Tagging Hits the Target?

Tagging Hits the Target?

Copyright 2004, Traffic World, Inc.

The RFID bandwagon has a huge new member in the American retail industry, putting more pressure on shippers, logistics companies and transport operators to join the drive toward new technology that may bring both dramatic gains in inventory management and higher costs to supply chains.

Target, the fourth-largest U.S. retailer, joined top competitor Wal-Mart in requiring suppliers to add radio frequency identification tags to pallets and cases. With the Department of Defense already saying it will require its suppliers to use the tags, the retail giants are part of a growing juggernaut pushing for the tags even as a range of companies say important questions about the tags remain to be answered.

Target CIO Paul Singer expects vendors to tag pallets and cases to select regional distribution facilities beginning late spring 2005 and to accept RFID as a barcode supplement at carton and pallet level by 2007. Singer listed the requirements in a letter to vendors on Target''s extranet.

Wal-Mart wants its 10,000 suppliers to use RFID tags by the end of 2006. The DOD is following Wal-Mart''s initiative; its mandate could affect 43,000 shippers.

Target is playing its mandate close to the vest. There is no information on Target''s Web site and Lena Klofstad, a Target spokesperson, confirmed the letter but refused to comment further.

Analyst Jeff Woods of Gartner says the burden will not be too onerous for shippers since the tags are available and the only thing shippers need to do to comply is slap them on. "I can literally comply without buying one piece of equipment," he said. "I think [Target] is being very nice about it. They are preparing the vendors that they want to do something."

The bigger question is whether Target''s announcement will force or encourage other retailers to order their suppliers to use RFID. Currently the answer appears to be no. According to corporate spokesmen for each company, neither Sears, Roebuck nor J.C. Penney are using RFID. Both said their companies were watching the technology. Tim Lyon, spokesman for J.C. Penney, said the company was waiting for costs to come down.

Woods does not see a "domino effect" occurring because other retailers are waiting to see what comes out of Wal-Mart''s meetings with its suppliers. If all goes well, then other retailers will begin developing RFID strategies. In the meantime, he said, the question is: "Is Wal-Mart really going to get away with asking for free tags?"

Still, Target''s decision to mandate suppliers to use RFID could signal a change of pace in the retail sector. It is in direct opposition to what the discount retailer said last October, when Timothy Kennedy, senior investigator for the compnay, said Target would not be like Wal-Mart and would not force its suppliers to adopt the technology. Kennedy spoke at a cargo security forum hosted by eyefortransport in Washington, D.C.

Several retail companies are testing the technology, including German-based Metro Group, U.K.-based Tesco, Home Depot, Lowe''s and U.K. retailer Selfridges. One of the latest to join in is House of Fraser, which operates department stores in the United Kingdom and Ireland.

The company, together with third-party logistics provider Exel and tag provider Checkpoint Systems, recently announced it is testing reusable passive tags on its womenswear line. The trial begins in June.

Although any of these companies could be next in line to order suppliers to use RFID, the technology is still experiencing growing pains. Hindrances include the lack of global standards, low accuracy rates for tag readings and questions on how to best affix the tags to cartons and boxes.

Privacy and cost are other big issues. Consumer privacy groups are concerned that RFID could be used to track individuals. Currently, that''s impossible because the tags can''t be read near liquid and humans are, in the end, made up mostly of water. Shippers are concerned about the cost of implementation and the possibility that confidential information may be picked up by a competitor.

The biggest issue is a return on investment for shippers, said Woods. So far, he isn''t seeing it. In fact, the only business case that has surfaced so far is satisfying Wal-Mart, he said. The company is notoriously demanding of its suppliers and its enormous scale as a retailer makes the company all but impossible for any manufacturer with an eye for a large audience to ignore.

Still, shippers "probably will figure out a business case by the time they figure out how to deploy it," he said.

"I think everyone thinks Wal-Mart has the answer, that Wal-Mart knows what it is doing with all these RFID tags, which is obviously not true."