Analysis: RFID – Wal-Mart’s Network Effect

Wal-Mart’s new push to require its top 100 suppliers to use RFID tags on cases and pallettes of consumer goods shipped to its distribution centers and stores by January 2005 will give the sensor technology its first broad, real-world test. There are cost, technology and privacy concerns related to the broader use of these sensors, but Wal-Mart’s mandate represents a commitment to work out the kinks.

On June 11, Linda Dillman dropped a bomb on the retail industry. Wal-Mart Stores Inc.’s CIO announced that, as of January 2005, the world’s largest retailer would require its top 100 suppliers to put radio frequency identification (RFID) tags on all pallets and cases they ship to its distribution centers and stores. The news sent suppliers and competitors scrambling to learn about the wireless technology, which enables companies to identify and track items in the supply chain automatically.

Then less than a month after Dillman’s bombshell, just as executives were beginning to grasp what it would mean for the retail industry and for suppliers, news reports revealed that Wal-Mart had cancelled a “smart-shelf” trial with The Gillette Co. The trial would have used RFID technology to monitor how many razor blades were on a store shelf in Brockton, Mass. Many media stories took this to mean that Wal-Mart was backing off its commitment to deploy RFID in stores because of concerns raised by privacy advocates.

Next page: Why Wal-Mart halted its first RFID experiment.