Derek Petersen
Wal-Mart paper
"Wal-Mart's Future Technological Innovation"
There are many things that separate Wal-Mart from other retail and sales corporations. They can range from their willingness to spread out all over the world, to their strategy of placing stores in small rural areas in order to appeal to the overall need of low prices. All of these things are fairly well documented for being influential in Wal-Mart's success, but what is often over looked by the public is what goes on behind all of the publicity and politics. At the fundamental level, it is Wal-Mart's logistics and technology that is the seed of Wal-Mart's success. This technology is what has allowed Wal-Mart to expand all over the world and still remain organized enough to analyze sales, determine inventory that has to be shipped to all of the stores, and determine future prospects. It is clear that keeping up in the technology has allowed Wal-Mart to rise to the top by using technology that allows for the best efficiency. It is questionable however if Wal-Mart will try as hard to keep up with technology now that the corporation is on top. Clues to this question were revealed when Wal-Mart found out about Massachusetts institute of technology's (MIT) experimentation with Radio Frequency Identification Technology (RFID).
It turns out that in the last four or so years Wal-Mart has had been testing and experimenting new technology that could eventually replace standard bar codes. The technology is called "radio frequency identification" or RFID. The Auto ID Center was created by MIT in 1999 in order to take a close look on how RFID technology could help businesses track and manage products using embedded sensors (Wailgum, 2004). They ended up suggesting an electronic product code, or EPC, as the latest technique for recognizing products (Wailgum, 2004). The EPC would use radio frequencies to identify computer chips placed in RFID tags (Wailgum, 2004). Unlike bar codes, this device would not require the reader to aim directly at the product to read it, but instead would just need to get in range. There are two parts to the RFID system: the first is the tag. The tag consists of an antenna and a chip (Williams, 2004). The chip contains a unique string of numbers that identifies each product, and holds info about that product (McCullagh, 2003). The antenna is used for relaying the information from the tag to the reader, which is then relayed to the computer (Wailgum, 2004).
Tags can come in two forms, either passive or active. Active tags have a battery. Passive tags get their energy from the antennal devices (known as readers) and are less expensive and more common (Wailgum, 2004). This means that Wal-Mart will probably never use active tags until the technology becomes extremely inexpensive, considering how concerned Wal-Mart is with efficiency.
The tags often come in the form of tiny ribbons about half the size of a Wal-Mart smiley face sticker or smaller. These tags can be packaged in forms like labels, stickers, plastic wristbands, or are just embedded between the cardboard layers in a carton (Williams, 2004). On the microchip is stored information about the product that the tag is attached to (Vijayan & Brewin, 2005). This information can be used to determine where the product has been where it will go and what kind of product it is. This information will help determine the amount of each product that needs to be ordered.
The second part of the system is the reader. The reader identifies the tags as they pass by. The passive tags are mobilized when the magnetic from the antenna comes in to contact with the tag as the reader approaches. The tags then transmit their digital information, in the form of the electronic product code, from the reader into a computer(PC) or computers that are used to regulate the distribution of goods (Wailgum, 2004). The computer(s) is then updated on the location of the product.
The promise of this technology is in its ability to increase efficiency. Estimates have indicated that 10 percent of Wal-Mart's overall costs are associated with storing, transporting and keeping track of goods. It is predicted that if the RFID technology could save about 6 to 7 percent of those costs (Shim, 2003). Using 2002 costs of about 217.8 billion dollars, the technology would have saved about 1.3 billion to 1.5 billion (Shim, 2003). Since Wal-Mart started using the technology the time that it takes to restock RFID-tagged items is about one third that of regular items. The tags have also reduced out-of-stock merchandise by 16 percent at the stores that have begun to use the technology (Associated Press).
Other then increasing efficiency the tags also will be able to be read in places where bar codes can't, including inside a product, or at extremely cold temperatures. There is also the ability for a large number of tags to be read at once (Overfelt). This not only means that Wal-Mart will be more efficient in distribution practices, but will also cut down the time it takes to ring up items at the register, which will further encourage customers to shop at Wal-Mart. Although Wal-Mart is not the only company or retailer that will use RFID, the fact that Wal-Mart will be the first retailer to use it will probably result in Wal-Mart being the first one to perfect it. This could bring customers to Wal-Mart because of the technology before the other stores
Not only will Wal-Mart benefit from the technology but history has shown that when Wal-Mart adopts something innovative it turns streamline. According to AMR's research, in 1973 a bar code standard was approved in 1973, but by 1984 only 15,000 suppliers were using codes on their product (Shim, 2003). Wal-Mart adopted the bar codes in 1984, and by 1987 there were 75,000 suppliers using bar codes (Shim, 2003). Wal-Mart's influence on other companies seems to further encourage suppliers to meet Wal-Mart demands, because they know that if Wal-Mart uses something, other companies will soon follow.
