Talking RFID with Wal-Mart's CIO

Linda Dillman explains why the retailing giant is so gung ho about the tracking technology and why suppliers are signing up to test it

When the world's largest retailer, Wal-Mart (WMT ), announced last summer that it would require its suppliers to move to a new system called RFID (radio frequency identification) for tagging cases and pallets of goods, it left the retail industry all shook up. Afraid to fall behind, competitors began looking into implementing the technology, which allows stores and their suppliers to track goods -- everything from toothpaste to TVs -- in real time. Hundreds of suppliers have begun pilot-testing the technology, and that could soon turn RFID chips and related gear into hot sellers.

While many suppliers have feared that RFID will lead to lots of extra costs, that hasn't been Wal-Mart's experience, says Linda Dillman, the retailer's chief information officer. She adds that its suppliers are, in fact, volunteering to adopt RFID.

On Jan. 29, Dillman talked about this technology with BusinessWeek Online reporter Olga Kharif. Here are edited excerpts of their conversation:

Q: What are the benefits of RFID for Wal-Mart?


The technology will help us know where inventory is all the time. Today, we might know a case is somewhere in the store, but we don't know if it's in the back room or on the shelves. RFID will tell us it's in the back room, for example. That will help improve our shelf management, so we can make sure merchandise is available when it's needed.

That, in turn, could increase our sales, as well as sales of our suppliers. Cost savings isn't the primary benefit for us of RFID, keeping goods in stock is. We'll see better tracking and moving of inventory, faster receiving and shipping, improved quality inspection, fewer out-of-stock items resulting in improved shopper satisfaction, greater predictability in product demand, and better value for the shopper as efficiencies occur.

Q: What kind of equipment will you need for RFID? Do you expect the implementation to be speedy?


We'll install RFID tag readers at our distribution centers and our stores. We'll also buy equipment for printing tags. But we expect this will be covered within our normal capital budget. We invest in new technologies every year.

Q: A lot of suppliers are worried that this will be a tough transition. What are you hearing from them?


We've met a few times already with the suppliers who'll be among the first to implement RFID. We've also assigned a Wal-Mart executive sponsor and a Wal-Mart program sponsor to each supplier to ensure that we're all working together in good faith to make this happen.

Now, we're going through planning with every supplier. And we're getting very positive feedback. As of two days ago, we had 129 suppliers signed up for the RFID program, though we've only asked our top 100 suppliers to participate.

The amount of money suppliers will need to spend on RFID technology isn't as big as some people fear. In our stores, we essentially put in a black box that sits at the top of our legacy IT systems and sends us information from the tags. For suppliers, the setup will be similar. RFID also won't lead to a significant change in the amount of data we'll have to deal with -- so it won't, in most cases, require extra spending on basic software and hardware.

Q: What's the timeline for the implementation at Wal-Mart?


We will pilot-test it through 2004 in the Dallas market area starting with a small group of suppliers. Our goal is to be live with the top 129 suppliers by January, 2005, in the Dallas market. All other suppliers are being asked to comply by the end of 2006.

Q: A lot of people are skeptical about RFID. They say that, due to the technology's limitations, accurate read rates on some items can be very low. How soon do you think these difficulties can be overcome?


The technology has been moving at an incredible pace the past 12 months. Only in the past 60 days, researchers have figured out how to tag cases containing liquids. We expect that, by 2006, most of these issues will be past us, and that prices [for RFID] will fall substantially -- leading to an explosion in the technology's adoption.

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