Wal-Mart Begins Roll-Out of Electronic Product Codes in Dallas/Fort Worth

Eight manufacturers participating in first phase of implementing radio frequency identification technology at the case and pallet level

Eight manufacturers participating in first phase of implementing radio frequency identification technology at the case and pallet level

Bentonville, AR  April 30, 2004  Wal-Mart today proclaimed the dawning of a new era in supply chain management as the retail giant and eight product manufacturers began testing electronic product codes, or EPCs, at select Wal-Mart "supercenters" and one regional distribution center in the Dallas/Fort Worth area.

This pilot is the next step in Wal-Mart's addition of radio frequency identification (RFID) technology to improve product availability for Wal-Mart customers. The real-world trial follows testing at the company's RFID lab and months of collaborative preparation by Wal-Mart and its suppliers. Field equipment testing has been underway in Texas since mid-month, but nothing with an RFID tag was placed on store shelves.

"It is imperative that we have the merchandise the customer wants to buy when they want to buy it," said Linda Dillman, executive vice president and chief information officer. "We believe RFID technology is going to help us do that more often and more efficiently. This will help us increase customer satisfaction in the near-term and ultimately play an important role in helping us control costs and continue offering low prices."

Wal-Mart has set a January 2005 target for its top 100 suppliers to be placing RFID tags on cases and pallets destined for Wal-Mart stores and SAM'S CLUB locations in the Dallas/Fort Worth area. Since announcing that initiative nearly a year ago, 37 additional suppliers have voluntarily chosen to meet that same milestone. The implementation beginning today will pave the way for achieving this goal.

EPC vs. Barcodes

While bar codes can tell a retailer that it has two boxes of product XYZ, EPCs help distinguish one box of product XYZ from the next. This allows retailers greater visibility in monitoring product inventory from supplier to distribution center to store.

RFID technology  which facilitates EPC  has been in use since the 1940s. Anyone using a toll tag or unlocking a car door using a keyless remote is already using RFID.

In the supply chain application, passive RFID chips with small antennae are attached to cases and pallets. When passed near a "reader," the chip activates and its unique product identifier code is transmitted back to an inventory control system.

Some consumer groups have raised concerns about privacy issues with regard to RFID, fearing that businesses  or the government  could scan the tags from afar to track consumers and their purchases. Dillman played down those fears, and Wal-Mart noted that the readers it uses have an average range of 15 feet.

"We can certainly understand and appreciate consumer concern about privacy," Dillman said. "That is why we want our customers to know that RFID tags will not contain nor collect any additional data about consumers. In fact, in the foreseeable future, there won't even be any RFID readers on our stores' main sales floors."

Dillman did say that RFID and EPC could directly affect consumers at some point in time, although she emphasized the potential positive impact. "Down the road there are so many possibilities to improve the shopping experience that we hope customers will actually share our enthusiasm about EPCs," she said. "As we look forward five, 10 years, we see the possibility of offering expedited returns, quicker warranty processing and other ways to minimize waiting in lines. There are also positive product recall implications and a critical ability to combat counterfeit pharmaceuticals."

Continuing, Dillman drew comparisons with a previous technology transformation in the retail supply chain. "If you think about it, this is really repeating the steps we took in introducing barcodes into our stores back in the early 1980s," she said. "And we're seeing much of the same consumer uncertainty that came with that technology. We're confident that EPCs will prove to be just as valuable to retailers and, more importantly, to their customers as the bar code."

Participating Suppliers

The eight manufacturers participating in the first phase of the trial are The Gillette Co., HP, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle Purina PetCare Co., The Procter & Gamble Co. and Unilever, all major consumer packaged goods (CPG) companies.

"We are grateful to these companies for their commitment to improving the supply-chain process," Dillman said. "It isn't easy being a pioneer. It takes time, it takes resources and it takes vision. But that's how progress is made and these eight companies are at the forefront of revolutionizing the way we all do business.

Dillman said that Wal-Mart's other supplier were making progress as well. "We'll be bringing additional suppliers into this trial in the weeks ahead," she said. "That's possible because companies are seriously exploring what this technology can do for them above and beyond anything they are doing to address our goal  something we have advocated from the beginning."