The downside to this technology however is the price; in 2003 the price was 50 to 60 cents for an individual tag. Now the tags cost around 25 to 30 cents per tag (Wailgum, 2004). In order to be practical for manufacturers to use, calculations have shown that they will have to drop to 5 cents per tag (Shim, 2003). Not only will the price of the tags have to decrease, but the tags only had around 50 to 60 percent tag read accuracy. Wal-Mart wants 100 percent read accuracy (Schwartz). The read accuracy is an obstacle that engineers will strive to overcome until it meets Wal-Mart standards.
As the cost goes down and the accuracy goes up, Wal-Mart is making plans to apply the tags to individual items. This would allow Wal-Mart to know when and from what shelf goods were purchased, which would allow almost perfect planning of inventory and shelf stocking. Not only that but shoplifting would go down to zero. This is due to the fact that Wal-Mart will have the ability to track individual items as they leave the store which means that shoplifters could be tracked as they leave the store with an item and there fore would never be able to get away. The intimidation caused by knowing that you could be tracked as you leave the store could also prevent shoplifters from even trying to steal from Wal-Mart (Williams, 2004). This would of course create a lot of privacy issues. While this is a problem that Wal-Mart while have to deal with when the time comes, it is obvious that the advantage of being able track individual items will be well worth the hassle of dealing with privacy issues, and will probably entice Wal-Mart to continue experimentation with RFID.
As of right now, Wal-Mart is continuing their use of RFID technology. Last year, 100 of Wal-Mart's suppliers began adding RFID tags to the merchandise they sell Wal-Mart. Wal-Mart plans to add another 200 suppliers to the program this year, and 300 more next year (Hudson, 2006). This not only means that Wal-Mart is continuing experimentation but is increasingly experimenting with the technology. As Wal-Mart adds the tags to more and more items the effect will be substantial considering that Wal-Mart moved about two billion food cases and 2.7 billion cartons of other merchandise through its distribution system last year(Hudson, 2006). This trend of increasing the use of RFID technology can only continue as long as the price continues to drop. Right now Wal-Mart's distribution centers are only attaching tags to large expensive items where the price of the tag itself does not matter as much. That is why Wal-Mart can use the tags now even though the price is not as low as Wal-Mart would like. Tags will not be attached to every individual item until the price is far lower than the item itself.
While this technology still has the big problem of price and a few other kinks that need to be worked out, it is clear that as this technology improves it will increasingly become in the best interest of Wal-Mart for them to take full advantage of this technology if they hope to stay on top. Since Wal-Mart has already begun to employ the technology, given Wal-Mart's track record of being the first to experiment with innovation, and given the promise of the technology, it is probably safe to conclude that Wal-Mart will continue to stay ahead of the competition in every aspect of retailing including the technology.
References
McCullagh, D . (January 13, 2003, 6:26 AM PST). RFID tags: Big Brother in
Small Packages. Retrieved April 2, 2006, from http://news.com.com/2010-1069-980325.html
Hudson, K. (April 18, 2006), The Wall Street Journal. Wal-Mart Says its Logistics
Program is on Track to Be.
Completed by 2005. Retrieved April 18, 2006.
Associated Press. (October 28, 2005). Wal-Mart: Radio-Frequency Tags Boost Sales.
Retrieved April 8, 2006, from http://www.foxnews.com/index.html
Overfelt, M. (March 22, 2006). Wireless grapes. Retrieved April 5 2006
from http://money.cnn.com/magazines/fsb/fsb_archive/2006/03/01/8370332/
Williams , D. (Jul 29, 2004). The Strategic Implications of Wal-Mart's RFID Mandate.
Retrieved March 29 2006, from
http://www.directionsmag.com/article.php?article_id=629&trv=1
Wailgum, T. (Jul 29, 2004). Why Wal-Mart's suppliers won't make the Jan. 1 deadline
for RFID tagging. Retrieved March 27 2006, from http://www.cio.com/archive/111504/rfid.html
Vijayan, J. & Brewin, B. Wal-Mart Backs RFID Technology. Retrieved April 5, 2006,
from http://www.computerworld.com
Shim , R. (June 5, 2003). Wal-Mart throws its weight behind RFID. Retrieved April 1,
2006, from http://news.com.com/Wal-Mart+to+throw+its+weight+behind+RFID/2100-1022_3-1013767.html
Schwartz , E. (September 27, 2004) Sun unveils mock Wal-Mart distribution center.
