wal mart project mini

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A Project on

Wal-MartSupply Chain Management

ATALLANA INSTITUTE OF MANAGEMENT SCIENCES

SUBMITTED IN THE PARTIALFULFILLMENT FOR

THE MASTER OF BUSINESSADMINISTRATION

BySana javed mujawar

Mba-i


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ACKNOWLEDGEMENT

I acknowledge with immense pleasure to present my views on the current

Hot provoking topic in India i.e WALMART, The only largest fortune which

Directly serves the COMMAN MAN across the globe.

It is privilege for me to express my profound & sincere gratitude to my

Project guide Mrs. Mukta for her constant guidance & valuable assistance

& inspiration throughout the course of the work without which it have

been difficult for me to pursue the project.

I would also like to thank all others who directly or indirectly helped

complete my project.


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INDEX

1.CHAPTER

Introduction

1.1Objective of the study

1.2Scope

1.3Assumptions

1.4Limitation

1.5Methods of data collection

2.CHAPTER

Company Profile

3.CHAPTER

Review Of Literature


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CHAPTER 1

INTRODUCTION

1.1 OBJECTIVE OF THE STUDY1.The main objective was to study about the Wal Mart retail stores.

2.The secondary objective was to know about the retail sector of India.

3.To know how the company offers verious innovative and successful product to

the customers.

4.To know the stringent quality control system for consistent quality.

5.To know about the Supply Chain Management of Wal Mart.


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1.2 SCOPE

The various components of Supply Chain are: Procurement, Distribution,

Logistics and Inventory Management.Since the core of Wal-Mart business is perpetual improvement in its Supply

Chain implementation, it believes in no-compromise on implementing an

innovative IT infrastructure and strong communication system as they are

they the important links in the chain for a smooth functioning of the complete

system.

Wal-Mart tapped RFID technology with an aim to increase the efficiency of its

supply chain. This is because RFID implementation will enhance transparencyof their supply chain and hence will help them minimize cost and labor and

will strengthen inventory control. According to Venture Development

Corporation,


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1.3 ASSUMPTION1.The information gathered from secondary sources is assumed to be true.

2.The selection of Wal Mart Company for Supply Chain Management is assumed

to be right.

3. The mental capabalities of the researcher for the topic is assumed to be

enough.


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1.4 LIMITATION

1. There was time constraint.

2. The data available on the website was not convenient to provide

required information.

3. The information provided from the other sources was also limited.

4. Cost Expensive Machanism.


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1.5 METHODOLOGY( Method of collection )

1. Primary Dataa. Company website

2. Secondary Dataa. News Papers

b.

Internet


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CHAPTER 2

COMPANY PROFIL

Introduction

Technology is inevitable in every sphere of life today; it has always made

things easier. Wal-Mart works on the same strategy, from the above

description; we can understand how diversified Wal-Mart is and the volume

of cargo it needs to handle for each of its businesss. Traditionally, it hadstarted with computerization of individual stores with small billing machines

and had then led to centralized billing for record keeping. The technology has

grown by leaps and bounds and has become increasingly challenging to

maintain large databases of information and maintain records. Powerful

computers networked with high performance clusters maintain and store this

data. This gives a picture as to how technology plays a vital role in todays

businesses.

Traditionally, technology has been upgraded in billing systems and for storage

purposes. A new area where technology could be applied to, where many

expenses could be saved was in inventory management and logistics. Wal-

Mart being so huge, needed to keep track of men and material sent across

different countries and had to maintain hundreds of warehouses across the

world. Bar-codes have been initially identified as a suitable technology to

meet the purpose.


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But due to the limitations of barcodes, a new emerging technology called RFID

has been identified to meet the demands. RFID is low cost Radio Frequency

Identification system which requires minimum human intervention to carry

out tasks ranging from billing to materials tracking and supply chain

management. It is a small wireless device which can store good amount ofdata and can virtually be tagged to anything.

RFID is an electronic tagging technology as shown in figure 1 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.

Fig 1: RFID Devices

Why RFID over Bar-Code?

The ability to read without line-of-sight is the best advantage of RFID over

bar-code systems. RFID readers can sense items even when the tagged items

are hidden behind other tagged items. This enables automation. The

challenging part of implementing RFID is that tagged items should not be

missed by the reader due to interference, multipath fading, transient effects


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etc. Missed reads are an unfortunate reality with RFID systems. RFID uses a

serialized numbering scheme such as EPC (Electronic Product Code). Each tag

has a unique serial number. Serial number information is extremely powerful

in understanding and controlling the supply chain and provides much more

detailed behavior of the supply chain than can non-serialized bar codes suchas UPC (Universal Product Codes) and EAN (European Article Numbering).

