Quantifying Wal-Mart's gain from RFID

A news article from 2005 assessing the effectiveness of RFID implementation

Wal-Mart Stores Inc has offered the first piece of quantifiable data that shows the benefits of its RFID rollout, which currently is one of the worlds largest.

Wal-Mart, which has mandated that its suppliers use RFID technology, commissioned the University of Arkansas to conduct a 29-week study to analyze out-of-stock merchandise at 12 pilot stores with RFID and 12 control stores without the technology. The study, which Wal-Mart stressed, was independent, found a 16% reduction in out-of-stocks and that out-of-stock items with RFID were replenished three times faster than comparable items using traditional bar codes. Wal-Mart also saw a 10% reduction in manual orders, which mean a reduction of excess inventory. This is no longer a take-it-on-faith initiative, said Wal-Mart CIO Linda Dillman, in a statement. The company also reiterated its intentions to use the newest hardware standard, known as EPCglobal Generation 2, which is expected to become the first RFID standard to be ratified by the International Standards Organization early next year. Gen2 truly makes the 'sub 10-cent' tag become a reality, Dillman said. Given the recent drop in price of Gen 2 tags, which has been 70% in some cases, Wal-Mart said it expects to begin accepting goods tagged with Gen 2 tags in January and expects to stop receiving older-generation tags by mid-2002. But don't wait - make the transition to Gen2 as soon as possible, Dillman said to suppliers. Her comment likely will set suppliers' eyes rolling. This year, Wal-Mart, the world's biggest retailer, began to install RFID equipment in more than triple the number of its stores where RFID technology already exists. By November, the company would have more than 500 retail outlets and five distribution centers equipped with RFID. By the end of 2006, more than 1,000 outlets will be RFID live. About 130 suppliers currently ship to Wal-Mart using RFID technology, and another 200 suppliers are expected to join then in January. By early 2007, the goal is to have more than 600 suppliers using RFID

Reference: news article from the Logistics Business Review, publiched 18^th October 2005

WalMart and RFID, What Walmart wanted RFID to do for them

Wal-Mart dreamt of achieving a great RFID enabled, fool proof, error free, transparent supply chain. RFID readers were installed st the stores and various centres. WalMart intended to budget this technological expansion by covering in the normal capital budget.

The company has installed RFID readers at the receiving docks, at the back of the building, near the trash compactors, and between the backroom and the retail floor.

RFID enables the store operators to know what is inside a contained by just waving the container having an RFID tag, the reader at the receiving dock records the data at the time of arrival, This ward off the ‘need’ to actually open the box to know the contents of the box. It is known beforehand what are the contents of the box. This also helps in reducing time loss during shipment. Before bringing the contents to the sales floor, tags are read again. Sales point are devoid of any RFID reader but to account the inflow and outflow material, readers are available at the box crusher point, thus cycle completes. The tag entered the database with arrival and finishes with the crushing of the box.

The software helps in keeping a track of different items sold to the customers and the number of items brought down to the sales floor. Information thus generated tells about the particular items that will be depleted from the shelves. The software keeps generating a list of items that need to be picked from the go-down or backroom on to the shelves.

Handheld RFID counters are provided by WalMart which act like Geiger counters WalMart has deployed them as pilot devices in some stores and will be deploying them in other stores.

Wal-Mart has also established a retail link extranet with all its suppliers. This enables them to share data from all RFID read points with their suppliers. When a case is brought out to the sales floor, the status reads  'being put on the shelves' , when at the trash compactor the status changes to  'on shelf' .

Thus within 30 minutes the suppliers get updated on the movement and location of their goods. Suppliers are also learning how to match tags with products and where to place tags for optimum readability. This initial experience will keep them ahead of their competitors.

