Is it true that as Wal-Mart goes, so go all retailers? As the largest retailer in the United States — indeed, as the country’s largest corporation — its influence is considerable. So when Wal-Mart announces its technology choices, it is wise to take note.
Wal-Mart’s involvement with two new retailing technologies signals their widespread adoption in the coming months and years. One is the discounter’s choice of EDI INT AS2 as its mandated electronic communications protocol, a decision that will have immediate ramifications. The other is its field testing of radio frequency identification technology with Gillette Corp., the results of which are likely to be felt further down the road.
“With its EDI INT AS2 mandate, Wal-Mart is the catalyst for changing how manufacturers and other retailers share information electronically,” says Kimberly Knickle, an analyst at AMR Research in Boston.
Wal-Mart’s choice of EDI INT AS2 could generate a snowball effect in the adoption rate of that technology. Wal-Mart’s thousands of suppliers must now comply with the retailing giant’s wishes and become EDI INT AS2-enabled. Once that happens, Wal-Mart’s suppliers will be in a position to offer the same capability to their other retailing customers. That could motivate those other retailers to adopt the AS2 protocol as their standard as well.
In the case of RFID, the initiative was more Gillette’s than Wal-Mart’s, but the latter’s participation in the testing could be seen as a preliminary stamp of approval. “Wal-Mart does an excellent job identifying new technologies early on,” says Gib Carey, a Wal-Mart expert at the management consultancy Baine & Co. in Boston. “Wal-Mart will typically study the technology for six months and test it for two to three years before implementing it.”
WHAT IS EDI INT AS2?
EDI INT signifies the transmission of electronic data interchange information over the Internet. EDI is a method of electronic document transmission that Wal-Mart first began using over two decades ago. EDI traditionally has been transmitted over value-added networks, private entities that keep the costs of the technology relatively high. Enabling the transmission of EDI information over the Internet puts the technology well within the reach of retail suppliers of all sizes.
AS2 stands for Applicability Statement 2, a communications protocol that allows EDI data to be transmitted over the Internet securely and in real time. EDI INT AS2 packages certified as “eBusinessReady” by Fort Worth, TX-based software testing firm the Drummond Group are available from two dozen vendors. The software ranges in price from $1,000 to $300,000, “depending on the extent to which you can deploy it across your partner network, its additional integration capabilities, and the amount of services that it requires,” according to AMR’s Knickle.
EDI VS. XML
One big question raised by Wal-Mart’s choice involves the future of XML, the simple, elegant, and flexible eXtensible Markup Language that was supposed to displace EDI as the dominant vehicle for e-business information exchange. Wal-Mart’s decision to back EDI INT AS2 demonstrates that entrenched EDI users aren’t rushing to scrap systems they’ve relied on for decades. EDI is doing fine serving retail supply-chain transactions, 95% of which involve basic purchase orders, acknowledgments, and invoices.
Baine & Co.’s Gib Carey believes that it may take ten or fifteen years for XML to catch on in a big way. That leaves Wal-Mart and its supply partners plenty of time to realize a return on their AS2 investments.
UNIT TRACKING WITH RFID
If EDI INT AS2 will have its impact over the next few months, Wal-Mart’s involvement with radio frequency identification technology is a little more futuristic. The end game for RFID involves the tagging and tracking of individual items to provide supply chain visibility, facilitate inventory and distribution efficiencies, and promote revenue enhancements by reducing out-of-stock situations.
RFID tags transmit signals that are captured by strategically placed readers. The key development in RFID technology of late has been the reduction in the prices of tags, from two dollars in 1999 to less than ten cents today. The main technological complement to the radio-frequency tag is the electronic product code developed at the Auto-ID Center of the Massachusetts Institute of Technology as an embellishment to the universal product code or bar code. EPC, like UPC, identifies the manufacturer, product, version, and serial number. But EPC also uses an additional series of digits to identify individual items.
Studies conducted by IBM Consulting and MIT’s Auto-ID Center indicate that item-level tagging could, in a retailing environment, resolve over 50% of out-of-stocks; reduce labor hours by 200 hours per week per store; generate labor savings of more than $4 million per year across an 800-store system; and save between 15% and 50% in labor costs in distribution centers.
GILLETTE AND WAL-MART TEST RFID
Gillette Corp., which manufactures some of the most frequently pilfered retail products on store shelves, purchased half a billion RFID tags from Alien Technology earlier this year, a signal that the costs of the tags had reached an acceptable level. “We thought from the beginning that we needed a ten-cent tag to make RFID work,” says Gillette spokesman Paul Fox. “We are devoting 2003 to understanding how RFID works in a real supply-chain environment.”
To that end, Gillette is conducting field tests that involve tagging cases and pallets at a Massachusetts distribution center and individual products in tests with Wal-Mart and two other retailers: Tesco, in the UK; and Metro Group, in Germany. At its Fort Devens, MA, warehouse, Gillette is installing readers and attaching tags to cases of Venus razors. “The purpose is to know how accurately we can track cases of product from packaging into inventory and from there to the customer order processing area and out the door,” says Fox.