Serial numbers have many advantages such as food freshness/expiration. This

can tell how for how long an item has been in the supply chain where as such

information is not captured in bar code system. Hence items can be reached

the right place at the right time. Furthermore RFID implementation monitors

theft too. For example if number of items reached at the retailers outlet is less

than that was departed from suppliers location, it can be easily tracked for. In

all these ways, RFID systems have stronger sensor networking system ormonitoring system than bar code systems.

RFID Infrastructure

Many software systems used in enterprise systems today are not designed to

handle serial numbers as required by the RFID systems. The problem in

synchronizing RFID systems to software system can be best described as the

problem in synchronizing a speaker to a hi-fi amplifier. If the hi-fi amplifier is

not synchronized to speaker there will be distortion in sound signal. Like wise

there will be mismatch in capabilities and requirements if RFID system is not

synchronized with enterprise software properly. A solution to this problem is

to introduce a layer between RFID readers and the application software

commonly known as RFID middleware. It has two levels of functionality: a

lower level device and data management and a higher level interpretation

level.


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Data management layer provides some functionality of filtering of data due to

intermittent appearances and disappearances. This can be achieved by setting

some time threshold levels. For example you could tell the software to record

tags as missing only after they have not been seen for a certain number of

seconds. This is important because if the reader cannot read certain tags dueto interference of certain objects, the software should not conclude that the

tagged item is being sold or stolen. This mechanism would reduce false reads.

Device management is one of the most challenging part of RFID

implementation. RFID readers interact with other devices such as motionsensors, programmable logic arrays and human interfaces. RFID readers

operate in ISM (Industrial, Scientific and medical) bands at 13.56 megahertz,

915 megahertz and 2.45 megahertz. Because implementing RFID is an

extensive ubiquitous task, there is a complication of different bandwidth

standards around the world. For example, Japan has very different bandwidth

standard than U.S.A. Security intrusion is also an issue in RFID deployment

because RFID readers operate automatically unlike bar code scanners which

are operated by humans.


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Fig 2: Two Levels of Functionality

After the data management layer yields data, the data interpretation layer

must extract inference from such data and forward it to the applications that

deploy RFID. This inference mechanism is a very sophisticated task. Forexample if a tagged pallet carrying tagged items out of the door should not be

confused with the one that just passes by the door and does not go outside it.

This high level of reasoning involves a lot of inferences and associations.

Tags can be associated with each other when they are assembled.

Integrating RFID into the enterprise is one task but extracting value for the

enterprise at the systemic level is another challenging task which requires lot

of control and effort.


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Fig 3: Architecture with Independent EPC Visibility Layer

The EPC visibility layer keeps track of RFID data in many level of detail. The

architecture for such a system can be shown as in figure 2.The enterprise EPC

systems can then be a single source of all EPC data. The enterprise system can

keep a true and multi resolution record of all EPC data permitting different

applications to access EPC data at the appropriate resolution. The Auto-ID

center has developed a software called savant which serves as the edge and

the enterprise software. They also built a prototype of the ONS. EPCglobal

operates ONS. EPCglobal also sell EPC codes to users who want to place EPC

tags on their products. EPCglobal run a number of hardware and software

modules of the EPC system. The EPCglobal system includes a number of

standards for communicating with readers, for middleware of the edge, and

for the edge and enterprise EPC systems. This emergence of EPCglobal system

has changed the way supply chain is operated today.


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CHAPTER 3REVIEW OF LITERATURE

Introduction to Supply Chain Management

Supply chain management (SCM) is the coordination of a network of facilities

and distribution options that performs procurement of materials, processing

the materials into finished products, and distribution of the products to

customers. SCM is seen as involving five core processes. These include

planning, sourcing, making, delivering, and returning.

Fig 4: Typical supply chain showing interrelations between all involved

parties.


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SCM exists in both service and manufacturing environments. A typical supply

chain consists of many interactions between suppliers, manufacturers,

distributors, retailers, with the ultimate goal of providing either a service or a

product to customers. This also works in reverse with the customer at the

head of the process when returning a product.