Retrieved April 10, 2006, from http://www.infoworld.com/article/04/09/27/HNsunrfidwalmart_1.html
Wal-Mart paper
"Wal-Mart's Future Technological Innovation"
There are many things that separate Wal-Mart from other retail and sales corporations. They can range from their willingness to spread out all over the world, to their strategy of placing stores in small rural areas in order to appeal to the overall need of low prices. All of these things are fairly well documented for being influential in Wal-Mart's success, but what is often over looked by the public is what goes on behind all of the publicity and politics. At the fundamental level, it is Wal-Mart's logistics and technology that is the seed of Wal-Mart's success. This technology is what has allowed Wal-Mart to expand all over the world and still remain organized enough to analyze sales, determine inventory that has to be shipped to all of the stores, and determine future prospects. It is clear that keeping up in the technology has allowed Wal-Mart to rise to the top by using technology that allows for the best efficiency. It is questionable however if Wal-Mart will try as hard to keep up with technology now that the corporation is on top. Clues to this question were revealed when Wal-Mart found out about Massachusetts institute of technology's (MIT) experimentation with Radio Frequency Identification Technology (RFID).
It turns out that in the last four or so years Wal-Mart has had been testing and experimenting new technology that could eventually replace standard bar codes. The technology is called "radio frequency identification" or RFID. The Auto ID Center was created by MIT in 1999 in order to take a close look on how RFID technology could help businesses track and manage products using embedded sensors (Wailgum, 2004). They ended up suggesting an electronic product code, or EPC, as the latest technique for recognizing products (Wailgum, 2004). The EPC would use radio frequencies to identify computer chips placed in RFID tags (Wailgum, 2004). Unlike bar codes, this device would not require the reader to aim directly at the product to read it, but instead would just need to get in range. There are two parts to the RFID system: the first is the tag. The tag consists of an antenna and a chip (Williams, 2004). The chip contains a unique string of numbers that identifies each product, and holds info about that product (McCullagh, 2003). The antenna is used for relaying the information from the tag to the reader, which is then relayed to the computer (Wailgum, 2004).
Tags can come in two forms, either passive or active. Active tags have a battery. Passive tags get their energy from the antennal devices (known as readers) and are less expensive and more common (Wailgum, 2004). This means that Wal-Mart will probably never use active tags until the technology becomes extremely inexpensive, considering how concerned Wal-Mart is with efficiency.
The tags often come in the form of tiny ribbons about half the size of a Wal-Mart smiley face sticker or smaller. These tags can be packaged in forms like labels, stickers, plastic wristbands, or are just embedded between the cardboard layers in a carton (Williams, 2004). On the microchip is stored information about the product that the tag is attached to (Vijayan & Brewin, 2005). This information can be used to determine where the product has been where it will go and what kind of product it is. This information will help determine the amount of each product that needs to be ordered.
The second part of the system is the reader. The reader identifies the tags as they pass by. The passive tags are mobilized when the magnetic from the antenna comes in to contact with the tag as the reader approaches. The tags then transmit their digital information, in the form of the electronic product code, from the reader into a computer(PC) or computers that are used to regulate the distribution of goods (Wailgum, 2004). The computer(s) is then updated on the location of the product.
The promise of this technology is in its ability to increase efficiency. Estimates have indicated that 10 percent of Wal-Mart's overall costs are associated with storing, transporting and keeping track of goods. It is predicted that if the RFID technology could save about 6 to 7 percent of those costs (Shim, 2003). Using 2002 costs of about 217.8 billion dollars, the technology would have saved about 1.3 billion to 1.5 billion (Shim, 2003). Since Wal-Mart started using the technology the time that it takes to restock RFID-tagged items is about one third that of regular items. The tags have also reduced out-of-stock merchandise by 16 percent at the stores that have begun to use the technology (Associated Press).
Other then increasing efficiency the tags also will be able to be read in places where bar codes can't, including inside a product, or at extremely cold temperatures. There is also the ability for a large number of tags to be read at once (Overfelt). This not only means that Wal-Mart will be more efficient in distribution practices, but will also cut down the time it takes to ring up items at the register, which will further encourage customers to shop at Wal-Mart. Although Wal-Mart is not the only company or retailer that will use RFID, the fact that Wal-Mart will be the first retailer to use it will probably result in Wal-Mart being the first one to perfect it. This could bring customers to Wal-Mart because of the technology before the other stores
Not only will Wal-Mart benefit from the technology but history has shown that when Wal-Mart adopts something innovative it turns streamline. According to AMR's research, in 1973 a bar code standard was approved in 1973, but by 1984 only 15,000 suppliers were using codes on their product (Shim, 2003). Wal-Mart adopted the bar codes in 1984, and by 1987 there were 75,000 suppliers using bar codes (Shim, 2003). Wal-Mart's influence on other companies seems to further encourage suppliers to meet Wal-Mart demands, because they know that if Wal-Mart uses something, other companies will soon follow.
