Radio Tracking Not Saving Wal-Mart Money

Wal-Mart’s use of Radio Frequency Identification (RFID) was intended to save money on labor and inventory costs, but the savings have not been seen yet, reported the Wall Street Journal. With climbing costs, Wal-Mart needs a new breakthrough in its logistics operations to maintain its low-price advantage, but suppliers are saying that RFID is not the rising-costs answer.

Beginning in 2003, Wal-Mart began setting deadlines for suppliers to start using RFID tags on larger shipments, according to an article in the Wall Street Journal. The company’s key testing areas are Texas and Oklahoma; 600 suppliers are required to use the tags when sending cases and pallets there. Seven-hundred additional suppliers will be added soon, reported the Wall Street Journal.

Wal-Mart once hoped to have up to 12 of its many distribution centers using RFID technology by January 2006. Currently, the technology is installed in only five distribution centers and 1,000 stores. Wal-Mart expects to add a further 400 stores this year, according to the Wall Street Journal.

A typical RFID system consists of a tag (made up of a silicon chip and an antenna) and a reader that communicates with each other using radio signals. The reader sends a signal, and the tag will broadcast or reflect the signal back to the reader. Unlike a bar code, which always requires a person to scan it or at least orient it to be scanned, the RFID system can operate without a person because RFID tags and readers can communicate without seeing each other, that is, without a line of sight.

Currently, manufacturers and retailers are using RFID systems primarily in warehouses and distribution centers to manage the supply chain and increase efficiency. Widespread item-level tagging of products is not expected to be implemented in the near future, largely due to tag costs, though it is a possibility.