Wal-Mart expects this technology to:

• manage inventory more efficiently,
• reduce numbers of data entry errors, and
• lower human labour costs in a distribution center

The retailing major is intending to use the data to keep track when stock is running low on shelves or when items have been stolen. The other advantages expected are:

The movement of inventory can be tracked
  - Goods can be received and shipped faster
  - Ease of predicting product demand
  - Shoppers can save time
  - Out of stock situations can be avoided
  - Shoppers get a better deal as system becomes more efficient
  - The right products are available at the right stores at the right time
  - Boost sales 

With all these advantages in sight, Wal-Mart is confident of sure success to ensue on adopting this technology.

Using the Supply Chain for competitive advantage

The latter half of the last century i.e. 30 years, saw some phenomenal advances in the efficiency and effectiveness of industries in terms of their supply chain and logistics. Concepts like SixSigma, Lean manufacturing, Kanban cards, Kaizen, Just in time etc. were the undercurrent of development in the industrial world. In fact companies like DELL and Nokia considered their supply chains as the basis for competitive advantage in the market. FedEX, DHL were actually competing on time and cost savings. Implementation of ERP was also a buzzword. 

more updates coming on this issue very soon....

Why RFID now??

There are certain factors that should be accounted for before having a technology started in the industry. Talking in terms of RFID we can consider four factors. STANDARDS in the absence of some global standards and regulatory body that can formulate some define rules and regulations technologies take up varied faces and are rendered un-interchangeable. Consider left hand and right hand driven cars, or the difference in electrical appliance sockets in US and other places, I am not saying any of these are less efficient than other or vice-versa, but absence of standards makes the technology region centric. If any such thing happens technology is not able to get the global flavour and becomes redundant. Standards can decide what bandwidth of spectrum to use in what applications, directives for usage of RFID on animals and humans.

Second standards that can be considered is COST, any new technology aspire to cut cost and effort, but the technology should not be so costly that the saving that is intends to make become insignificant. SUPPLY, supply of the technology, its installation, training, maintenance and query resolution are utmost important, in the absence of these facilities the technology will become a cognitive burden on the organisation trying to put it to use. When WalMart initiated the RFID tagging the hardware market (tags, reader, printer) were expected to grow to $5 billion in a span of 5 years, at a steady and healthy growth rate of 41%. HARBINGER, first movers have advantage, but that comes laced with risk, so naturally leaders in industry are expected to comply with new technology, as it happened in this case also WalMart, The US DoD and other leading companies gave the Harbinger effect.

The implementation of RFID is not only because of business motives there are societal forces behind it also, their roots are in the terrorist attack of 9/11 attack, and the mad cow disease that grappled The US which led to banning of potential prior-tainted animal feeds in the US in 1995. The forces grew with public distrust of corporate financial reporting which gave birth to Sarbanes-Oxley Act.

The Tipping Point

It doesn’t require very smart bunch of grey cells to tickle to make one understand that this blog speaks about RFID and its business impact, just to give a small brief, RFID or Radio Frequency Identification is not a new or disruptive technology, RFID was developed in 1969 and patented in 1973. So why is everyone is talking about RFID, RFID tagging and all sorts of impacts that it carries with it, what started this discussion. This article basically is all about that tipping point that kick started all this discussion that hovers around RFID. In 2003 out of the blue WalMart the biggest player in retail in the world, asked it 100 most celebrated suppliers to comply with its demand of have all their products radio tagged. So what was the order that WalMart came out with --- “In June 2003 Wal-Mart first announced its plan to implement RFID technology in its supply chain by January 2005; this caught many of the suppliers unawares. Though the plans envisaged compliance from the top 100 suppliers, around 129 suppliers jumped into the fray, afraid of being left behind in the race”. Following the footsteps of WalMart other US and European retail companies started similar RFID initiatives, including Albertsons, Carrefour, Metro, Target and Tesco. To add more salt to the whole story The US Department of Defence issued a similar directive. The technology came out of thin air and before anyone could possibly pant and take a fresh look, thousands of companies, suppliers, resellers, retail companies, sales, courier companies fell under some kind unsaid but compliant RFID initiative.

