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Walmart’s Use of Rfid Technology

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    “Save Money. Live Better. Wal-Mart” is the slogan that most people refer to the retail giant, Wal-Mart. To achieve its company goal and provide customers with the goods they wanted when and where they wanted helped Wal-Mart achieve their competitive advantage. Wal-Mart has become the world’s largest and most powerful retailer with one of the most powerful supply chain. The most important part of Wal-Mart’s supply chain strategy was technology. Wal-Mart has the largest information technology infrastructure of any private company in the world.

    In 2003, Wal-Mart plans to spend $3 billion over the next several years on information technology. (Gilbert, 2013) Wal-Mart has utilized several information systems throughout the past. Some of these technologies are: point of sale, satellite communication systems, data warehouse, retail link systems, electronic data interchange and the most innovative and important technology, the RFID. Wal-Mart was created by Sam Walton in 1962 in Rogers, Arkansas. It started as a small discount store that offers lower prices so people could save money and live better.

    Sam Walton believed that it was the organization’s responsibility to provide the customer with what they wanted, which is friendly service, lower prices, and quality merchandise. (“History Timeline”, 2009). What started as a small discount store has turned into a retail giant. Wal-Mart currently employs 2. 2 million associates around the world. Wal-Mart operates more than 10,700 stores in 27 countries around the world under 69 different banners. (Wal-Mart Annual Report, 2012) It reached annual sales of $466 billion in 2013. The following figure from yahoo finance shows Wal-Mart’s competitor comparison.

    Wal-Mart is in the discount variety store industry. Its direct competitors are: Carrefour, Costco, and Target. Wal-Mart with the revenue of $469. 16 billion dollars is leading the industry. Europe’s Carrefour has the revenue of around $105 billion. Costco has the revenue of around $102 billion. Target Corporations has the revenue of around $72 billion. Other discount variety stores have the revenue of around $72 billion. (Wal-Mart Stores Inc. , 2013) To remain as an industry leader and continue to improve, Wal-Mart invested a lot of capital into its information system. Direct Competitor Comparison| | WMT| PVT1| COST| TGT| Industry| Market Cap:| 235. 27B| N/A| 43. 60B| 40. 93B| 44. 07B| Employees:| 2,000,000| 412,4641| 96,000| 365,000| 96. 00K| Qtrly Rev Growth (yoy):| 0. 04| N/A| 0. 10| 0. 03| 0. 07| Revenue (ttm): | 469. 16B| 104. 18B1| 101. 22B| 71. 86B| 71. 86B| Gross Margin (ttm):| 0. 25| N/A| 0. 12| 0. 30| 0. 25| EBITDA (ttm):| 36. 30B| N/A| 3. 77B| 7. 41B| 3. 77B| Operating Margin (ttm): | 0. 06| N/A| 0. 03| 0. 07| 0. 06| Net Income (ttm):| 17. 00B| 523. 10M1| 1. 80B| 3. 02B| N/A| EPS (ttm):| 5. 02| N/A| 4. 11| 4. 51| 4. 11| P/E (ttm):| 14. 03| N/A| 24. 34| 13. 4| 22. 51| PEG (5 yr expected):| 1. 49| N/A| 1. 72| 1. 24| 1. 44| P/S (ttm):| 0. 50| N/A| 0. 44| 0. 58| 1. 02| | | Pvt1 = Carrefour SA| COST = Costco Wholesale Corporation| TGT = Target Corp. | Industry = Discount, Variety Stores| 1 = As of 2011 | Wal-Mart’s technology has been evolving for the past 50 years. Since the 1980’s, Wal-Mart had been one of the leaders in using information technology. The company began their use of bar codes for scanning point of sales data in 1983. In 1987, Wal-Mart completes the largest private satellite communication system in the United States.

    It links all operating units of company and headquarters with two-way voice, data and one-way video communication. A check-system designed to take full advantage of container bar-code labeling is in the back room of every Wal-Mart store. In 1990, a data warehouse prototype is created to store historical sales data. The Retail Link system was deployed in 1992, to provide vendors with information on sales trends and inventory levels. With the creation of internet, in 1996 Wal-Mart and Sam’s club launched online stores. In 2002, Wal-Mart uses the internet for data exchange with its global suppliers.

    It announced it will deploy RFID technology in 2004. In 2006, Wal-Mart redesigns Walmart. com and starts to experiment with Web 2. 0 and social networking. In 2007, Wal-Mart launched site to store service that enabled online customers to pick up merchandise in store. By looking at Wal-Mart’s technology timeline, one can understands that information technology plays a big role in Wal-Mart’s success. (Wailgum, 2007) According to former CIO Kevin Turner, Wal-Mart has three basic philosophies behind its information system strategy.

