Wal-Mart Suppliers Cautious on RFID

A report from AMR Research (Boston) suggests that the top 100 suppliers to Wal-Mart Stores (Bentonville, Ark.) have invested only $250 million on Radio Frequency Identification (RFID) systems to meet the retailer’s minimum requirements.

Last year, the retailing giant said that as of January 2005 all Wal-Mart merchandise would have to carry RFID tags, and the responsibility for converting to the new technology would rest on the merchandise manufacturers and suppliers.

The new AMR Research study shows that the 100 suppliers do not view RFID as a strategic investment and have patched systems together just enough to meet Wal-Mart’s compliance deadline, spending about $1-$3 million each — enough to purchase tags, readers and minimal software. In order to see any significant benefit, suppliers would have had to integrate RFID into their applications, change existing software and enable large volumes of data to be stored, a cost to each supplier of $13-$23 million.

“There were too many hurdles to overcome in too short a period,” said Kara Romanow, AMR research director. “Many of Wal-Mart’s suppliers are more convinced than ever that there is no ROI, and even worse, consider their technology investments to be a throwaway thus far. Because of this, they’ve only spent the bare minimum needed to comply.”

The AMR study found that (a) the cost of hardware, software and tags is still higher than the industry expected; and (b) there’s little to no return on investment (other than, perhaps, the ability to continue working with Wal-Mart).

“Fast followers, both retailers and manufacturers other than Wal-Mart’s top 100, should pay careful attention to the lessons learned thus far,” Romanow added. “While cost still prevents positive business cases for low-value products, retailers and manufacturers should look at high-value product areas like consumer electronics, DVDs, pharmaceuticals, high-end apparel or sporting goods where there is a strong, positive business case.”