From her modest, windowless office in Wal-Mart's David Glass Technology Center, Wal-Mart Stores Inc. CIO Linda Dillman presides over 2,500 IT projects this year alone, which, even when combined add up to less than 1% of Wal-Mart's annual revenue. (Wal-Mart reported revenue of approximately $256.3 billion in its most recent fiscal year, ended Jan 31, 2004.) Of these initiatives, Dillman says the much talked-about radio-frequency identification project, though significant in terms of cost, isn't the most expensive thing the company has going on, not "by a long shot."

Recently InformationWeek associate editor Laurie Sullivan, news editor Beth Bacheldor, executive editor of news Jennifer Zaino, and Optimize editor-in-chief Brian Gillooly sat down with Dillman in Bentonville, Ark., to discuss the RFID initiative.

InformationWeek: How has Wal-Mart's culture influenced its RFID initiative, and how has Wal-Mart influenced RFID?

Dillman: The nice thing is RFID has a very high commitment level with top management. Although they don't understand the technology, they understand its capabilities. It's easy to sit with that group and talk about RFID. They understand where it can go without our selling it to them. They can see the vision. We must know the reason to use the technology, and where it will take the company.

Wal-Mart became involved with field studies at the Auto-ID Center nearly two years ago. At the time, we concluded the field tests were perfect for research, but a little too fragmented to drive implementation for the industry. To make it work, we had to pick one scenario and focus. At the time, some major tech suppliers were still on the sidelines watching and hadn't decided whether they would commit. That was critical to make the technology work.

When we found the business case, we walked through it. Believing it would work with cases and pallets, we could see the justification. It felt similar to what happened with bar codes. In the 1980s, somebody had to take a brave step. It was a chance to see if we could bring some companies along with us.

InformationWeek: Are people making too much out of RFID?

Dillman: Yes. Our RFID team, until about three months ago, was five people. We almost doubled Simon Langford's team by adding four people. [Langford is Wal-Mart's global RFID strategy manager.] To us, it's a significant expenditure, but the money we will invest installing equipment in the Dallas area fits well within our normal Information Development Services' capital-expenditure budget. Most of us invest in new technology every year. It's not the most expensive project by a long shot that we've got going in.

There are days when this project drives us absolutely crazy. Today, I was in a very lengthy discussion with someone who says RFID has no business case for manufacturers, even if there is zero cost to the tag. My favorite is the $7 billion in benefits next year that someone speculated Wal-Mart will get out of this project. That's almost more than our total profit as a company. All this creates noise and confusion. It's got the attention of legislators. That's understandable, but it means people need to spend time getting educated.

While the noise drives us crazy, it has helped to drive EPCglobal standards. It has moved forward the technology at suppliers and some fellow retailers. Governments are taking action. The United Kingdom, Japan, and China are all looking into RFID. China has been trying to drive toward a global standard. In some ways, China companies have the advantage over American because they're building much of the infrastructure from the ground up.

InformationWeek: As you say, noise and confusion have been one of the byproducts that resulted when Wal-Mart set its RFID requirements. Can you clarify: What is the RFID mandate for suppliers?

Dillman: This has been communicated a dozen different ways. The mandate for our top 100 suppliers (U.S. companies) in November (2003) was to evaluate their products to determine what made sense to tag, and come back to us by February (2004) with their merchandise-tagging plan. It took us a little longer to get through all tagging plans. Some suppliers will tag 100% of their product, and others 2%. In aggregate, the total volume will be a little more than 60% going through those facilities in January. It's three distribution centers--less than 3% of our distribution centers; and 150 stores, less than 5% of our stores and clubs. That felt like the correct amount to really give suppliers some incentive to review their organizations.