Wal*Mart Case Study: RFID & Supply Chain Management

@Copyrights Reserved 2005 - RFID Team : INFS 640

Wal*Mart Case Study: RFID & Supply Chain Management TEAM MEMBERS • Angrish, Sangita • Chivukula, Venkata S. • DeWitt, Brendon • Patel, Raxesh • Shamsi, Shazeb • Yellapragada, Ramachandra @Copyrights Reserved 2005 - RFID Team : INFS 640

Agenda • Introduction to RFID • Introduction to Supply Chain Management (SCM) • Introduction to Wal*Mart and its Business Processes • RFID in Wal*Mart • Current RFID Usage • Limitations and Challenges of RFID • Future of RFID @Copyrights Reserved 2005 - RFID Team : INFS 640

Introduction • What is RFID ? • Why RFID over Bar-Code ? • RFID Working and Infrastructure @Copyrights Reserved 2005 - RFID Team : INFS 640

What is RFID? Electronic tagging technology that allows an object, place, or person to be automatically identified at a distance without a direct line-of-sight, using an electromagnetic challenge/response exchange. @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID • 40 years old technology • Why being Used NOW? • right time to use the technology • Benefits OUTWEIGH the Deployment Costs @Copyrights Reserved 2005 - RFID Team : INFS 640

Why RFID over Barcode ? • Ability to read without line-of-sight • Serialized numbering scheme enables more powerful • Understanding • Diagnosing • Controlling of Supply Chain • Serial numbers provides individual entity tracking and much more detailed behavior of SCM than UPC or EAN used in Bar codes • No duplicate reading of the same tag – a possibility in Bar codes • More powerful sensor-network and monitoring-system than bar-code systems. @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID Components RFID Reader TAG Antenna Silicon Chip Substrate @Copyrights Reserved 2005 - RFID Team : INFS 640

Working of RFID • Readergenerate signals that are dual purpose: provide power for a tag, and create an interrogation signal. • Tagcaptures the energy from Reader and executes commands sent by the Reader • Tag sends back a signal containing a unique digital ID (96-bit serial number) that can be looked up in a database available to the reader to determine its identity, perhaps expressed as a name, manufacturer, SKU (stock keeping unit) number, and cost. • Tags are generally passivebecause they require no batteries or maintenance. @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID Infrastructure • Existing software systems UNABLE to handle serial numbers Solution– RFID Middleware • RFID Middleware : Layer between RFID readers and the application software Consists of: • Lower level device and data management • Higher Interpretation level Context generation and Interpretation Device Management Data Management @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID Infrastructure (contd.) • Lower level devices such as motion sensors, programmable logic arrays and human interfaces fetch data and provides to Data management layer • Data management layer provides some functionality of filtering data due to intermittent appearances and disappearances • After the data management layer yields data, the Interpretation layer extracts inference from such data and forwards it to the applications that deploy RFID @Copyrights Reserved 2005 - RFID Team : INFS 640

Up Next…… • Introduction to RFID • Introduction to Supply Chain Management (SCM) • Introduction to Wal*Mart and its Business Processes • RFID in Wal*Mart • Current RFID Usage • Limitations and Challenges of RFID • Future of RFID @Copyrights Reserved 2005 - RFID Team : INFS 640

Introduction to Supply Chain Management • Supply Chain Management • Coordination of a network of facilities and distribution options • Includes procurement, processing and distribution • Five core processes • Planning • Sourcing • Making • Delivering • Returning • Integration of these processes to maximize benefits @Copyrights Reserved 2005 - RFID Team : INFS 640

Introduction to Supply Chain Management (contd.) • Three levels of supply chain management • Strategic – linked to corporate strategy • Tactical • Operational – involve day to day activities @Copyrights Reserved 2005 - RFID Team : INFS 640

Introduction to Supply Chain Management (contd.) Overall Goal • Optimize supply chains • Provide more accurate and time sensitive information • Maximize sales and profits @Copyrights Reserved 2005 - RFID Team : INFS 640

Introduction to Supply Chain Management (contd.) • RFID and Supply Chain • Provide real time information • Better readings of customers and markets • Ability to provide right products at the right times • Deloitte & Touché benchmark initiative • Only 7% of companies managing supply chain effectively • These 7% are 73% more profitable than other companies @Copyrights Reserved 2005 - RFID Team : INFS 640