Okay, Fair enough, everyone’s on the RFID bandwagon, but now not one but two question arise; first, Why Did These Companies get served with a mandate? Second what was wrong with the prevalent bar coding system? What was so compelling about this technology that companies were ready for a risk in the disruption of their supply chains? RFID tagging and labelling was not just another tag on case or a pallet, it required phenomenal amount of re-jig in the company’s operations.

Companies were required to have

·         System in place to serialize the tags

·         System to read, track and leverage value out of all the data

·         Systems to synchronise data-driven processes within the supply chain.

That’s too much of a significant change to bring about.

The basic premise at that time, I mean circa 2003 was is RFID actually a revolutionary technology or is it just like another of that cost burdening technology. As someone posted a cartoon on some newspaper that I happen to read some time ago, the cartoon depicted a person under a swarm of paper and files, while an overseer was basking in the glory that they needed to increase the paperwork because they wanted their organisation to go lean so they may reduce paperwork, “more paperwork to attain less paperwork” What we can today say with much surety, just like the personal computer, the fax machine, the internet and bar codes in their inception, RFID has the potential to transform commerce. RFID promised to take people out of the identification and data collection loop. A study by IBM showed that RFID reduce labour involved in the receipt of goods by 60 to 90 percent. Proctor & Gamble reduced the number of forklift drivers at a manufacturing plant.

Labour savings is not where the bigger benefits of RFID lie. Rather bigger benefits come from RFID’s potential for solving a data-availability problem. 

RFID improves product availability at the retail level without adding inventory by helping companies better track, automate the flow of and understand the condition of goods in the supply chain. 

a study by Grocery Manufacturers of America found that consumers cannot find the product they are looking for 8 percent of time. Advertised products face out-of-stock problem twice as frequently as non advertised products. When shoppers are unable to track the product of their choice, buying decision is generally postponed or they shop the product elsewhere. This puts around $6 Billion dollars of sales in limbo. WalMart estimates that RFID will allow recapturing one percent of revenue by improving out-of-stock. This translates into about $2.5 billion.  We have discussed how RFID can help in maintaining inventory and helping us ward off out-of-stock problem, the flipside problem is of excess inventory. According to various estimates 30% of inventory is buffer stock which exists just because of the fact that the supply and demand information is not precise.

RFID devices in Humans

RFID devices utilize wireless technology to transmit data via signals in the radio frequency range. Data is stored on an electromagnetic chip that is attached to an antenna, and is packaged in a manner that can be planted on the surface of materials, animals and humans. These devices are of two types: Active and Passive. Passive devices have no internal power supply, limited range and a limited storage space that cannot be modified. Active devices are more versatile with internal power, higher range and more data storage space.

Active devices pose a high risk to the confidentiality and privacy of the humans. Considering this, the US Food and Drug Association (FDA) has only approved the passive chips for human implantation. These devices are implanted into patients with chronic diseases such as coronary artery disease, chronic pulmonary disease, diabetes mellitus, stroke and seizure disorder or are implanted into patients with medical devices such as pacemakers, stents or joint replacements. The device is of the size of a rice grain and can be implanted using a hypodermic-type needle.

DATABASE MANAGEMENT: RFID tags expedite access to medical history of patients. The data on the chip can be read by an RFID reader installed in the hospital and the medical record database can facilitate access to patient records, medication lists and diagnostic tests. The information on these chips should be properly integrated with the different departments in the hospital such as pharmacy and laboratory so as to be effective. With the evolution of newer versions and designs of chips in the market, there are compatibility issues with the interrogation devices and older database management systems.

PHYSICAL RISK TO PATIENTS:  Although these devices are removable, once implanted they migrate under the skin and are difficult to extract. A new technology has been developed that makes the tissues to surround and encase the device that makes it easier to locate these. But there have been instances where these devices cause electromagnetic interference with electrosurgical devices and defibrillators. These may also affect the efficacy of some drugs.

