An Insider's Experience With Wal-Mart's RFID Mandate

Most companies that supply goods to Wal-Mart have ignored its RFID mandate. One supplier that's using the technology thinks they're making a mistake.

Mary Hayes Weier, Contributor

September 7, 2007

4 Min Read

Wal-Mart's effort to get suppliers to tag cases and pallets with RFID chips has been slow going. Many food and consumer goods companies live life on slim profit margins, and still can't justify investing in RFID with no guaranteed pay back.

In an April interview, Wal-Mart IT managers said that 600 suppliers were using RFID; that's just 3% of the company's 20,000-strong supplier base. A few deep-pocketed suppliers, like Procter & Gamble and Kimberly-Clark, have rallied on behalf of Wal-Mart, sending executives to industry conferences to proclaim the future in retail is RFID. Yet it's an endorsement that's failed to calm the doubts of many small and midsize Wal-Mart suppliers.

Pacific Coast Producers, which has been complying with Wal-Mart's RFID mandate since January 2006, thinks those laggard companies should reconsider. The California company sells $400 million a year worth of fruit and tomatoes that it dices, stews, packages, or cans to Wal-Mart and other grocery chains that are then resold under store brands (at Wal-Mart, it's the Great Value brand). "Other small and midsize companies haven't really embraced this technology like we have," said Peter Wtulich, the company's CTO and VP of IS, in an interview. "While we met the Wal-Mart mandate, we did things above and beyond what was expected."

Wtulich said the investment has resulted in better information about how its products move through the supply chain, letting the company improve the rate at which it keeps products in stock at stores, and that ultimately increases product sales. It's also enjoys a better relationship with the world's largest retailer. "The biggest benefit we've gotten is visibility, but it's also put us in a more preferred standing with Wal-Mart," Wtulich said. "Ultimately, that's the most important thing for us." He thinks additional grocery chains will put in similar RFID programs. "We are doing this in advance of more mandates from other customers, and we believe eventually everything will go in this direction," he said.

There's a cross-functional team at Pacific Coast Producers involved with the RFID initiative, including people from IT, sales, its distribution center, and customer service. The company started tagging with RFID in January 2006, and earlier this year a group met with Wal-Mart to review the progress of the initiative and discuss ways to further improve inventory control. In terms of return-on-investment, that's hard to put into numbers, Wtulich said. "We didn't go into this trying to get some dollar return on investment, but we did this in mind that our ROI would be an improved relationship with Wal-Mart."

Wtulich said the company has avoided a "big bang" approach and started the initiative with modest investments in RFID technology. It still uses RFID on only a handful of its products, including diced and stewed tomatoes. That's where store brands face the most competitive pressure (from companies like Hunt or Progresso), and where it most needs to work with customers like Wal-Mart to push store brand sales. "If a supplier is trying to do this with too broad of a swipe with a brush, it's possible they're overwhelmed," Wtulich said.

Wtulich also recommends a solid ERP environment that can ensure data integrity and stability (his company uses Oracle and JD Edwards). The RFID system consists of IBM servers loaded with IBM WebSphere Application Server, WebSphere RFID Premises Server and MQSeries messaging software. Data from manufacturing and shipping processes is captured with software from Data Systems International, and analyzed by RFID business intelligence software from OatSystems. That software, OaTaxiom, also analyzes data received through Wal-Mart's Retail Link system, and delivers a record of inventory and goods moving across the supply chain. Pacific Coast uses Symbol RFID readers and wireless hand scanners, and tags and printers from Weber.

The company also changed processes in its plant and came up with ways to identify items that required RFID tagging, and implemented RFID technology both in the packing line and at dock doors. "I heard all some companies are doing is putting cases on pallets, and then sometime before they ship taking cases off pallets, manually slapping on the tags, and then putting cases back on," he said. "That alone has to cost a lot of money. There's no way those increased costs can help with any ROI."

RFID data is letting Pacific Coast Producers analyze why certain stores aren't keeping products on the shelf as well as other stores. Promotional performance analysis, through collaboration with Wal-Mart, has let it manage promotional events to maximize sales. The company plans to tag more items within the next few years, a goal easier met if RFID chip prices continue to decline, Wtulich said.

He thinks that suppliers who begrudge Wal-Mart's mandate are making a mistake. "People don't like to be told what to do," Wtulich acknowledged. "If they look at it from a perspective that there must be a reason why this is important to our customer, then they'll realize it must be important for them. We think we'll receive an ROI because our customer receives an ROI. In the end that means increased sales with Wal-Mart, and that's got to be an ROI for us."

This story was updated Sept. 14 to correct the date when the company began RFID tagging.

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