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4/30/2004
06:07 PM
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Wal-Mart Takes First Shipments Of RFID-Tagged Products

Cases and pallets of merchandise with the product-tracking tags arrived at seven of the retailer's stores in the Dallas area.

Wal-Mart Stores Inc. achieved a milestone Friday in the use of radio-frequency identification tags as cases and pallets marked with the product-tracking devices arrived at seven of the retailers' stories in the Dallas area.

The tagged merchandise from eight consumer-product manufacturers arrived at midnight from Wal-Mart's Sanger, Texas, regional distribution center. A total of 21 products were delivered in tagged cases and pallets out of the more than 100,000 products carried in a typical Wal-Mart supercenter. While the number may seem small, the debut ushered in a new era in product tracking for the world's largest retailer, which operates 160 distribution centers and more than 3,000 stores.

Last June, Wal-Mart told its 100 largest suppliers that it expected a certain percentage of cases and pallets affixed with RFID tags to arrive at Dallas-area stores starting in January 2005. Since then, 37 additional suppliers have joined the initiative.

The company expects 100% accuracy in the information gathered from the electronic devices through readers installed on dock doors and near conveyor belts in its distribution center. The trial launched Friday followed months of preparation between Wal-Mart and suppliers.

Wal-Mart isn't alone in its pursuit of RFID technology, which is expected to contribute directly to the bottom line by boosting sales through more-efficient stocking of store shelves. Studies show that a significant number of products are sold out during retailers' busiest shopping days.

"It is imperative that we have the merchandise the customer wants to buy when they want to buy it," CIO Linda Dillman said in a statement.

Other large retailers that have jumped on the RFID bandwagon include Target, Germany's Metro AG and Tesco PLC of the United Kingdom.

Besides better stocking of shelves, RFID tags, which contain silicon chips with more-detailed product information than a typical bar code, are expected to help reduce warehouse and store theft and the amount of counterfeit merchandise. In addition, the technology is expected to assist in product recalls and returns and warranty processing.

In the trial launched Friday, RFID tags on pallets and cases are read at the dock doors of the distribution center, letting warehouse workers and suppliers know the products have arrived. Cases are then removed and processed as usual through the warehouse.

The same process is repeated as the products arrive at Wal-Mart's seven stores, confirming that the shipments are now in the each store's back room. Individual products are then stocked as needed.

Wal-Mart is likely to work hardest at trying to get to 100% accuracy from the readers capturing tag data, said Erik Michielsen, an analyst at ABI Research.

RFID uses ultra high frequency, which is the range of electromagnetic frequencies from 300 MHz to 3 GHz, to transmit data. However, UHF doesn't travel well through metal and liquids, making it difficult for readers to get accurate information from tagged cases embedded within other cases stacked on a pallet.

"Wal-Mart is playing its cards pretty close to the chest, but one of the big issues that still remains is getting accurate reads from cases on pallets," Michielsen said. "We're not even close (to 100% accuracy)."

Nevertheless, the pilot could help find a solution. "They're putting on their hard hats and working to understand how to get over this hump," Michielsen said.

Consumers, in general, will not come in contact with RFID tags, since most of the devices are used on wooden pallets and shipping cartons. However, large electronic items could have the tags on their packaging, including three Hewlett-Packard products--two Photosmart computer printers and a ScanJet scanner--that arrived at Wal-Mart stores on Friday.

Consumer groups have raised privacy concerns, saying RFID tags on individual products could one day be used to collect information on shoppers. Some state lawmakers have introduced bills to regulate the use of the technology.

In California, a proposal by state Sen. Debra Bowen passed the Senate Thursday and is headed for the Assembly. The bill would require companies to tell customers that an RFID system is in use and get permission before tracking and collecting information. The bill also requires businesses to detach or destroy product-attached RFID tags before the customer leaves the store.

To allay the fears of wary consumers, Wal-Mart will have signs in the seven Dallas-area stores notifying customers of the tags on the HP products. Pamphlets also will be placed on the shelves and aisles, alerting customers that they can have the tags removed at purchase.

"We can certainly understand and appreciate consumer concern about privacy," Dillman said. She added that the tags do not contain, nor will they collect, any data about consumers, and the company won't have any RFID readers on the stores' main sales floors for "the foreseeable future."

Consumer product manufacturers participating in the trial include Gillette, HP, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle Purina PetCare, Procter & Gamble, and Unilever. Products delivered in tagged pallets and cases include paper towels, lotion, cat food, shampoo, feminine hygiene products, laundry detergent, deodorant, shaving cream, soap, toothpaste and peanuts.

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