Wal-Mart Introduction and Business Processes @Copyrights Reserved 2005 - RFID Team : INFS 640

Operations • Wal Mart Stores • Largest segment accounting to about 67.3% of 2005 fiscal sales • Super centers • Discount stores • Neighborhood Markets • SAM’s Club • Consists of membership warehouse clubs accounting to 13% of 2005 fiscal sales • Wal-Mart International • Accounted to 19.7% of 2005 sales @Copyrights Reserved 2005 - RFID Team : INFS 640

Business Model of Wal*Mart • Market Strategy of Wal*Mart • Everyday Low prices (EDLP) • Employs both “Clicks & Bricks” and “Bricks & Mortar” strategy • Organizational Development • Specialty Division • Retail Division • Competitive Advantage • Price match guarantee • Market opportunity • B2B Single firm network • B2C E-Tailer Business Model @Copyrights Reserved 2005 - RFID Team : INFS 640

Supply Chain Management at Wal*Mart • Procurement and Distribution • Logistics Management • Inventory Management @Copyrights Reserved 2005 - RFID Team : INFS 640

Procurement and Distribution Procurement • Procurement involves getting goods from different manufacturers • Involves reducing the purchasing costs as far as possible • Goods procured directly from the manufacturers, bypassing all intermediaries @Copyrights Reserved 2005 - RFID Team : INFS 640

Procurement and Distribution Distribution • Distribution centre is divided in different groups depending on the quantity of goods received • Goods to be used internally in US arrive in pallets & imported goods arrive in re-usable boxes. • Employees have access to the inventory levels of all the products • Employee makes two scans- • For identifying the pallet • For identifying the location from where the stock had to be picked up • Bar codes & RFID used to label different products, shelves & bins • The hand held computersguide employee to the location of the specific product. • The quantity of the product required from the center is entered in the hand held computer, which updates the information on the main central server. • computers enable packaging department to get accurate information such as storage, packaging & shipping, • Saves time in unnecessary paperwork. • Enables supervisors to monitor their employees closely @Copyrights Reserved 2005 - RFID Team : INFS 640

Logistics Management • Involves managing transportation & delivery of products • More than 7000 company owned trucks services Distribution centers • This enables shipping of goods from distribution centers to the stores within 2 days and replenish the store shelves twice a week • “Private Fleet Driver handbook” – tracking drivers activities • “Cross Docking” – from Manufacturer to Customer • Cross Docking enabled “demand chain” • “Demand chain” - Customers ‘pull’ the products instead of retailers having to “push” them @Copyrights Reserved 2005 - RFID Team : INFS 640

Inventory Management • Wal*Mart set up its own satellite system in 1983 • Reducing unproductive inventory as far as possible • Use of Bar-code & RFID technologies for easy packing and counting of the inventories, efficient picking and receiving & proper inventory control of the products • “Massively Parallel Processor “ - enables easy tracking movement of goods & stock levels across all distribution centers and stores • Use of “Magic Wand” to keep track of inventory in stores • Use of sophisticated algorithm and technology infrastructure to forecast the quantities of each item to be delivered, based on inventories in the store and customer needs • Centralized inventory database @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID in Wal*Mart • Initiated the plan to implement RFID in its supply chain in June 2003 • Subsequently, reinforced the RFID standards and specifications in November 2003 @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID in Wal*Mart • Specification of RFID Components • TAGS • EPC • Why RFID? • EFFICIENCY • WAL*MART SUPPLIERS @Copyrights Reserved 2005 - RFID Team : INFS 640

Specification of RFID Components • EPC • Type of Chip • TAG • Distribution Centers to accept RFID tagged products @Copyrights Reserved 2005 - RFID Team : INFS 640

Specification of RFID Components • EPC • 96 bit unique number to identify an item in the supply chain. • Global Trade Identification Number. • EPC data format on the chip is Class 1 Version 2 communication protocol. Class 0: Factory programmable protocol Class1: Provides the capability to write serial numbers on the chip @Copyrights Reserved 2005 - RFID Team : INFS 640

Specification of RFID Components • TAGS • Operates in the UHF spectrum • 868 MHz to 956 MHz • Carries the 96-bit serial number • Is field programmable • Allows suppliers to write serial numbers to the tags while being applied to the products @Copyrights Reserved 2005 - RFID Team : INFS 640

