Wal-Mart Stores is working with its top 100 suppliers to deploy radio frequency identification (RFID) tags for tracking crates and pallets in its supply chain beginning January 2005.
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RFID uses low-powered radio transmitters to read data stored in tags, at distances ranging from 1in to 100ft.
The tags are used instead of bar codes and can contain a lot more data, allowing manufacturers, suppliers and retailers to track and manage assets more efficiently.
Wal-Mart's decision to ask its suppliers to support RFID tags could lead to a faster adoption of the technology and a common standard around it, according to Kevin Ashton, executive director of MIT's Auto-ID Centre.
The Auto-ID Centre is working with the Uniform Code Council to develop a standard electronic product code (EPC) for carrying information on RFID tags. The centre's sponsors include companies such as Wal-Mart, Gillette and Procter & Gamble.
"Everybody is looking for clarity on this technology and its future," Ashton said.
"The fact that the largest retail company in the world is publicly adopting EPC open standards should give companies confidence that the day of a single, interoperable RFID system is close at hand."
By asking its top 100 suppliers to support RFID technology, Wal-Mart hopes to improve inventory management and gain better visibility into the supply chain, said Pam Kohn, vice-president of the company's global supply chain operations.
Although RFID tags can be used to gather and track a variety of product-related data, Wal-Mart's initial effort will be narrow, focusing mainly on better inventory management.
Deploying RFID tags at the pallet and crate level with its top 100 suppliers will involve about one billion tags, Kohn said.
Scaling up to meet Wal-Mart's RFID requirements will prove a "major challenge" for the RFID industry, according to Bill Allen, marketing communications director for the RFID division of Texas Instruments.
Texas Instruments has alreadly shipped 200 million RFID tags to date.
Meeting Wal-Mart's price of five cents per tag could be another hurdle, Allen said, since they now sell in the range of 30 cents to 50 cents. Allen said only economies of scale could drive the price down further, and Wal-Mart's plans certainly meet the volume requirements.
But neither Texas Instruments nor the Philips semiconductor division of Philips Electronics, the other large RFID chip manufacturer, has the capacity to meet Wal-Mart's requirements right now.
The lack of capacity could mean Texas Instruments would have to build new semiconductor fabrication facility which could cost more than $1bn (£600m) to build.
Gary Robertson, executive director of global infrastructure at Delphi, a vehicle electronics manufacturer which uses RFID technology in its manufacturing operations, said Wal-Mart's decision to use RFID in its supply chain "will legitimise [the technology] and push it into the mainstream."
Wal-Mart's move to adopt RFID comes at a time when a growing number of companies are considering the technology.
Marks & Spencer has just completed a rollout of RFID technology in its food supply chain. The project involved the deployment of 13.5-MHz RFID tags on 3.5 million plastic trays used for shipping food.
The company started testing RFID in its supply chain in 2002 and has subjected the tags to a variety of temperature, moisture and read-distance tests before deploying them. Eventually, they will help improve accurate item tracking, visibility and availability in the supply chain.
Kraft Foods North America is also looking at the possibility of using RFID in its supply chain.
Jaikumar Vijayan and Bob Brewin write for Computerworld