RFID Makes Its Way Into Microsoft Supply ChainRFID Makes Its Way Into Microsoft Supply Chain

Shortly after the New Year rings in, Microsoft's home and entertainment division will begin shipping RFID-tagged cases and pallets containing Xboxes, computer games, software, keyboards, and mice to Wal-Mart Stores Inc. Microsoft is one of 137 suppliers slated to meet Wal-Mart's January mandate to implement radio-frequency identification technology.

Microsoft has spent the last year investigating RFID and has made it a top priority since March, when the company put together an RFID team and began visiting Wal-Mart's headquarters in Bentonville, Ark., to learn more about the retailer's requirements. In June, Microsoft signed up consulting firm Accenture to help map out its strategy. "Today, we have the guts of the systems and the processes in place, and we're beginning to test read rates and pass product through some of the RFID infrastructure," says Mike Quinn, general manager for North America operations at the home and entertainment division. "We're ready for the January rollout with Wal-Mart." Most cases and pallets of products will leave Microsoft's Memphis, Tenn., distribution center and travel to Wal-Mart's Texas distribution centers, but some products will be sent directly to 132 of the retailer's stores across the country.

In Microsoft's RFID implementation, employees manually affix labels to containers. Quinn declined to identify the software Microsoft uses to process RFID data, which the software maker will use to check real-time inventory levels and shipping information. When goods arrive, Wal-Mart can transmit a signal to Microsoft verifying receipt. At this time, the RFID data isn't electronically transmitted to Microsoft's SAP ERP software.

Read rates aren't perfect yet. Pallets stacked with cases of software have been successfully read better than 90% of the time. "We went in thinking we'd have a much harder time in some of the read-rate tests deep inside a pallet, and it hasn't been the case," Quinn says.

The Microsoft division ships an average of 30 million to 40 million units annually from its distribution center and expects that RFID can move them faster and more efficiently. Microsoft is considering extending RFID to its distributor Technicolor, a Thomson Digital Content Solutions business unit, and Flextronics International Ltd., which manufactures the Xbox in China. Quinn wants the data on RFID chips tied to partners' back-end databases that Microsoft could access. That way, Microsoft could keep better tabs on returns, warranties, and repairs. "For information about the product to travel from China, or wherever it's manufactured, through point of sale is powerful," he says.

The challenge is to keep RFID costs in check. The home and entertainment division, which Microsoft categorizes as "emerging," operated in the red last quarter. Even at the case and pallet levels, RFID could impact manufacturing costs if expenses aren't watched closely. "We don't ship as many cartons and cases as Procter & Gamble, but even for us, it's a significant cost," says Drew Gude, program manager for manufacturing solutions and industry solutions architecture at Microsoft Business Solutions. "So we have to look at the investment just like any other retailer."

Company executives declined to provide specifics but did say Microsoft will recoup expenses and drive value by taking its RFID implementation beyond what's referred to as slap-and-ship compliance, where tags are affixed to goods just before they're sent out.

Microsoft has more to gain from its RFID initiative than many other consumer-goods companies. It can use the experience to improve its ERP software. Microsoft Business Solutions earlier this year began building RFID capabilities into its Navision and Axapta applications.