SCM is used as a means to integrate planning, purchasing, manufacturing,

distribution, and marketing organizations that normally do not work together

to achieve a common goal. Each works toward goals specific to their own

organization that accomplish narrow objectives. SCM is a way of integrating

these varying functions so that they work together to maximize the benefits

for all involved.


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There are three levels of SCM: strategic, tactical, and operational.

Fig 5: Three Levels of SCM

Strategic SCM deals with future planning than in looking at market evaluation,

capacity issues, new products, and technology changes. This planning is

addressing issues that may be factors several years out. This is accomplished

at the executive management level.

Tactical SCM involves a shorter planning cycle. It is more concerned demand

planning, inventory planning, and supply planning. This is determined at a

less senior level than Strategic SCM.

Operational SCM is current planning activities measured in at most weeks.

Operational SCM involves the majority of the operations. It includes demand

fulfillment, scheduling, production, transport, and monitoring.


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There are many decisions that are made when looking at SCM. They follow

the above categories. Strategic decisions are made over longer periods of time

and linked to a corporations strategy. Operational decisions are more short

term and look at day to day activities. Four major decisions are considered.

The include decisions on location, production, inventory, and transportation.A geographically strategic placement of the production facilities is key to

creating a successful supply chain. Decisions on what products to be

produced have to be made wisely and strategically. Also, where these

products (which locations) will be manufactured is very important to SCM.

Inventory decisions and management is critical. Some inventories are

necessary to hedge against uncertainty, but this comes with a cost. Managing

these inventories efficiently will be of benefit to the corporation.

Transportation decisions include cost versus benefit. Air transportation iscostly, but fast and reliable. Other modes of transportation may be cheaper,

but the sacrifice is having to hold inventories due to delays that may occur. If

the above decisions are made with careful and strategic thought as well as

with concern for integration, the supply chain should be efficient and

successful.

The overall goal of SCM is to optimize supply chains in an attempt to providemore accurate and time sensitive information that can be used to improve

process times and cut costs. Supply chains have been around for decades and

a constantly being improved. The newest opportunity for improvement is the

introduction of radio frequency identification (RFID) tags. RFID technology

will provide real-time information that will allow manufacturers to get better

readings of customers and markets thus further improving supply chains.

RFID will help retailers provide the right products at the right places at the

right times. Ultimately, maximizing sales and profits


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Wal-Mart has been leading the charge with RFID technology. Having the

largest retailer adopt and begin to use RFID technology has given strong

backing to the technology and will only further and quicken the expansion of

RFID. They have begun requiring all their major suppliers to implement RFID

technology on all products supplied to Wal-Mart.

One example of what Wal-Mart has done with SCM and its suppliers is that of

its relationship with Proctor & Gamble. These two built a software system

that hooked Proctor & Gamble up to Wal-Marts distribution centers. This

system would then monitor supply levels and when products run low,

automatic alerts are sent out to require the shipment of more products to that

distribution center. Wal-Mart has taken this as far as going to the individualstore locations. The shelves are monitored in real time via satellite links that

send inventory messages whenever Proctor & Gamble products are scanned

at a register. This allows Proctor & Gamble to be fully aware of up to the

minute product inventories at the actual store locations and ship additional

products as necessary. This concept is a huge step in making SCM as efficient

as it can be.

Wal-Mart Introduction and its Business Processes

Wal-Mart is one of the largest Fortune 500 companies, which is spread across

the globe. It is an arguably the largest retail chain which deals with everything

from food to consumer electronics. In terms of the revenue generated, it leads

the fortune 500 companies like GE and Microsoft. Simply put, it has everything

a homemaker can ever think of. Affordable price range coupled withaggressive online and market strategy has lead to wide acceptance for Wal-

Mart in towns and cities alike. Wal-Mart is probably the only largest fortune

500 corporations in the world, which directly services the common man.


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Operations

Wal Mart operations are comprised of three business segments:

Wal-Mart Stores

SAMS CLUB

Wal-Mart International.

Wal-Mart Stores segment is the largest segment, which accounted for

approximately 67.3% of their 2005 fiscal sales. This segment consists of three

different retail formats, all of which are located in the United States. This

includes the following sections:

Super-centers, which average approximately 187,000 square feet in size and

offer a wide variety of products and a full-line supermarket;

Discount Stores, which average approximately 100,000 square feet in size

and offer a wide variety of products and a limited stock of food products; and

Neighborhood Markets, which average approximately 43,000 square feet insize and offer a full-line supermarket and a limited variety of general

merchandise.