The downside to this technology however is the price; in 2003 the price was 50 to 60 cents for an individual tag. Now the tags cost around 25 to 30 cents per tag (Wailgum, 2004). In order to be practical for manufacturers to use, calculations have shown that they will have to drop to 5 cents per tag (Shim, 2003). Not only will the price of the tags have to decrease, but the tags only had around 50 to 60 percent tag read accuracy. Wal-Mart wants 100 percent read accuracy (Schwartz). The read accuracy is an obstacle that engineers will strive to overcome until it meets Wal-Mart standards.
As the cost goes down and the accuracy goes up, Wal-Mart is making plans to apply the tags to individual items. This would allow Wal-Mart to know when and from what shelf goods were purchased, which would allow almost perfect planning of inventory and shelf stocking. Not only that but shoplifting would go down to zero. This is due to the fact that Wal-Mart will have the ability to track individual items as they leave the store which means that shoplifters could be tracked as they leave the store with an item and there fore would never be able to get away. The intimidation caused by knowing that you could be tracked as you leave the store could also prevent shoplifters from even trying to steal from Wal-Mart (Williams, 2004). This would of course create a lot of privacy issues. While this is a problem that Wal-Mart while have to deal with when the time comes, it is obvious that the advantage of being able track individual items will be well worth the hassle of dealing with privacy issues, and will probably entice Wal-Mart to continue experimentation with RFID.
As of right now, Wal-Mart is continuing their use of RFID technology. Last year, 100 of Wal-Mart's suppliers began adding RFID tags to the merchandise they sell Wal-Mart. Wal-Mart plans to add another 200 suppliers to the program this year, and 300 more next year (Hudson, 2006). This not only means that Wal-Mart is continuing experimentation but is increasingly experimenting with the technology. As Wal-Mart adds the tags to more and more items the effect will be substantial considering that Wal-Mart moved about two billion food cases and 2.7 billion cartons of other merchandise through its distribution system last year(Hudson, 2006). This trend of increasing the use of RFID technology can only continue as long as the price continues to drop. Right now Wal-Mart's distribution centers are only attaching tags to large expensive items where the price of the tag itself does not matter as much. That is why Wal-Mart can use the tags now even though the price is not as low as Wal-Mart would like. Tags will not be attached to every individual item until the price is far lower than the item itself.
While this technology still has the big problem of price and a few other kinks that need to be worked out, it is clear that as this technology improves it will increasingly become in the best interest of Wal-Mart for them to take full advantage of this technology if they hope to stay on top. Since Wal-Mart has already begun to employ the technology, given Wal-Mart's track record of being the first to experiment with innovation, and given the promise of the technology, it is probably safe to conclude that Wal-Mart will continue to stay ahead of the competition in every aspect of retailing including the technology.
References
McCullagh, D
Small Packages. Retrieved April 2, 2006, from http://news.com.com/2010-1069-980325.html
Hudson, K. (April 18, 2006), The Wall Street Journal. Wal-Mart Says its Logistics
Program is on Track to Be.
Completed by 2005. Retrieved April 18, 2006.
Associated Press. (October 28, 2005). Wal-Mart: Radio-Frequency Tags Boost Sales.
Retrieved April 8, 2006, from http://www.foxnews.com/index.html
Overfelt, M. (March 22, 2006). Wireless grapes. Retrieved April 5 2006
from http://money.cnn.com/magazines/fsb/fsb_archive/2006/03/01/8370332/
Williams
Retrieved March 29 2006, from
http://www.directionsmag.com/article.php?article_id=629&trv=1
Wailgum, T. (Jul 29, 2004). Why Wal-Mart's suppliers won't make the Jan. 1 deadline
for RFID tagging. Retrieved March 27 2006, from http://www.cio.com/archive/111504/rfid.html
Vijayan, J. & Brewin, B. Wal-Mart Backs RFID Technology. Retrieved April 5, 2006,
from http://www.computerworld.com
Shim
2006, from http://news.com.com/Wal-Mart+to+throw+its+weight+behind+RFID/2100-1022_3-1013767.html
Schwartz
Retrieved April 10, 2006, from http://www.infoworld.com/article/04/09/27/HNsunrfidwalmart_1.html
posted by Louise Mengelkoch at
12:36 PM
