One Supplier Likes What It's Getting From Wal-Mart's RFID PushOne Supplier Likes What It's Getting From Wal-Mart's RFID Push

Wal-Mart's three-year push to get suppliers to tag cases and pallets of products with RFID chips has been a long slog. Many food and consumer-goods companies, surviving on slim profit margins, say they can't justify investing in the technology with no guaranteed payback.

One midsize company that has complied with Wal-Mart's RFID (radio frequency identification) mandate is seeing the returns. Pacific Coast Producers sells $400 million a year worth of packaged and canned fruit to Wal-Mart and other grocers that resell the food under various store brands, including Great Value at Wal-Mart. It complied with Wal-Mart's mandate in January 2006 and has since gone beyond it, says CTO and VP of IS Peter Wtulich.

Pacific Coast is benefiting from Wal-Mart's in-store RFID effort. Data generated shows which stores aren't doing a good job keeping its products on shelves. Wal-Mart and Pacific Coast are using that data in conjunction with other information to figure out how to improve those stores' performance. The supplier has even created a cross-functional RFID team of IT, sales, its distribution center, and customer service employees, who work with Wal-Mart to discuss ways to improve inventory control and collaborate on ways to maximize sales during promotional events.

Pacific Coast started its RFID initiative modestly, deploying the technology on its packing line and at loading dock doors. It tags only a handful of products, including diced and stewed tomatoes, where store brands face the most competition. Its Oracle and JD Edwards ERP system integrates data from the RFID system with other applications, Wtulich says. Data from manufacturing and shipping systems is captured with Data Systems International software and analyzed by OATSystems' OATaxiom RFID business intelligence software, along with data from Wal-Mart's Retail Link system. Pacific Coast plans to tag more items within the next few years.

THE UNCONVINCED
But that company is the exception. Just 600, or 3%, of Wal-Mart's 20,000 suppliers use RFID, prompting the retailer earlier this year to slow down plans to put the technology in 12 distribution centers. So far, it has equipped only five distribution centers. A few deep-pocketed suppliers, such as Procter & Gamble and Kimberly-Clark, have rallied on Wal-Mart's behalf, but they have failed to convince many smaller suppliers. Meeting Wal-Mart's RFID mandate requires that suppliers invest in RFID software and systems and fund the ongoing costs, which include buying RFID tags; providing support; storing, managing, and analyzing the data generated; and redoing business processes.

With so few RFID-chipped products coming into its distribution centers, Wal-Mart has shifted its focus to in-store applications that give it more information on when products get on store shelves and how long they stay there--data that can be equally valuable to the retailer's suppliers. This approach has helped Wal-Mart reduce out-of-stocks for RFID-tagged products. RFID-enabled stores have readers at loading dock and sales floor entrances and even at trash compactors where tagged boxes are destroyed. Data from these readers lets employees know what needs to be restocked; suppliers can link into the inventory system to check supply levels.

For Wtulich, suppliers who ignore Wal-Mart's mandate are making a mistake. They should take the perspective that if it's important to their customers, then it must be important to them, he says. For Pacific Coast, meeting Wal-Mart's RFID demands has meant increased sales with the retailer, he says, "and that's got to be an ROI for us."