Study Sees RFID Savings For Wal-Mart

RFID could make for happier Wal-Mart shoppers, a study showed.

University researchers found a 16 percent reduction in so-called “out of stocks” at Wal-Mart Stores that were using RFID to track products from the time they left the factory to when they were sold off the shelf.

The independent study, released on Friday by the RFID Research Center at the University of Arkansas, sought not only to find out whether use of the product tracking technology improved operations, but also to quantify any savings. The study was commissioned by Wal-Mart.

They found a 16 percent reduction in out-of-stocks, as well as a reduction in excess inventory. Moreover, items bearing electronic product codes (EPCs) that could be read by RFID readers were replenished three times faster than comparable items marked with bar codes. Overall, RFID-enabled stores were 63 percent more effective in replenishing out-of-stocks than the control stores.

“This is no longer a take-it-on-faith initiative,” Linda Dillman, executive vice president and CIO for Wal-Mart, said in a statement. “This study provides conclusive evidence that EPCs increase how often we put products in the hands of customers who want to buy them.”

Gartner analyst Jeff Woods said studies analyzing the business case for RFID are one of the most important efforts in the industry. “It’s admirable and beyond the call of duty for Wal-Mart to step up to the plate with this much information,” he said.

Wal-Mart jump-started the RFID industry with a mandate that its top 100 suppliers begin using RFID tags on shipments to the stores. It later extended the mandate to its top 200 suppliers.

University researchers spent 29 weeks analyzing out-of-stock merchandise at 12 pilot stores equipped with RFID technology and 12 control stores without the technology.

“Our analysis consistently found — throughout the test period — that the RFID-enabled pilot stores statistically outperformed the control stores without RFID technology in terms of providing improved on-shelf availability of items for customers,” said Bill Hardgrave, director of the RFID Research Center at the University of Arkansas and executive director of the Information Technology Research Institute, in a statement.

Gartner’s Woods said that the study has essential implications for manufacturers, suggesting they could sell more in Wal-Mart stores if they have RFID tags on their products. “It also creates incentive for manufacturers to adopt RFID faster than their competitors,” he said. “If their products have RFID tags and others don’t, they will sell more and increase their brand loyalty.”

RFID-enabled Wal-Marts also were able to reduce stock, reducing manual orders by around 10 percent. The company said it’s using the technology to reduce inventory throughout the supply chain.

The retailing giant now is in the final stages of testing Gen2, the next generation of RFID technology that was ratified in December 2004. Gen2 tags will be lower in price and more secure. The company plans to complete its transition to Gen2 tags by the middle of 2006.

In the meantime, it will more than triple the number of stores where RFID has been installed. By the end of October, Wal-Mart will have more than 500 stores and clubs and five distribution centers live with RFID. It will continue rolling out the technology, with the goal of 1,000 RFID-enabled facilities by the end of 2006.

By January 2007, Wal-Mart expects the next wave of 300 suppliers to start shipping tagged cases and pallets.

“Wal-Mart is under pressure from suppliers to explain exactly what this business case they keep talking about is,” Woods said. “A lot of suppliers came back to Wal-Mart and said, ‘If we don’t see some kind of business case, we won’t proceed with this trial. Wal-Mart needed to establish a quantified and coherent business case for the suppliers.”

While the study was good news for Wal-Mart, it’s a bummer for Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN) and other consumer privacy organizations. On October 15, some 75 people demonstrated outside a Dallas Wal-Mart Superstore to raise consumer awareness of what they call “spy chips.”

The protest wasn’t about Wal-Mart’s use of RFID to track shipments, said Katherine Albrecht, founder and director of CASPIAN, but about its use on individual products, a practice known as item-level tagging.

“Our concern is that this will open the floodgates to item level tagging across the board,” she told internetnews.com.

CASPIAN is especially worried about Wal-Mart’s partnership with NCR , a company that, among other things, provides technology for data mining and analysis of retail operations.

Albrecht is co-author of the book “Spychips: How Major Corporations and Government Plan to Track Your Every Move with RFID.”