When Wal-Mart threw down the gauntlet and mandated that its top 100 suppliers comply with new RFID (Radio Frequency Identification) requirements for shipping product by January 2005, a wave of panic rippled through the pool of small- and mid-sized consumer products manufacturers dealing with the retailer in the U.S. The huge capital outlay involved in setting up a complete RFID system – as much as US$13 million to US$23 million – layered on top of shrinking retail margins and rising oil costs seemed a bit much to bear.
But it’s been eight months since the likes of Procter & Gamble, Kraft, Mattel and Hasbro have complied, and things have settled down somewhat. In fact, some smaller players are ready to embrace the promise of an accurate, closed-loop inventory tracking system made possible by the technology.
RFID chips contain small antennas that are programmed to emit unique product ID codes and information. Wal-Mart’s suppliers then imbed the chips in labels on selected product pallets and cartons. These labels are scanned by special readers that can relay the info to a central database, so Wal-Mart can keep track of exactly where that product is at all times.
If full RFID systems were applied at an item level, both retailer and manufacturer would know at any given moment exactly how many units of a product had sold through, and which SKUs needed replenishing – which essentially translates into 100% accurate supply chain management that would put products on the fastest possible track to market.
As it stands now, says Kara Romanow, research director for consumer products at Boston, Massachusetts-based AMR Research, this scenario is years away. So far, she’s found little evidence to suggest that a manufacturer would realize any significant ROI with RFID, and its costs are prohibitive for most companies. Romanow’s research indicates that even the largest suppliers are only doing the bare minimum to meet Wal-Mart’s demands. So these companies are putting RFID-enabled labels on select product, and only on orders going to Wal-Mart’s limited number of distribution centers capable of handling them.
But even though they fall outside the Wal-Mart top 100, both Playmates Toys and FUNimation are working to get on the RFID track. Playmates senior VP of operations Ed Chanda says RFID will eventually eliminate out-of-stock situations and misplaced orders. But with RFID labels running at roughly US$0.30 apiece right now, he estimates that significant strides won’t be made until costs come down, and that could be well into 2007.
Senior VP of sales and operations Ward Thomas says FUNimation’s parentco Navarre is looking at third-party distribution opportunities to serve smaller manufacturers that can’t afford the capital costs associated with RFID. ‘If Wal-Mart’s driving it, it’s going to happen,’ he says. ‘Companies are going to have to decide whether to spend the capital or hire someone to do it for them. Long-term, RFID…is going to tighten that supply chain, and both retailers and manufacturers are going to reap the benefits.’