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Tuesday, December 28, 2004

Radio Tags Will Take Time,Despite Wal-Mart's Edict

NYTimes writes, an year and a half ago,Wal-Mart served notice that it expected its top 100 suppliers to be shipping goods to it with new radio tagging technology by Jan.1, 2005. Excerpts with edits and my comments added :

Wal-Mart's experience so far has served as a reminder that creating the future is not all that easy. With Jan. 1 just days away, the technology is not yet ready to meet the needs of either Wal-Mart or its suppliers. The tags, which are typically about the size of a credit card and contain an antenna and microchip encased in plastic, receive query signals from scanning devices called readers. Using the energy captured from those signals, they broadcast a snippet of code identifying the goods to which they are attached.
To date, most of Wal-Mart's suppliers have not figured out inexpensive ways to automate the printing and application of the tags
. Although read rates are improving, no one who uses the technology has systems that can reliably read the information 100 percent of the time in factories, warehouses and stores; Wal-Mart said the rate was around 60 percent in its stores. Nor is the data currently integrated well enough with other technology to initiate changes in manufacturing or shipping schedules that could actually save the large sums of money that would make the investment worthwhile. Wal-Mart's official position is that it is working closely with suppliers, meeting its goals and learning valuable lessons that will pay off as the technology continues to roll out. But analysts who regularly survey major consumer goods companies said that most participants were cooperating with Wal-Mart out of fear of offending the retailer and were, as much as possible, putting off investments in the technology.
"The big manufacturing companies have advocates for the technology who are very positive, but the people on the floor who are implementing it are much more negative," Kara Romanow, an analyst at AMR Research,said. Wal-Mart's goal was to wring billions of dollars from the supply chain by using the tags to keep shelves filled with whatever consumers were buying, cut back on shipments of other goods and combat theft.The mandate was soon defined in narrower, more practical terms as supplying tagged cartons and pallets, not individual items, to a limited number of stores through just three Texas distribution centers by the Jan. 1 deadline. Wal-Mart said recently that more than 100 suppliers would be tagging bulk shipments to the three Texas centers next month. But only 40 will be tagging everything they send. Of the remainder, two have been so tied up in a complete overhaul of their entire information technology infrastructure that they have put off attempting to introduce radio tagging. Some suppliers will be tagging as little as 2 percent of the goods going to the centers.
"We think the average supplier will be tagging about 65 percent of the volume they ship to the three centers," Linda Dillman, the chief information officer of Wal-Mart, said. AMR, the research firm, said it had found that companies were investing $1 million to $3 million to comply with Wal-Mart's program, far less than the $13 million to $23 million that AMR had estimated in August would be needed for fully integrated systems that generated useful data.Some companies delayed getting started for so long that they are now having trouble getting tags, according to the analysts and Wal-Mart. That problem is expected to recede next year as tag manufacturers expand their production lines. An important stimulant to that came last week, when a next-generation standard for tags and readers was ratified by EPCglobal, a nonprofit industry group. Heavyweights like Texas Instruments and Philips that had not made the first-generation tags plan to enter the market with the newer technology.
Although the progress has been slow, it has an air of inevitability. Radio tagging, known as RFID (for radio frequency identification), has been spreading through the economy for decades in applications like automated toll collection, tracking tags for animals and wireless cards controlling access to buildings.But the technology was not widely publicized until Wal-Mart announced its deadline. Subsequent decisions by other merchants like Target,and Best Buy to push for radio tagging made it unmistakable which way the wind was blowing, at least among retailers. The movement toward radio tags on consumer products gathered momentum when the Defense Department also set a Jan. 1, 2005, deadline for its major suppliers of a broad range of general merchandise and endorsed the tag and scanner standards being developed by a consortium of retailers and major suppliers like Procter & Gamble and Hewlett-Packard.In addition, drug companies are expanding pilot projects of applying radio tags to pharmaceutical shipments. The Food and Drug Administration has set 2007 as its goal for general use of the technology. Separately, Boeing and Airbus are working together on standards for tagging the 5,000 or so aircraft parts that are most frequently handled by airline maintenance crews.

Wal-Mart and other retailers, and many manufacturers, are excited about the technology because the tags can store more information than bar codes, and large numbers of them can be scanned at one time. In addition to its top 100 suppliers, Wal-Mart is working with 38 others that have volunteered to be in the first wave of vendors complying with its mandate. But the pilot testing this year has offered evidence that, before most businesses can justify big investments in the technology, its costs must fall sharply and the scanners must be able to read tags faster and in more varied conditions. To drive down costs, manufacturers want the recently adopted American standards to be made compatible with those being developed elsewhere. Still, if the size of the challenge became apparent in 2004, so were the ways in which it could be tackled. Wal-Mart and others say that, in 2005, not only will tagging be expanded, but there will also be a sharp increase in the testing of software and business strategies that use the data captured from the tags.

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