Tests of individual product tagging with the retailers includes Venus and Mach 3 razors and involves testing of “intelligent shelf” technology, in which shelf-mounted readers monitor the status of tagged products. “When the product is close to being out of stock, the shelf will send an alert to the store to replenish,” Fox explains. “Research shows that the top consumer complaint is about not finding what they are looking for on the retail shelf.” In addition to enhancing customer satisfaction by enabling quick replenishment of products, the intelligent shelf technology has the capability to monitor merchandise for theft by alerting the store when an unusual quantity of product is taken.
CANADIAN CONSORTIUM TESTS RFID
Sobey’s, a large Canadian grocery chain, is also involved in RFID field testing as part of a consortium of 20 Canadian retailers, suppliers, and logistics and technology providers. A pilot project testing inbound shipments from a large supplier to a Sobey’s facility was designed to ensure that RFID technology is able to work with the company’s WMS and the global positioning information provided by logistics companies.
According to Beth Enslow, senior vice president for strategic development at Descartes, a Toronto-based logistics technology provider participating in the project, the company is “looking at what new processes RFID can generate.”
One such example Enslow calls “auto receipt,” in which incoming inventory information is automatically read at the dock without human intervention. Says Enslow: “We estimate we could reduce check-in time by 50%, lower the labor costs of the retailer, and speed up inventory through the supply chain, all of which translates to better on-shelf stock positions.”
REVENUE ENHANCEMENT VS. COST CUTTING
That sort of process improvement represents a potential revenue boost for retailers and suppliers alike, according to John Fontanella, an analyst at AMR Research. It is revenue enhancement that constitutes the primary justification for investing in RFID technology, in his view. “Gillette’s efforts at loss prevention benefit retailers more directly,” he says. “But if they sell more, they buy more from Gillette.”
Gillette’s Fox acknowledges that his company’s efforts are designed to add value to its relationships with retailers. “The consumer is the end goal of both retailers and their suppliers,” he says. “We want to develop products that consumers want to buy, but that goal is frustrated when products never get to the retail shelf. That’s why we’re working to provide retailers with a solution to the issue of on-shelf availability.” (As O+F was going to press, Wal-Mart announced that it was canceling a test with Gillette to tag individual items at one of its stores.)
HOW LOW CAN THEY GO?
But the key to the eventual ubiquity of RFID tags on individual products will be their continued reduction in price. “In 1999, it was clear that cost would be a significant factor in the adoption of RFID,” says Fox. “We see the cost of technology continuing to fall in coming years.”
Currently, RFID tags are comprised of microchips and copper-wire antennas. In the future, they will include a chip the size of a grain of sand, with imprinted ink transmitting the data, and their cost will plunge. “The price has fallen from two dollars to ten cents in four years,” says Fox. “Our hope is that tags costing a fraction of a penny would be achievable.”
But when? Reports indicate that Wal-Mart is mandating that incoming cases and pallets be equipped with RFID tags by 2005. Considering that deadline, the widespread tagging of individual products by mass retailers must still be years away.
Peter A. Buxbaum writes about business and technology. His articles have appeared in such publications as Computerworld, Fortune, and Information Week.
Sample ROI calculations
| A multimillion-dollar manufacturer | Previously, this organization was spending up to $300 a month on VAN mailbox charges per customer. By moving to AS2, the company has reduced these charges to as little as $12 a month per customer. |
| A subsidiary of a $4 billion distribution company | This firm realized ROI in under one month. The company spent approximately $2,000 to connect to ten partners via AS2, and saw VAN savings of up to $6,000 a month. |
| Source: AMR Research | |
Certified EDI INT AS2 Vendors
| Alligacom | www.Alligacom.com |
| Boomi | www.Boomi.com |
| bTrade | www.bTrade.com |
| Cleo Communications | www.Cleo.com |
| CoVest Banc | www.covestbanc.com |
| Cyclone Microsystems | www.Cyclone.com |
| EDS | www.EDS.com |
| EXTOL International | www.Extol.com |
| Global eXchange Services | www.gxs.com |
| Hewlett-Packard | www.Hewlett-Packard.com |
| IPNet Solutions | www.IPNetsolutions.com |
| IBM | www.ibm.com/us/ |
| Illicom | www.Illicom.net |
| iSoft | www.iSoft.com |
| InterTrade Systems | www.Intertrade.com |
| LANSA | www.Lansa.com |
| SeeBeyond Technology | www.SeeBeyond.com |
| Sterling Commerce | www.SterlingCommerce.com |
| TIBCO Software | www.TibcoSoftware.com |
| Trailblazer Systems | www.TrailblazerSystems.com |
| Vitria Technology | www.Vitria.com |
| webMethods | www.webMethods.com |
| Source: AMR Research | |