Kimberly-Clark Believes in the Future of RFID - ' RFID Seen as a '

When Tadych told Assink about his conversation with O'Shea, the CIO immediately saw that RFID was going to be a major initiative—the kind of project that would warrant FOAK status. And the hunt was on.

Assink, O'Shea and their colleagues began building their business case for significant investment early on, working toward a presentation to Kimberly-Clark's executive steering committee.

That committee, which includes the heads of the company's product groups and some of its top executives, makes a number of the company's operating decisions—including approving the global IT budget.

The case Assink and O'Shea were building became a no-brainer when Wal-Mart began talking up the technology in 2002. As a result, RFID got an easy green light from the executive steering committee that same year.

Of course, Kimberly-Clark wasn't the only consumer goods giant spurred to action by the Wal-Mart mandate. Sony Corp., Johnson & Johnson and Procter & Gamble Co. all have representatives on the board of EPCGlobal. But Kimberly-Clark is "clearly an innovator," according to Bill Hardgrave, who runs the RFID Research Center at the University of Arkansas.

Staying on the shelves at Wal-Mart—and at Target Corp., Albertson's Inc., Metro Group and Tesco Corp. (other big retailers pushing for RFID)—was not the main reason Kimberly-Clark was interested in the technology, however. It was only the ante.

RFID means money, probably big money, for Kimberly-Clark: The company has the potential to wring huge efficiencies out of its supply chain by revolutionizing inventory management. Bar codes have to be seen to be scanned, and empty shelves have to be noticed by someone before they can be restocked.

But a shelf with an RFID reader can sense that there are no more Huggies, Size 5, on the shelf, and automatically send a message to the retailer, the distributor and even the manufacturer.

That should translate into higher sales, for both the retailer and the wholesaler, though how much higher remains to be seen. Hardgrave, who conducted a study on Wal-Mart's use of RFID, speculated that the technology could increase sales by about a half percentage point. That might not sound like much, but for a $300 billion company such as Wal-Mart that comes to $1.5 billion a year.

Kimberly-Clark also said it expects RFID to improve inventory tracking. Despite investing heavily in building a world-class supply chain, the company still gets calls from customers claiming they were shorted on orders. In fact, it gets such calls every day. O'Shea said the customers probably received the boxes, but don't have the right bar code information, so it seems as if they don't have them. And if there is a shortage, then there's probably an overage in another store.

But the truth is that RFID's impact on Kimberly-Clark's business is still to come.

Today, less than 1 percent of the goods Kimberly-Clark ships carry RFID tags, and that's only at the case and pallet level. For that matter, only a handful of retailers are currently pushing for RFID (though, of course, one of them does happen to be Wal-Mart).

Even tagging the actual shelves is a completely separate, and huge, investment. A typical Wal-Mart store has 12,000 four-foot shelves. That's a lot of shelves to equip with RFID readers.

All of which means that Wall Street isn't exactly rewarding Kimberly-Clark's share price for its efforts. "It's not something investors should be paying much attention to yet," said Jason Gere, an analyst at A.G. Edwards & Sons Inc. He said he thinks it will be at least a couple of years before RFID starts to have any kind of material impact for large consumer goods companies such as Kimberly-Clark and Procter & Gamble.

However, Gere said he does think it's good that Kimberly-Clark is ahead of the curve on RFID. "I'd be concerned if they weren't doing it. I think it can be an important piece of any consumer packaged-goods strategy a couple of years down the road. They should be doing the legwork."

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Kimberly-Clark Believes in the Future of RFID

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