward RFID offers a good model. Businesses can give suppliers the capability to produce RFID pallet or case labels with minimal technology--a browser session and a remote label printer.

Then, as cases are unloaded from the truck through an RFID receiving portal, all the information associated with the tags gets captured and updated in real time for better inventory visibility. This allows businesses to experience some of the most critical benefits of RFID, including increased inventory accuracy and decreased labor costs within their facility.

As trading partners begin adopting RFID, the focus of labeling at the pallet or case level can then be extended to labeling at the unit level and so on. As with any new or emerging technology, there is incremental value with each step of an RFID implementation.

With Wal-Mart's supplier mandate, the "sixth month rule" is the statement I most often hear from retail executives regarding RFID: "Don't let me get more than six months behind Wal-Mart in RFID adoption." In reality, if you waited to hear Wal-Mart's position on RFID, you are already more than six months behind.

The reality is that if you were waiting to hear Wal-Mart's position on RFID, you are already more than six months behind.
The real date for becoming RFID-compliant is August 2004, but realistically, no consumer goods company will internally pilot RFID between September and December 2004. The technology has to be tested before going into the holiday season. This creates a window of approximately one year to design, pilot, test and implement RFID.

The cost of RFID will be distributed across the supply chain and will drive the cost of RFID tags down across the board. Retail compliance means simply that retailers will expect their vendors to comply with their shipping requirements.

If you waited to hear Wal-Mart's position on RFID, you are already more than six months behind.
Each link in the supply chain will look for cost savings to help offset the cost of the technology; by the time the carton or pallet gets to the retailer, each supply chain participant will have partially absorbed the RFID cost. Whatever cost cannot be absorbed in the supply chain will then be absorbed through lower margins but will not be passed on as a higher cost to the consumer.

Finally, businesses should understand that there is no "second" 100. Though Wal-Mart's announcement covered its top 100 vendors, every vendor I know that supplies products to Wal-Mart wants to show that it is a good and deserving trading partner. Each one will work hard to support RFID; they don't want their competition to get there first, and they don't want to have to be asked to comply.