WHY RFID? • OBJECTIVE: To increasethe efficiency of its supply chain. • It will • Enhance Transparency of supply chain • Help in minimizing cost and labor • Strengthen inventory control @Copyrights Reserved 2005 - RFID Team : INFS 640

Efficiency • Wal*Mart aims to reduce the practice of manually placing the order • Has achieved 10% reduction in the case • Implementation of RFID tags in Wal*Mart’s inventory has helped boost sales by keeping shelves better stocked • Usage of RFID has reduced out-of-stock merchandise by 16% at the stores that have implemented RFID tags for more than a year. @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID COST Cost Benefit Analysis Initial Research indicatedcost of RFID tag was above $1. At present, TAG costs about 30 cents Cost will drop to less than 5 cents, if deployed on a large scale Analysts suggest that the tag should be approx. 1 cent for small ticket items @Copyrights Reserved 2005 - RFID Team : INFS 640

Wal*Mart Suppliers • 130 major suppliers ship merchandise to Wal*Mart distribution centers with about 5.4 million tags • By 2006, Wal*Mart aims to mandate RFID implementation for all its suppliers @Copyrights Reserved 2005 - RFID Team : INFS 640

Wal*Mart Suppliers • Major Suppliers: • Gillette • Hewlett-Packard • Johnson & Johnson • Kimberly Clark • Kraft Foods • Nestle • Proctor and Gamble @Copyrights Reserved 2005 - RFID Team : INFS 640

Wal*Mart Suppliers • Kimberly-Clark • Manufacturer of paper goods products • Eg: Kleenex, Huggies • Tagged Scott paper Towels shipment with RFID tags • First supplier to use RFID – April 2004 @Copyrights Reserved 2005 - RFID Team : INFS 640

Successful Implementation of RFID • Harvard Research suggests a seven step model for successful implementation of RFID. @Copyrights Reserved 2005 - RFID Team : INFS 640

Seven Step Model • Understand our visibility requirements • Query other end users about recommendations for trials • Move into the action phase in a real-world setting in a pilot/trial mode • Evaluate technical performance • Consider the economic benefits • Understand the impact • Decide whether or not to move forward with a larger scale implementation @Copyrights Reserved 2005 - RFID Team : INFS 640

Major Companies implementing RFID technology • Volkswagen • Gillette • Tesco supermarket tries out smart tagging • Sun Microsystems sets up RFID test centre in Scotland • I.B.M. Expands Efforts to Promote Radio Tags to Track Goods • Texas Instruments @Copyrights Reserved 2005 - RFID Team : INFS 640

Limitations of RFID • Why the implementation of a 40 year old technology is taking so long? • As pointed out earlier, benefits are gradually outweighing the deployment costs • Limitations and challenges: Barriers to Quick Deployment @Copyrights Reserved 2005 - RFID Team : INFS 640

Limitations and Challenges of RFID (contd.) • Global standards • Variety of RFID standards and technologies • Technology problems • Read-range distances not sufficient to allow for consumer surveillance • Defective and poorly performing RFID tags • Damaged RFID tags • Data management • Lack of development of right information management tools • Cost • Tags, Tag Readers, Databases @Copyrights Reserved 2005 - RFID Team : INFS 640

Limitations and Challenges of RFID (contd.) • Industry Standards • Privacy advocates are insisting the companies to state their intended use of the technologydue tolack of industry standards • Privacy and civil liberties • RFID tags can be embedded into/onto objects and documents without the knowledge of the individual • Complex programming • Potential job losses @Copyrights Reserved 2005 - RFID Team : INFS 640

RFID Practices that Should be Prohibited • Merchants must not force their customers into accepting RFID tags in the products they buy. • RFID must not be used to track individuals absent informed and written consent of the data subject – directly or indirectly. @Copyrights Reserved 2005 - RFID Team : INFS 640

Future of RFID @Copyrights Reserved 2005 - RFID Team : INFS 640

Future of RFID • For Retailers ?? • The technology will bring a revolution. • It will be widely used in retail and consumer goods, automotive, healthcare, military, postal department and other scientific uses. • For Customers?? • If the consumers think the technology is too complex, confusing or threat to their privacy… • Will the technology survive? @Copyrights Reserved 2005 - RFID Team : INFS 640

Key Factors for RFID • Setting up more standards in the industry • Bringing down the cost of RFID • Level of understanding and experience @Copyrights Reserved 2005 - RFID Team : INFS 640

Wal*Mart Case Study: RFID & Supply Chain Management