Pushing RFID from the top down:

Wal-Mart starts a game of tag: radio frequency identification is technically feasible, but one analyst says organizations must still figure out the business applications to justify it

Radio frequency identification is being touted as the next big thing on the technology radar, but experts say companies need to develop solid business cases before moving forward. One large retailer, Wal-Mart, has charged ahead and mandated its suppliers do the same.

RFID is here to stay, said Kerry Pauling, vice-president of information systems with Wal-Mart Stores Inc. at the EPCglobal Canadian Conference 2005.

On a busy Saturday at Wal-Mart, for example, only one in 12 "out-of-stocks" are typically replenished, he said, which leads to supply chain inefficiencies. RFID tags use short-range radio signals to identify products and information about those products, such as date of manufacture. Products can "tell" retailers when they need to be restocked, which stock should be used, or if there's been a recall.

Wal-Mart has installed 14,000 pieces of hardware and 230 miles of cable. By the end of February, 100 of its suppliers had gone live with RFID, shipping to three distribution centres in Dallas, with a total of 5.6 million electronic product code (EPC) reads to date.

This summer, we'll see the next-generation of RFID tags, Gen2, hit the market. "Price is a big concern," said Pauling. "Gen2 should drive costs down."

By October, Wal-Mart will go live with 600 stores and 12 distribution centres. The next 200 suppliers will go live by January 2006. Pauling said the company will also establish its international expansion plans this year.

One of its larger suppliers, Hewlett-Packard, is piloting RFID in 26 sites in the Americas and Asia this year.

So why isn't everyone jumping on the bandwagon?

"Many people believe that Wal-Mart's top 100 suppliers today are complying with 100 per cent of their products being shipped to 100 per cent of Wal-Mart's facilities with RFID tags at the case and pallet level and that's not true," said Jeff Woods, senior analyst with Gartner Inc. "Most manufacturers are complying by sending a couple of SKUs, maybe five to 10 SKUs, into three distribution centres in Dallas, so it's a very small pilot, and people are still trying to legitimately figure out what's going on."

While some consider that a pessimistic take on the market, he said it's being realistic about the status of RFID. In the longrun, he expects it to be one of the most important technologies for business, but there are still a lot of challenges ahead.

"This is a fairly complex area and a lot of people have tried to oversimplify the message for mass consumption, and it's led to a lot of misunderstandings out there in the market," he said. "It's not new, but it's very difficult to apply and it's very difficult to figure out what to do with the data."

Many people think the real challenge with RFID is demonstrating technical feasibility, he said, but that has long since been established.

"The issue is, can we find a business application to justify the use of RFID, and a lot of people confuse the two," he said. "Just because Wal-Mart demonstrates increasing read rates, who cares? That's not the issue. The issue is no one knows what to do with those reads. That being said, we're getting much closer to a business case."

There are businesses cases for RFID, he said, but they're complex and, at this point, largely anecdotal. Pauling admitted there's still a lot of work to be done, such as developing forklift readers. "There's a lot of discussion about read rates," he said, "(but) they're getting better every day."