Wal-Mart suppliers burdened with daunting RFID effort

Wal-Mart Stores this week drew over 120 suppliers to a meeting it hosted to detail its guidelines for using RFID tags on shipping pallets and cases of merchandise.

Only the top 100 suppliers face the January 2005 deadline that the retailer has set for compliance with its radio frequency identification technology directive, but the rest have been asked to follow suit by the start of 2006.

Some analysts and consultants said most of Wal-Mart's suppliers will be challenged to meet the deadline, and they will be hard-pressed to come up with a plan well enough conceived to justify the expense.

"Right now, the benefits are primarily for Wal-Mart, and the costs are the responsibility of the suppliers," said Kara Romanow, an analyst at AMR Research in Boston. Romanow estimated start-up costs at US$13 million to $23 million for a supplier that ships 50 million tagged containers per year. Costs include RFID tags, readers, system integration and changes to supply chain applications, she said.

Romanow said she thinks cost-sharing discussions between Wal-Mart and its suppliers will be needed. The tags, one of the key potential discussion points, currently range in cost from 20 cents to 50 cents, according to analysts and consultants.

Wal-Mart said its RFID rollout will start at Texas distribution centers serving about 150 stores and continue incrementally across the country. The schedule for the rest of the retailer's 108 distribution centers and 3,000 stores will be shared with suppliers later, on a rolling basis, through Wal-Mart's extranet site, called RetailLink, a company spokesman said.

Jeff Woods, an analyst at Gartner, said the quickest and cheapest way for suppliers to meet the January deadline for Wal-Mart's three Dallas-area distribution centers is by adopting a "slap-and-ship" strategy of merely affixing tags to case and pallets as they leave the shipping dock.

But some analysts and consultants said the only way suppliers will be able to justify the expense is to do the necessary supply chain and business process re-engineering that ultimately will help them to take advantage of the more granular and accurate information.

That will take time. Jonathan Loretto, a Toronto-based consultant specializing in RFID at Cap Gemini Ernst & Young, said the "Wal-Mart 100" face 18 months of hard work to comply with the retailer's requirements. He estimated first-year costs at $15 million to $18 million per supplier for the hardware, software, other systems and labor.

John Cummings, an analyst at BearingPoint, said many suppliers put plans on hold while waiting for final details from Wal-Mart, but they no longer have the luxury of delaying their RFID projects.

Wal-Mart told suppliers that it will focus on UHF tags that transmit in the 868-MHz-to-956-MHz range, and it will accept tags utilizing Class 0 or Class 1 protocols for communicating with readers.

Class 0 is factory-programmable only, and Class 1 is field-programmable, so retailers and suppliers can program the tags, said Sue Hutchinson, product manager at the U.S. subsidiary of EPCglobal. Also, with Class 0 tags, the inbound and return signals are at different frequencies, and with Class 1 tags, they're at the same frequency.

The Class 0 and Class 1 protocols were specifications were developed by the Auto-ID Center at MIT. EPCglobal, a joint venture between EAN International and the Uniform Code Council, has since picked up the torch from the Auto-ID Center.

Wal-Mart spokesman Tom Williams said the company is pushing for a globally accepted standard communication protocol, Class 1 Version 2 (C1V2), through EPCglobal. But he said this shouldn't present a hardship if suppliers follow its recommendation to purchase "agile" rather than protocol-specific readers, since agile readers have software that can be updated to read different types of tags.

At least two vendors, SamSys Technologies and ThingMagic, said they will soon have agile readers for Class 0 and Class 1 available, with plans to support C1V2 once it is finalized.

But suppliers currently face tag-related decisions. Many suppliers to Wal-Mart are also suppliers to the Department of Defense, which has backed ISO standards as opposed to the EPCglobal proposals that Wal-Mart is promoting.

Analysts, however, said they don't expect the ISO vs. EPCglobal issue to drag on long term. "They will eventually merge, and people shouldn't worry about that now," said AMR's Romanow.

Another potential burden that has been lifted from suppliers' shoulders, at least for now, is the need to use the Physical Markup Language to tag product information and an Object Name Service database server, according to analysts and consultants familiar with Wal-Mart's plans.