    The first philosophy is to run a centralized information system for all of Wal-Mart’s operations all over the world. They have a dedicated information system department located in Arkansas. The second is to have common systems and common platforms. The third is to be merchants first and technologists second. By keeping information system centralized and running on common platforms, Wal-Mart was able to drive cost down and increase efficiency. Wal-Mart’s processes and systems are generally the same whether if it’s a store in Arkansas, Florida or even England.

    Wal-Mart is able to transfer employees from one store to another, and the employees were able to pick up right where they left off. This allows Wal-Mart to decrease downtime or startup time in the transition. (Lundberg, 2002) Radio frequency identification or RFID is one of the most important technologies at Wal-Mart. It brings item tracking to another level. RFID allows Wal-Mart to track their product as it move through the supply chain. Before the implementation of RFID, Wal-Mart was using the traditional bar code system. The bar code system required more manual labor because the bar code must be scanned manually, one at a time.

    The bar code system also store less data compare to RFID tags. RFID tags will decrease labor and inventory cost and improve product availability on store shelves and store can replenish inventory more efficiently. RFID Radio-frequency identification (RFID) is the use of a wireless non-contact system that uses radio-frequency electromagnetic fields to transfer data from a tag attached to an object, for the purposes of automatic identification and tracking. Some tags require no battery and are powered and read at shoArt ranges via magnetic fields. Others use a local power source and emit radio waves.

    The tag contains electronically stored information which may be read from up to several meters away. Unlike a bar code, the tag does not need to be within line of sight of the reader and may be embedded in the tracked object. Application: RFID can be used in a variety of applications, such as: Access management, tracking of goods, tracking of persons and animals, toll collection and contactless payment, smartdust (for massively distributed sensor networks), tracking sports memorabilia to verify authenticity, airport baggage tracking logistics, etc.. following are some companies use RFID.

    Payment by mobile phones: * 2009, two credit card companies developed specialized microSD cards. When inserted into a mobile phone, the microSD card can be both a passive tag and an RFID reader. After inserting the microSD, a user’s phone can be linked to bank accounts and used in mobile payment. * 7-eleven has been working alongside Mastercard to promote a new touch-free payment system. * Nokia’s 2008 device, the 6212, has RFID capabilities also. Asset management * 2009, Wells Fargo and Bank of America made announcements that they would track every item in their data centers using passive RFID.

    Inventory systems * In an academic study performed at Wal-Mart, RFID reduced Out-of-Stocks by 30 percent for products selling between 0. 1 and 15 units a day. * In 2004, Boeing integrated the use of RFID technology to help reduce maintenance and inventory costs on the Boeing 787 Dreamline. It allowed Boeing to keep track of inventory despite the unique sizes, shapes and environmental concerns. During the first six months after integration, the company was able to save $29,000 in labor. Product tracking * In 2005, the Wynn Casino, Las Vegas, began placing individual RFID tags on high value chips. In 2010, the Bellagio casino was robbed of $1. 50 million in chips. Transportation and logistics * Yard management, shipping and freight and distribution centers use RFID tracking technology. In the railroad industry, RFID tags mounted on locomotives and rolling stock identify the owner, identification number and type of equipment and its characteristics. * Some countries are using RFID technology for vehicle registration and enforcement. RFID can help detect and retrieve stolen cars. Identification: * Animal identification * Human identification

    School authorities in the Japanese city of Osaka are now chipping children’s clothing, back packs, and student IDs in a primary school. A school in Doncaster, England is piloting a monitoring system designed to keep tabs on pupils by tracking radio chips in their uniforms. St Charles Sixth Form College in west London, England, started September, 2008, is using an RFID card system to check in and out of the main gate, to both track attendance and prevent unauthorized entrance. Similarly, Whitcliffe Mount School in Cleckheaton, England uses RFID to track pupils and staff in and out of the building via a specially designed card.

    In the Philippines, some schools already use RFID in IDs for borrowing books and also gates in those particular schools have RFID ID scanners for buying items at a school shop and canteen, library and also to sign in and sign out for student and teacher’s attendance. Market: The latest RFID market research from IDTechEx finds that in 2012 the value of the entire RFID market will be $7. 67 billion, up from $6. 51 billion in 2011. This includes tags, readers and software/services for RFID cards, labels, fobs and all other form factors.

    It includes passive and active RFID. Following is the map of world wide RFID potential market. There are many kinds of tags, the following chart show different tags’ market share. 2012 Revenue by Component Type ($ billion) Source: IDTechEx, RFID Forecasts, Players and Opportunities 2012-2022 www. IDTechEx. com/forecasts Disadvantage: With the development of RFID, many problems come out. People are more concerning the following problems: * Data flooding: not every successful reading of a tag (observation) represents data useful for the purposes of the business.

