Radio Shipment-Tracking: A Revolution Delayed

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Analysts say it's a lot easier to deploy RFID in a closed loop, when one party doesn't have to coordinate efforts with many other companies.

However complicated its task, Wal-Mart is still considered one of RFID's trailblazers (see BusinessWeek.com, 2/04/04, "RFID: On Track for a Rapid Rise"). By January, 2007, Wal-Mart expects that 600 suppliers will use RFID tags to label cases and pallets to the retailer. Wal-Mart is also expanding the number of

participating stores, bringing another 500 online by the end of January, for a total of 1,000 retail locations.

For Wal-Mart, the benefits are many. RFID is helping the world's largest retailer reduce the number of out-of-stock items, a problem that plagues all retailers. Across the industry, about 8% of products will be out of stock on store shelves at any given time.

HOW TO KEEP SHELVES FULL.

"One out of every 12 items on your list won't be there for the average consumer," says Bill Hardgrave, executive director of the RFID Research Center at the University of Arkansas. Out-of-stock items are the result of a number of factors, including inaccurate forecasting and ordering by the store.

When Hardgrave conducted a study over a six-month period at 24 Wal-Mart stores in 2005, he discovered that 22% of all out-of-stock products were in the store, but not on the shelf. Further studies by the center revealed that for a majority of items, RFID was able to help reduce out-of-stock items by about 30% and for faster-moving items—those that sold 7 to15 products per day—it could reduce out-of-stocks by 62%. That in turn can "mean a potential uplift in sales of 1% for both retailers and suppliers," says Hardgrave.

Electronic product codes, when used with RFID, can also help manufacturers and retailers make the most of in-store promotional displays. Too often, individual stores don't properly coordinate display timing and availability of an advertised product. "Manufacturers invest quite a lot of money running weekly promotions," says Greg Aimi, director of supply-chain research at AMR Research. "There wasn't any visibility by the manufacturer as to how that was transpiring."

GRADUAL BUY-IN.

So Procter & Gamble's (PG) Gillette used Wal-Mart-supplied software to monitor the movement of promotional displays from the distribution center to the Wal-Mart store backroom and ultimately to the store floor.

Until now, many manufacturers have implemented RFID, sometimes grudgingly, at the behest of Wal-Mart, Target, and other retailers. "Most consumer goods manufacturers that have been mandated to fit these cases with RFID tags don't see a payback at all," says Harrop.

But the Gillette study, conducted with the Massachusetts Institute of Technology and IESE Business School at the University of Navarra in Spain, found that using electronic product-code alerts to monitor and assist in moving displays to the floor yielded a 19% sales increase. That's just the kind of evidence that IT and finance departments may need before joining RFID's delayed revolution.

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King is a writer for BusinessWeek.com in San Francisco .