Dick Lampman, HP senior vice president for research and director of HP Labs, put a positive face on the trial run. "As an early adopter of RFID in our own operations, we can attest to the tremendous advantage it affords businesses and their customers," he said. "We believe RFID will help retailers, manufacturers and other users reduce supply chain costs while speeding the flow of merchandise from the factory, through the distribution center and to the retail store, ultimately providing customers with better product availability."

Field Test Starts Small

Initially, a total of 21 products out of the more than 100,000 products carried in a typical "supercenter" will be included in the trial. Cases and pallets containing these products will feature EPCs when delivered to Wal-Mart's Sanger, Texas, regional distribution center (DC), where RFID readers installed at dock doors will automatically let Wal-Mart's operations and merchandising teams, as well as suppliers, know this exact shipment of products has arrived and is inside the building. Cases will then be removed from pallets and processed as usual through the distribution center.

Wal-Mart is targeting 100 percent readability of pallet tags through dock doors and 100 percent readability of case tags on distribution center conveyor belts.

At seven pilot stores in the Dallas/Fort Worth area  specifically in the communities of The Colony, Decatur, Denton, Hickory Creek, Lewisville and Plano  RFID readers at dock doors will replicate the process from the distribution center by automatically confirming that this particular shipment is now in the store's back room. Individual products will then be stocked as needed.

During the initial test, tagged cases and pallets may be distributed to stores throughout North Texas and South Central Oklahoma  the geographical area served by the Sanger DC. As suppliers expand their efforts to meet the requirements of multiple retailers, it is possible that tagged cases and pallets will arrive at Wal-Mart stores around the country. However, readers will not be installed in stores outside the Dallas/Fort Worth area, so those cases and pallets would be handled as usual, according to Wal-Mart.

Although Wal-Mart and its suppliers are focusing on case and pallet level tagging, there are instances where a case can also be a product's individual consumer packaging. This is especially true for electronic items. In the test beginning today, three products  two HP Photosmart photo printers and an HP ScanJet scanner  may feature RFID tags on the outer packaging consumers see on store shelves. That outer packaging will be marked with an EPCglobal symbol.

Wal-Mart and EPCglobal

EPCglobal is a joint venture of EAN International and the Uniform Code Council. It is the organization chosen by industry to develop standards for RFID technology in the global supply chain based on user needs and business requirements.

As a charter member of EPCglobal, Wal-Mart says it fully adheres to its core principles related to privacy issues, including consumer notice, consumer education and consumer choice. EPC education pamphlets will be available to interested parties at Dallas/Fort Worth area stores. Consumers may choose to retain or remove RFID tags after purchasing the tagged HP products.

Wal-Mart's Linda Dillman and HP's Dick Lampman serve on the board of directors of EPCglobal.

Wal-Mart stores already feature signage notifying consumers that electronic tagging systems unrelated to EPC are in use for theft prevention measures. During the initial RFID test, Dallas/Fort Worth area Wal-Mart pilot stores will feature supplemental signage to help customers further identify the tagged HP products. These signs, featuring an EPCglobal symbol, will be placed at relevant shelf and/or aisle locations, Wal-Mart said.

The remaining 18 products that will be delivered to the store in tagged cases or pallets for the test, but that will not be tagged individually on the shelf, include various brands of paper towels, lotion, cat food, shampoo, feminine hygiene products, laundry detergent, deodorant, shaving cream, soap, toothpaste and peanuts.

Wal-Mart, which is number one on the Fortune 500 listing, with $258 billion in revenues, operates Wal-Mart stores, "supercenters," "neighborhood markets" and SAM'S CLUB locations in the United States and Puerto Rico, as well as in Canada, China, Mexico, Brazil, Germany, United Kingdom, Argentina and South Korea. In Texas alone, Wal-Mart employs more than 130,000 "associates" and operates 92 Wal-Mart discount stores, 196 "supercenters," 26 neighborhood markets, 69 SAM'S CLUB locations and 12 distribution centers.

For more information on trends relating to RFID, see the following SDCExec.com articles:

For more information on the use of RFID solutions in the supply chain, see "Needle in a Supply Chain Haystack," the Net Best Thing column in the January 2002 issue of iSource Business (now Supply & Demand Chain Executive) magazine.
For more information on Procter & Gamble's initiatives around the electronic product code, see "What's Still Missing in B2B?," cover story in the June/July 2003 issue of iSource Business, for views on this issue from Procter & Gamble Chief Information Officer Stephen David.