PATIENT PRIVACY AND SECURITY:  Physicians must assure that there is no divulgence of patient medical information which may lead to embarrassment, social discrimination, loss of health care coverage or other detrimental consequences. Keeping this in mind, the FDA requires the transponders to have special codes for individual identification of patients. The medical community should also advocate the adoption of other security tools such as computer encryption or digital signatures.

OTHER ISSUES: RFID can also be used in the tracking and surveillance of individuals who pose a threat to others.  Critics also say that this is an infringement upon patients’ liberties and should involve his informed consent. But every technology has its pros and cons and the onus is on the physician community to promote the use of this technology as a less intrusive alternative.

The US government has made strict laws that prohibit anyone from forcing anyone to get an RFID implant. The normal cost of a RFID chip is 50 cents nowadays and the dimensions are 12 mm*2.2 mm.

Baggage Handling By Airlines

One of the major problem faced by the airlines is how to handle the baggage of the fliers ? lost baggage, delayed baggage arrival and other baggage related issues are quite mundane with airlines.Airlines try to compete with each other in terms of better in flight services, pretty air hostesses, timely arrival and departures but baggage handling is one area which is often neglected.
It is estimated that annually $760 millions are spend by the airlines on this problem of lost or misplaced baggages on addition to it is the cost related to increased safety measures due to increased instances of terror threats.Unaccompanied baggage is not allowed to be loaded in passenger flights and reconciliation of tags with the passengers who have already boarded the flight is a cumbersome process.

Airline baggages is fixed with large stick -on bar code tag at the time of luggage check in.The luggage then move on various conveyors which have bar code readers mounted on them to scan each baggage that come in its effective range. The problem with this system are that bar-code reader require clear lie of sight , in case the tag is misaligned, it cannot be read. labels are often unreadable due bunching of baggages owing to improper loading by the staff deployed.Tags may be worn out or dirty enough to make it impossible for bar code reader to read them.
The baggage is then Routed to correct bay where a baggage carrying trucks ensure pickup and delivery to the right aircraft. As the baggage is loaded in the hold of the aircraft they are once again scanned by the bar code scanner to scan each piece of baggage and information is relayed to central computer that which bags have made it to aircrafts hold.
During this time passenger begin boarding the aircraft,their boarding passes are swiped and this data is fed automatically into the computer system. Now this data is available as passenger manifest, which tells the airline staff which of the checked in passenger actually boarded the aircraft.This is tallied with passengers baggage and one to many relationship is established between passenger and pieces of baggage.All this process ensure that unaccompanied baggage should not be travelling in the aircraft.

 In case it is found that unaccompanied bag is being loaded into the hold, that bag is unloaded from the hold which is quite complicated as the baggage attended has to enter the hold and search for that bag amongst the clutter of bags with only hand held bar code scanner at his disposal.It also poses other problem such as whether this bag was supposed to be loaded in some other aircraft but due to improper reading was loaded in tis aircraft.This entails manual intervention on part of airline and coordinating with various people to reunite the passenger with his bag.In case of transit passenger the situation worsens as bags and passenger moves from one terminal to the next.

Instead of ordinary bar code stick-on labels , RFID inlay stick-on labels can be used.These have printed portions as well as RFID tag inlay which be either a read only or write once read many type.These tags can be read by RFID readers mounted at various locations on conveyor belts.

The advantages of such system are :

• Many bags can be read at a time unlike bar code scanners. This speeds up baggage handling process.
• RFID readers can read tags even if they are misaligned or dirty.
• Retrieving bag from hold is easy as hand held reader need not to be in line of sight and it can read multiple bag tags simultaneously.

This technology is presently being used in major airports of the world which have lot of traffic due to transit passengers for example Hong Kong airport.

Emirates Airline Employee with RFID Tag on Bag 

Future Scenario:

• IATA may make it compulsory for all airlines as well airports to install RFID reader systems and tags.
• Government and security agencies would also promote the initiative for enhance security of the airports and flights.
• Newer or airports undergoing up gradation to newer control and automation system may provide facilities for both bar code reader as well RFID for baggage handling to ensure maximum passenger friendly environment.