SAMS CLUB segment consists of membership warehouse clubs in the United

States which accounted for approximately 13.0% of 2005 fiscal sales. SAMS

CLUBs in the United States average approximately 128,000 square feet in size.


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Wal-Mart International operations are located in Argentina, Canada, Germany,

South Korea, Puerto Rico and the United Kingdom, the operations of joint

ventures in China and operations of majority-owned subsidiaries in Brazil and

Mexico. This segment generated approximately 19.7% of 2005 fiscal sales.

Here, it operates several different formats of retail stores and restaurants,including Super-centers, Discount Stores and SAMS CLUBs.

For the fiscal year ending January 31, 2005, Wal-Mart topped $10 billion in

net income for the first time in their history and added almost $29 billion in

sales.

Business Model

A Business model is central to any successful business. Wal-mart is no

exception. Wal-mart has always been innovating and improving its business

model to suite its organizational goals and also meet customer requirements,

and so has managed to stay on top year after year. Wal-mart has employed a

mixed-business model for its business for the same.

To understand the Business models used by Wal-Mart, first it is important to

know the factors, which go in defining those models, and how does it relate to

Wal-Mart specifically.


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Market Strategy of Wal-Mart

Wal-Mart stresses mainly on their Everyday Low prices (EDLP) pricing

philosophy, in which they price items at a low price every day that builds &

maintains customers trust in their pricing. Since they employ both the clicks

and bricks and bricks and mortar methods to market their products,

consumers get to choose their products either the traditional way or online

anytime of the day. Though Wal-Mart has not advertised in Advertising, as

many of its competitors do, the trust people have built on the Wal-Mart brand

has taken them far from their competitors.

Organizational Development

Wal-Mart has restructured its business into two parts to handle specific

organizational needs.

Specialty Division

- Tire & Lube Express

- Wal-Mart Optical

- Wal-Mart Pharmacy

- Wal-Mart Vacations


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- Wal-Mart's Used Fixture Auctions

- Wal-Mart Alaska Bush Shopper

Retail Division

- Wal-Mart Stores- Super centers- SAM'S CLUBS- Neighborhood Market- International walmart.com

Competitive Advantage

Wal-Mart has been an undisputed leader in offering the markets lowest prices

to consumers. It has always given a price match guarantee, and has

challenged other stores to offer lesser prices and has agrees to reimburse thedifference, the difference of price if any. No other store could meet this and

Wal-Mart has been leading the pack for years.

Market Opportunity

Wal-Mart employs a combination of two Business Models viz.

B2B Single firm network Business Model SAMS CLUB segment of Wal-Mart

supports small businesses. Its main focus in this segment is to create its own

network of trusted partners to coordinate supply chains and provide

exceptional value on brand-name merchandise at Members Only prices.
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B2C E-Tailer Business Model Wal-Mart uses clicks and bricks methodology

to provide millions of its customers online version of its retail store, where

customers can shop at any hour of the day or night without leaving their homeor office.

Wal-Mart employs Sales revenue model as it is mainly involved in sale of

goods and services.

These two models help Wal-Mart in achieving its business perspectives

related to its firms organizational needs and the second helps in its interaction

with the customer and manages goods and services offered by Wal-Mart to theend users.

Supply Chain Management at Wal-Mart

Supply chain management at Wal-Mart can be described in 3 sections.

Procurement and Distribution

Wal-Marts process of procurement involves reducing its purchasing costs as

far as possible so that it can offer best price to its customers. The company

procures goods directly from the manufacturers, bypassing all intermediaries.


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Wal-Mart has distribution centers in different geographical places in US. Wal-

Marts own warehouses supplies about 80% of the inventory. Each

distribution centre is divided in different groups depending on the quantity of

goods received. The inventory turnover rate is very high, about once every

week for most of the items. The goods to be used internally in US arrive inpallets & imported goods arrive in re-usable boxes.

The distribution centers ensured steady flow & consistent flow of products.

Managing the center is economical with the large-scale use of sophisticated

technology such as Bar code, hand held computer systems (Magic Wand) and

now, RFID. Every employee has access to the required information regarding

the inventory levels of all the products in the center. They make 2 scans- onefor identifying the pallet, and other to identify the location from where the

stock had to be picked up. Bar codes & RFID are used to label different

products, shelves & bins in the center. The hand held computers guide

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. The computers also enabled the

packaging department to get accurate information such as storage, packaging

& shipping, thus saving time in unnecessary paperwork. It also enablessupervisors to monitor their employees closely in order to guide them & give

directions.

