The New Just-In-Time
Wal-Mart's pushing RFID (radio frequency identification), but what's the ultimate payoff?
All of Wal-Mart's top 100 suppliers know the significance of January 2005. On that date, these suppliers must comply with the retailer's demand that all case and pallet shipments must be tagged with RFID (radio frequency identification). It's a specific objective with a hard deadline. And regardless of the grumbling, Wal-Mart's suppliers will all come into compliance.
But, what happens after January 2005?
RFID: The Next Generation
Tracking cases and pallets is just the first step in leveraging RFID technology. The next logical extension is item-level tracking where RFID tags, smart shelves, and readers combine to provide an unprecedented level of supply chain visibility. This technology basically creates a self-aware supply chain. Items "announce" when they are removed from shelves and placed in carts. Planners know merchandise levels within a store in real time. There's no more cycle counting or end-of-day polling.
There's no reason to believe that item-level tracking won't become a reality. Wal-Mart had to publicly distance itself from a planned pilot program earlier this year to appease some privacy advocates, but those issues will eventually be settled. When item-level tracking is in place - admittedly, this might take 8 to 10 years - Wal-Mart will really be in position to radically alter the traditional supply chain.
Can A Retailer Operate In A JIT Environment?
At some point, Wal-Mart will have complete visibility that ranges from its top suppliers through to its top customers. It will have complete control over its inventory and will be making decisions based on up-to-the-minute, store-level data. At that point, how far is Wal-Mart from becoming a JIT (just-in-time) retail outfit? If your organization is running that lean, do you really need distribution centers? "That's where all of this is headed," intimated an RFID vendor in a recent conversation. "Case and pallet tracking will save Wal-Mart tons of money. But that's just pocket change compared to what Wal-Mart could save by running a JIT supply chain. The technology is getting mature enough to be effective, and Wal-Mart is so large that it can force compliance. From where I'm sitting, those are the two dynamics at play."
Just over a year from now, many suppliers will be face-to-face with Wal-Mart's January 2005 deadline. Unfortunately, most of the retailer's suppliers will move forward under the motto, "You don't need to get the concept, you just need to get in compliance." The smarter suppliers, however, will use the next 14 months to understand RFID technology and its strategic implications. These suppliers will never be able to dictate policy to Wal-Mart, but they will be able to adjust to newer compliance issues as they arise. And, more importantly, they will garner some of the savings that Wal-Mart expects.