Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=18600388
Wal-Mart's push to get its top suppliers to toe the RFID party line is going nowhere fast, a research firm said Tuesday.
According to a just-published report from Forrester Research, Wal-Mart's bid to force its top 100 suppliers to guarantee 100% readability of case and pallet RFID tags isn't working. Fewer than a quarter of the suppliers, said Forrester, will meet the retailer's deadline of Jan. 1, 2005. As recently as last December, Forrester was predicting that about 60% of Wal-Mart suppliers would beat the 2005 deadline.
The problem isn't just money spent in the short term, said Christine Spivey Overby, a Forrester senior analyst and the author of the report, even though the RFID startup costs and one year's worth of maintenance isn't chicken feed--$9.1 million, on average for a typical supplier complying with Wal-Mart's demands.
"The technology is not ready and there is a lack of deep expertise in the industry to help suppliers implement RFID," Overby said. Worse, "there is no business case for most suppliers in the short term."
Put them together, and it spells trouble.
Wal-Mart's telling its top suppliers that they can't simply add the costs of complying with its RFID initiative to wholesale costs--the discounter is well-known for pressuring suppliers to cut prices to the bone--but that they must instead identify RFID's benefits within their own organizations.
"We're asking them to talk to us about how they can use [RFID] internally," Wal-Mart CIO Linda Dillman said Monday night at a dinner hosted by the Churchill Club, a Silicon Valley issues organization. "If they look internally, there will absolutely be a return on investment for them."
Forrester's Overby disagrees. Companies must spend a considerable amount--up to $100 million--to really see any benefit from applying RFID across the board within their own infrastructure. Only through so-called "source tagging," which involves placing the tags on finished goods at the plant, rather than "slap and ship," where companies put RFID tags only on those products heading to Wal-Mart, can companies see cost advantages of RFID, Overby said.
Only the biggest consumer suppliers, such as Gillette, will be able to implement source tagging in the near term, she said. The bulk of Wal-Mart's top 100 suppliers won't be able to fund such outlays, at least not now, for even the obvious benefits--including controlling shrinkage and automating receipt of goods--are far in the future.
"We modeled the potential benefits [of RFID] six ways to Sunday, and we came up with nothing," one Wal-Mart supplier, who preferred not to be identified, told Forrester. "We think there are potential process improvements," Overby's report quoted another supplier as saying, "but we struggle to see the benefits to our business in 2004 and 2005."
Overby pointed out other barriers to meeting Wal-Mart's aggressive deadline, including unproven and unreliable technology and a dearth of RFID experts and consultants that companies can call upon--making them turn to their own devices and staff to come up with a solution.
Wal-Mart's Dillman was firm in her conviction that it's the right time to push RFID. "We looked at the technology, and it's the right time. And when it's the right time, you move," she said Monday.
But suppliers that Forrester interviewed disagree. "I have 2,000 RFID tags sitting in my closet," one top Wal-Mart supplier said. "They're left over from a pilot that never worked."
But although Forrester sees it as unlikely that Wal-Mart's RFID requirements will do what it says they will for its suppliers--reduce their own internal costs--companies tightly bound to the discounter will have to do something.
That something, said Overby, will probably take the "slap and ship" approach where manufacturers tag cases and pallets with RFID tags at their distribution centers, even if that means manually applying the tags or segregating Wal-Mart-bound pallets from the rest of their inventory.
To break the looming logjam--Wal-Mart demanding, suppliers unable to completely comply--Overby recommended that the discounter loosen the requirements to focus on high-priced items such as apparel, DVDs, and cosmetics, and that suppliers make it clear to Wal-Mart the problems with implementing RFID.