This enables Wal-Mart to satisfy customer needs quickly & improve level of

efficiency of distribution center management operations.

Logistics Management

This involves fast & responsive transportation system. More than 7000

company owned trucks services the distribution centers. These dedicated


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truck fleets enables shipping of goods from distribution centers to the stores

within 2 days and replenish the store shelves twice a week. The drivers hired

are all very experienced & their activities are tracked regularly through

Private Fleet Driver handbook. This allows the drivers to be aware of the

terms & conditions for safe exchange of Wal-Mart property, along with thegeneral code of conduct.

For more efficiency, Wal-Mart uses a logistics technique called Cross

Docking. In this system, finished goods are directly picked up from the

manufacturing site of supplier, sorted out and directly supplied to the

customers. This system reduces handling & storage of finished goods, virtually

eliminating role of distribution centers & stores. Because of cross-dockingthe system shifted from supply chain to demand chain which meant,

instead of retailers pushing the products into the system, the customers

could pull the products, when & where they required.

Inventory Management

Considering the rapid expansion of Wal-Mart stores, it was essential to have a

very good communication system. For this, Wal-Mart set up its own satellite

communication system in 1983. This allowed the management to monitor

each and every activity going on in a particular store at any point of the day

and analyze the course of action taken depending on how the things went.

Wal-Mart ensures that unproductive inventory is as less as possible, byallowing the stores to manage their own stocks, thereby reducing pack sizes

across many categories and timely price markdowns. Wal-Mart makes full use

of its IT infrastructure to make more inventories available in case of items that

customers wanted most, while reducing overall inventory. By making use of

Bar-coding & RFID technologies, different processes like efficient picking,


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receiving & proper inventory control of the products along with easy packing

and counting of the inventories was ensured.

Wal-Mart owns the Massively Parallel Processor (MPP), largest & the most

sophisticated computer system in private sector, which enables it to easily

track movement of goods & stock levels across all distribution centers and

stores. For emergency backup, it has an extensive contingency plan in place as

well.

Employees use Magic Wand, which is linked to in-store terminals through a

Radio frequency network, to keep track of the inventory in stores, deliveries

and backup merchandise in stock at the distribution centers. The ordermanagement and store replenishment of goods is entirely executed with the

help of computers through Point of Sale (POS) system. Wal-Mart also makes

use of sophisticated algorithm to forecast the quantities of each item to be

delivered, based on inventories in the store. A Centralized inventory database

allows the personnel at the store to find out the level of inventories and

location of each product at a given time. It also shows the location of the

product like distribution center or transit on the truck. When the goods are

unloaded at the store, the inventory system is immediately updated.

RFID in Wal-Mart

Wal-Mart had initiated its plan to employ RFID technology in its supply chain

in June 2003. Subsequently Wal-Mart reinforced its plans and actively

asserted on defining the RFID standards it will be implementing.


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The specification of the following RFID components was laid out in November

2003.

EPC (Electronic Product Code) specification

Type of Chip that would be installed

The Distribution centers that will accept RFID tagged products

After the defining phase, Wal-Mart specified the RFID requirements to its

suppliers that they should comply with:

EPC: 96-bit with a Global Trade Identification number

TAGS: Should operate in UHF spectrum (868 MHz to 956 MHz)

The TAG will carry the 96-bit serial number and will be field-programmable,

that will allow the suppliers to write serial numbers to the tags while being

applied to the products.

EPC compliant tags in UHF band consists of two main parts:

EPC data format on the chip

Class0 or Class1 communication protocol

Class0 is a factory programmable tag

Class1 provides the capability to the end users to write serial number on it

Wal-Mart planned to implement Class1 Version2, a globally accepted protocol

that incorporates both specification of Class0 and Class1.


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In addition, Wal-Mart is planning to enhance mobility to its existing RFID tag

readers by implementing RFID-enabled forklift. These readers will have the

capability to read the tags on the pallets and transmit data through the RFID

network, which would help the users to be better informed about the supply-

chain data.

Efficiency in Supply Chain with RFID

The various components of Supply Chain are: Procurement, Distribution,

Logistics and Inventory Management.

Since the core of Wal-Mart business is perpetual improvement in its Supply

Chain implementation, it believes in no-compromise on implementing an

innovative IT infrastructure and strong communication system as they are

they the important links in the chain for a smooth functioning of the complete

system.

