When it comes to tracking assets, there is one wireless application that is projected to expand dramatically over the next few years—radio frequency identification, or RFID. Retail giant Wal-Mart is reportedly sending out requirements to its suppliers, demanding that they use RFID tags on all pallets and cases shipped with deadlines for implementation staggered through the end of 2004. The RFID tags will give both the suppliers and the retailer accurate knowledge of what stock is where at all times, resulting in perfect inventory visibility.
For Wal-Mart, perfect inventory visibility means, among other things, that it won’t suffer stock outages. With perfect inventory visibility, the retailer will always know, well in advance, when stocks are running low. That means that stocks can be replaced before they are completely depleted. Wal-Mart reportedly estimates lost sales due to stock outages at about 4 percent. And 4 percent of a quarter trillion dollars in annual sales is a lot of safety razors.
Shelf level hurdles
While RFID tags are so far being tested and rolled out on the case and pallet level, there is some hope in the consumer packaged goods industry that the tags will eventually migrate to the retail shelf, thus completing visibility from plant floor to the retail point-of-sale.
The idea has raised privacy concerns among consumer advocacy groups, however. Wal-Mart, for one, reportedly cancelled plans recently for a pilot test to evaluate RFID technology for tracking products at the store shelf level, in part due to these privacy concerns. Moreover, some around the industry insist that vendors will never be able to provide uniquely programmed tags cheaply enough to warrant sticking them on dollar packs of gum.
“The tags we provide are primarily for the case level,” notes Thomas M. Pounds, vice president of corporate development, at Alien Technology, a manufacturer of low-cost RFID tags, in Morgan Hill, Calif. Analysts claim that the cost of a tag needs to drop below 5 cents before it can be used at the individual product level. “We’re doing some tests with inexpensive tags at the item level to experiment with how that works,” says Pounds, but he concedes that the cost of tags will not likely get to the 5 cent level, even in quantities of billions. “It’s pretty easy to do the math around silicon technology,” explains Pounds. “With today’s technology today you hit the limit at approaching 5 cents. But five years out, who knows?”
But even if RFID is restricted to the case and pallet level, it can make a major difference in controlling inventory. For some industries, RFID can potentially solve a nasty problem of tracking goods.
Take almost any large electronic component original equipment manufacturer. These companies produced staggering volumes of inventory at high costs during the end of the late 1990s bubble, even as demand dwindled. Why? Because they didn’t realize they were overstocked at their contract manufacturers across the globe. They didn’t even know they had a stockpile of inventory at their own locations. Three years later, these companies are still trying to dump billions in excess stock they didn’t know they had in late 2000. Tell them about the value of perfect inventory visibility.