    A large amount of data may be generated that is not useful for managing inventory or other applications. * Lack of Global standardization: the frequencies used for RFID in the USA are currently incompatible with those of Europe or Japan. Furthermore, no emerging standard has yet become as universal as the barcode. * Security: Security concerns exist in regard to privacy over the unauthorized reading of RFID tags, as well as security concerns over server security. Unauthorized readers can use the RFID information to track the package, and so the consumer or carrier, as well as identify the contents of a package. Shielding: in practice, the successful read rates currently run only 80%, due to radio wave attenuation caused by the products and packaging. * Temperature exposure: Currently, RFID tags are created by gluing an integrated circuit (IC) to an inlay. This poses a problem as vibration and high temperatures will loosen the connection. If the IC loses connection with the inlay, the RFID tag will no longer transmit. Wal-Mart’s Supply Chain Management Bruce Richmond of Anderson Consulting stated, “…any lack of accurate information and processes creates costly bottlenecks in the flow of goods and materials. To be the world’s largest and most powerful retailer, a sophisticated supply chain management system needs to be in place. Wal-Mart’s success has largely been attributed to the highly efficient supply chain management practices and use of technology. The company’s goal, to be the low price leader, is accomplished by its active management of supply chain activities to maximize efficiency and deliver goods to the customer at the right time, place, and price. Wal-Mart’s highly automated distribution centers and computerized inventory systems have helped reduce costs tremendously.

    With the use of information technology, Wal-Mart is able to maximize customer value and achieve a sustainable competitive advantage. Their supply chain management practices allow for communication of physical and information flows of goods. Physical flows are the most visible, which include the transformation, movement, and storage of goods and materials. Information flows communicate data to supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain.

    In 1998, Wal-Mart had over 40 different distribution centers geographically located around the U. S. These distribution centers supplied the local retail stores with 85% of the inventory needed, compared to its competitors which only supply 50-65 percent of their stores. In addition, Wal-Mart was able to replenish goods within two days on average compared to competitors of at least five days. Not only has Wal-Mart been a leader in low cost, but also in efficiency. Wal-Mart Introduces RFID Every product that reaches a customer represents the cumulative effort of multiple organizations.

    With the development of technology, Wal-Mart sought to increase efficiency and reduce costs even further by introducing RFID technology to its supply chain management. In 2003, Wal-Mart announced its plans to use RFID technology in its supply chain practices. The retail giant required its tops 100 vendors to tag all pallets and cases with RFID and Electronic Product Codes (EPC’s) by the end of 2005. These RFID tags required a 96-bit Electronic Product Code (EPC) with an international standard Global Trade Identification number operating on the UHF spectrum between 868 MHz to 956 Mhz.

    In 2003, Wal-Mart rolled out a pilot program in its Texas Distribution Centers supporting 150 stores. RFID readers were installed at receiving docks, near the back of buildings, by trash compactors, and between the backroom and retail floors. As incoming shipments with RFID tags were received in the retail stores, inventory would be immediately recorded upon arrival. Even the contents would be known without opening up the cases or pallets. The retail stores could also monitor the availability of items in the back room to be brought to the sales floor as customers made purchases.

    This helped the retail stores replenish inventory instantly, reducing potential loss sales. To minimize time spent on locations inventory to stock store shelves, employees were also given employees scanners that beep when approaching items they are looking for. In 2005, Wal-Mart sponsored a research study from the University of Arkansas’ Information Technology Research Institute to determine the impact of RFID on reducing retail out-of-stocks (OOS). The study concluded that RFID could potentially reduce OOS at store level by 16%. RFID could also reduce Wal-Mart’s labor costs by 15% or $6. billion due to the need of employees having to scan barcodes on pallets and cases, which would be eliminated with RFID. Wal-Mart’s retail RFID compliance program is aimed at reducing the number of times a given product is not available for sale on a shelf, despite that same product being available in the back stockroom. The reduction in out-of-stocks drives benefit for the store as well as the vendor. During a pilot program, Campbell Soup and Smucker’s claimed the Wal-Mart RFID program helped manage promotional efforts by giving vendors the ability to track success of sales promotions.

    The timely feedback on status of promotional sales allowed for the vendors to adjust deliveries, maximizing their benefit from sales promotion. Using RFID allowed this information to be delivered more quickly than traditional supply chain information sharing. Conclusion Wal-Mart’s RFID compliance initiative is to have the ability to use the power of data-sharing between vendors and retailers alike. In general, RFID will assist business in utilizing their assets better by understanding the location, movement, and placement of goods.

