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Wal-Mart Shelves RFID Experiment

But cancellation of test with Gillette isn't a retreat from the technology
Wal-Mart Stores Inc. last week canceled a closely watched experiment using radio-frequency identification systems to track individual merchandise. But rather than signal waning enthusiasm for RFID, the decision shows how companies are focusing on the most realistic applications of the technology.

The proposed "smart shelf" program was to be implemented with Gillette Co., tagging razor-blade packages in a Brockton, Mass., Wal-Mart store with small radio transmitters and using receivers embedded in shelves to track the merchandise.

But Wal-Mart shelved the program, saying it wants to concentrate on installing RFID systems to track pallets of goods. The move is in line with a strategy CIO Linda Dillman laid out in June, when she revealed that the company had tested RFID tags on individual items and cases and concluded that the technology for item-level tracking wasn't ready for widespread use. Instead, Wal-Mart has told 100 top suppliers they need to be able to use RFID tags to track pallets of goods by January 2005.

Simon Ellis -- Photo by Sacha Lecca

Privacy concerns could hamper development of the RFID-enabled supply chain, Unilever's Ellis says.

Photo of Simon Ellis by Sacha Lecca
Consumer-goods manufacturer Unilever Group is in the midst of its own trial programs and has similar priorities. "We're focused on cases and pallets. That's where we're spending our time and energy because that's where we see the benefit," says Simon Ellis, Unilever's supply-chain futurist. "I'm not sure we'll ever do item-level tagging, and if we do, it's not going to be for a very long time, maybe five to 10 years."

In June, Dillman cited the cost of tags as one factor in favor of concentrating on pallets, saying only pallet-level tracking could deliver returns at today's tag prices. She also noted that readers were too large and bulky for practical shelf-level use. "From the retailer perspective, it's still expensive," AMR Research analyst Paula Rosenblum says. "It's not just about the chips; it's about the readers, and they're not cheap."

A Gillette spokesman declined to comment on the canceled program but said the company expects to work with Wal-Mart on the tagging of pallets and cases. Gillette is continuing its research on item-level tagging and has trials under way with U.K. supermarket chain Tesco plc and German retailer Metro AG.

Wal-Mart isn't the first company to scale back an RFID pilot project. In April, Italian clothing manufacturer and retailer Benetton Group decided to re-evaluate a plan to deploy RFID tags in its clothing, following threats of boycotts from consumer and privacy advocacy groups. Those critics worry that tags in apparel could be used to violate individuals' privacy, such as by tracking the movements of buyers in and out of stores.

It's unlikely Wal-Mart canceled its trials primarily for privacy reasons, AMR's Rosenblum says, since privacy isn't an issue with disposable items such as razor blades.

Nonetheless, RFID advocates know they'd better take privacy concerns seriously, even on shipping containers the consumer never sees. It's a technology most people only vaguely understand, and news coverage often exaggerates its capabilities. "There's a tangible level of concern about privacy, which I completely understand," Ellis says. Supporters argue that a more efficient, RFID-enabled supply chain will benefit consumers through lower costs and better availability of goods. Says Ellis: "It would be a real shame if all this noise around item-level tagging cools down what could be a real beneficial development for the supply chain."