The Watershed Moment for RFID
Updated: February 6, 2006
This article was originally published in Retailspeak Magazine
In June 2003, Wal-Mart made the announcement that everyone in the retail world was expecting to hear: by January 1, 2005, radio frequency identification (RFID) technology will be a requirement for doing business with the world's largest retailer. In this single statement, all the rumors were put to rest. So how are things different now that RFID has moved from concept to reality?
Firstly, the 'sixth month rule' is now in effect. This phrase refers to the statement retail executives often make regarding RFID: "Don't let me get more than six months behind Wal-Mart in RFID adoption." Meanwhile, the reality is that if you were waiting to hear Wal-Mart's recent statement on RFID, you are already more than six months behind.
As a result, Wal-Mart's announcement serves as a catalyst for something to happen. While the store may be rolling out this initiative to its top 100 suppliers in the US initially, you can bet your bottom dollar that suppliers outside this core 100 will need to become compliant shortly afterward, including companies supplying goods to Wal-Mart's overseas subsidiaries. What's more, it will only be a matter of time before an ASDA or another leading European retailer introduces a similar RFID compliance policy for suppliers in Europe.
This stimulus for change will often result in suppliers making the first bold steps towards RFID compliance. This will help retailers overcome what now seems their biggest hurdle—supplier capability. The day when this becomes reality is not far off and in the meantime, it is up to retailers to enable RFID capability within their own organizations, irrespective of which side of the pond they operate on.
Secondly, there is less time than retailers think to become RFID-compliant. For Wal- Mart's top 100 suppliers in the U.S,, the real deadline is August 2004. Realistically, no consumer goods company is going to pilot RFID internally between September and December of 2004. Instead, the technology has to be tested in advance of the holiday season.
Tight RFID Timeframe
This creates a window of less than a year to design, pilot, test, and implement RFID. This makes Q3 of 2004 the endgame, not 2005. This daunting timeframe is also likely to apply to European consumer goods companies just as soon as a leading European retailer enforces compliance.
Thirdly, RFID will not help retailers to sell more razors or bars of soap. Instead, the technology has the potential to redistribute market share and drive sales for different companies that sell razors and bars of soap. Early adopters will get a disproportionate share of the wealth, and the laggards will be the companies who suffer in terms of lost market share.
Fourthly, retailers will not explicitly be paying for RFID. Instead, the costs will be distributed across supply chain partners. In fact, each link in the supply chain will be looking for cost savings to help offset the cost of the technology. By the time the carton or pallet gets to the retailer, the cost of RFID will have to have been partially absorbed by each partner. Whatever costs cannot be absorbed in the supply chain will have to be absorbed through lower margins, but will not be passed on as higher costs to the consumer.
Size Doesn't Matter
Fifthly, in all probability there will be no 'second 100'. Though Wal-Mart's recent announcement on RFID covered only its top 100 suppliers, every vendor that supplies products to Wal-Mart wants to show that it is a good and deserving trading partner. That means each and every one of them is going to work hard to support RFID. This is because they neither want the competition to get ahead or to be asked to comply.
Finally, remember that RFID technology is still evolving. Great strides have been made under the guidance of the AutoID Center and its member companies to bring order to this technology. These developments, combined with a critical mass of companies interested in RFID, are fuelling the growth of the technology.
The Internet boom of the late 1990s should serve as a cautionary tale here. As with the growth of any new technology, there will be the emergence of several dozen or even hundreds of companies that can offer RFID solutions. In the end, it is important to work with partners that understand the technology and its business implications. As a rule of thumb, companies that have participated in the work of the AutoID Center are your best place to look for solutions. These companies have already moved up the learning curve and can help you get compliant faster and with lower risk. Remember that RFID is a lot more than just a bar code replacement.
The Wal-Mart announcement has provided many companies with the confidence they need to pursue RFID and not just in the world of retail. Shortly after the Wal-Mart announcement, for example, I spoke with someone from the defense ministry of a Western European government. He referred to RFID and Wal-Mart and felt that he should do something. This reaction spoke not only of the power of the world's largest retailer, but also of the power of RFID.
Recommendations to lay the foundation for an effective RFID implementation: 1. | Retailers should carefully assess their business requirements and develop a plan of infrastructure changes necessary to meet them. | 2. | Leverage existing infrastructure assets as an RFID starting point. | 3. | Implement RFID applications in stages to remain within budget, maximize return on investment and minimize disruption. | 4. | Ensure in-house storage systems can support the huge data collection efforts. | 5. | Ensure data cleanliness, as this is vital to the success of an RFID rollout plan. |
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