    As more industry groups see solutions with RFID use, technology will advance and costs will decrease. According to VDC Research Group, RFID technology is projected to grow at a compound annual growth rate of 19. 5 percent through 2014. RFID is beginning to show its true value as an information technology. Reference Gilbert, Alorie (2003). Wal-Mart Puts Big Bucks Into Tracking Tech. Cnet News, Retrieved from http://news. cnet. com/2100-1008_3-5104493. html History Timeline. (2013). Retrieved from http://walmartstores. com/AboutUs/7603. aspx. Lundberg, Abbie (2002).

    Wal-Mart: IT inside the World’s Biggest Company. CIO Magazine, Retrieved From http://www. cio. com/article/31174/Wal_Mart_IT_Inside_the_World_s_Biggest_Company Wailgum, T. (2007). 45 years of Wal-Mart History: a technology time line. CIO Magazine, Retrieved From http://www. cio. com/article/147005/45_Years_of_Wal_Mart_History_A_Technology_Time_Line Wal-Mart Stores Inc. (2013) Retrieved From http://finance. yahoo. com/q/co? s=WMT Wal-Mart Annual Report. (2012) Retrieved From http://stock. walmart. com/annual-reports WikiPedia Radio-frequency identification, cited at 2/28/1013 from: http://en. ikipedia. org/wiki/RFID Frost & Sullivan, (Nov 25, 2010) The Global RFID Market – The Trend Today and What Lies Ahead, Cited at Feb 28, 2013 from: http://www. slideshare. net/FrostandSullivan/the-global-rfid-market-the-trend-today-and-what-lies-ahead RFID Forecasts, Players and Opportunities 2012-2022, , Cited at Feb 28, 2013 from: http://www. idtechex. com/research/articles/rfid-market-reaches-7-67-billion-in-2012-up-17-from-2011-00004585. asp http://www. logisticsmgmt. com/article/rfid_update_back_on_growth_track/D2 Privacy Concerns

    It is feared that even with all RFID benefits, the public is afraid of the possible infringement into their privacy. The potential abuse of information obtained from product tracking tags has alerted the privacy advocates. Wal-Mart and other companies have started tagging items in stores in US, but none of them have yet installed devices that will kill the tags at the checkout. (The kill switches would let retailers and consumers disable the chips at the checkout counters. ) The argument is that metals, plastics and liquids all block radio signals before they reach the RFID reader devices.

    Even human body, which contains a lot of water, distorts the RF waves. Wal-Mart however insists that individual items will not be tagged for many years to come. The company is emphatic that the RFID tags don’t contain or collect any additional data about customers. In-store RFID testing has stopped and the focus now is on installing RFID systems in warehouses and distribution centers instead. Increase in expenses – the suppliers will have to equip their warehouses and transport vehicles with readers. These readers have to be connected to the computer networks for exchange of information.

    All these mean additional costs related to hiring technical consultants and additional hardware. Wal-Mart inventory networks are burdened with the task of handling data of billions of their products. The company has to hence invest in extremely sophisticated system to process the data properly. In the tie up with IBM Global Services that has resulted in deployment of RFID equipment in grocery sections of seven pilot Wal-Mart stores, IBM consultants have encountered interference from equipment such as handheld walkie-talkies, forklifts, and other devices typically found in distribution facilities.

    Cell phone towers located near the premises, which transmit at the high end of the frequency band, sometimes leak unwanted radio waves into RFID readers. Although very promising, Wal-Mart’s RFID strategy changed in 2007 from tagging pallets and cases shipping to Wal-Mart to the following three areas: Shipments going to Sam’s Club; Promotional displays and products going to Wal-Mart stores; and Tests to see RFID’s impact in improving category management in select areas.

    The two major challenges Wal-Mart faced were the costs associated with advancing RFID technology, which it had hoped to have shared with the world, and its value proposition. When Wal-Mart first announced its plan to implement RFID in 2003, the retail giant had hoped more businesses would help share the cost of lowering the costs of technology. In 2009, the cost First, there was the cost. Many consumer products like toilet paper and laundry detergent have razor-thin margins.

    Requiring tags (which were then estimated to cost anywhere between 50 cents and more than a dollar) on every pallet and case could mean the difference between profit and loss. Then there was the added cost of maintaining two inventory streams — one for Wal-Mart and one for everyone else — and back-end systems to collect and process the prodigious data streaming from the tag readers. Wal-Mart’s earlier efforts were frustrating to a few supply chain partners Leading consumer goods companies Supply chain software makers and manufacturers of RFID tags, readers, label print and apply machines and others, Procter & Gamble, which saw

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