Wal-Mart tapped RFID technology with an aim to increase the efficiency of its

supply chain. This is because RFID implementation will enhance transparency

of their supply chain and hence will help them minimize cost and labor and

will strengthen inventory control. According to Venture Development

Corporation,


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With Wal-Mart selling over $245 billion worth of goods in fiscal

year 2003, a 1% improvement in the out-of-stock issue could

generate nearly $2.5 billion in very profitable sales.

In addition, a study by Cohen at Wharton chalks out the difference between

the existing inventory management and the RFID enabled supply chain.

In current systems, you may know there are 10 items on the

shelf, and that information is compiled in an enterprise planningsoftware system. With RFID, you know there are 10 items, their

age, lot number, and expiration date and warehouse origin. "It's

like knowing there are 1,000 people in a city," says Cohen. "With

RFID, you know their names."

From the above studies it indicates that employing RFID technology will help

in implementing a seamless supply chain and hence yield profits.

The increase in their efficiency is evident from the news article at

Breitbart.com, where it states that implementation of RFID tags in Wal-Marts

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. The CIO at Wal-Mart stated that,


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Wal-Mart has been able to restock RFID-tagged items three times

as fast as non-tagged items.

In addition to improving the availability of in-stock merchandise, Wal-Mart

aims to reduce the practice of manually placing the order and has achieved

10% reduction in the case.

The recent studies show that 130 major suppliers ship merchandise to Wal-

Mart distribution centers with about 5.4 million tags. Wal-Mart expects to

increase RFID implementation by adding another 200 suppliers that are

projected to supply to another 1000 stores.

At present, Wal-Mart is at a nascent state of implementing RFID. In addition to

strengthening the Supply Chain, the largest retailer is also looking into

different dimensions where RFID can be helpful. As a pilot test, Wal-Mart is

working on the data collected by RFID to analyze the consumer behavior.

According to Venture Development Corporation, the major implementation

milestones of RFID at Wal-Mart are to expand Regional and domestic

implementation of RFID throughout 2005. These include Regional

Distribution Centers, Grocery Distribution Centers and Sams Club

Distribution Centers in Texas. And, by 2006, Wal-Mart aims to mandate RFID

implementation for all its suppliers.


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Wal-Mart Suppliers

Some of the major suppliers of Wal-Mart are:

Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods,

Nestle, Purina PetCare Company, Procter & Gamble and Unilever.

Kimberly-Clark

Kimberly Clark is a manufacturer of paper goods products that include

Kleenex, Huggies and Depend. In April 2004, Kimberly Clark tagged its Scott

paper towels shipment with RFID tags to be shipped to Sanger, Texas.

Kraft Foods

Kraft Foods, the largest food company employs RFID system to improve

handling of its bulk containers. Kraft has outsourced its RFID system to

TrenStar to handle the complete supply chain.

Gillette

Smart razor blades have been introduced to the supermarkets. Gillette has

ordered half a billion tags to track razors. The Gillette Company uses RFID for

both pallet and case applications. All the cases in a pallet are scanned with

RFID readers as they move along the conveyor belt. In a trial at Tesco's new

market Road branch in Cambridge, the packaging of Gillette Mach3 razor

blades has been fitted with tiny chips.


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Current Usage of RFID

RFID technology is rapidly evolving and growing, providing solutions to a

wide array of problems. Many companies are finding value in implementing

RFID systems today especially when it is applied to solve more realistic supply

chain problems. The key factor, as with any new technology, is to understand

the capabilities of RFID and evaluate how it can be useful to our operations

today. Though RFID deployment is still not full fledged, it is clear that its

deployment is an attainable future goal. The value, which is the most

important metric for a RFID application, is determined by considering the

following key factors:

Basic asset and inventory visibility needs, Speed, range and reliability needed

to track the target product ROI (Return On Investment) in the context of

scope for improvements

RFID in Military

The U.S. military has also been heavily involved in SCM. The militarys main

focus is on getting equipment and necessities to the servicemen and

servicewomen who are on the battlefield. This is quite different from most

businesses that often lose sight of the end customer in the process.


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In a memo issued back in 2003 by the Acting Under Secretary of Defense that

said, The Department of Defense will be an early adopter of innovative RFID

technologies that leverages the Electronic Product Code (EPC) and compatible

tags. Our policy will require suppliers to put passive RFID tags on lowest

possible piece part/case/pallet packaging by January 2005. We also plan torequire RFID tags on key high-value items. The goal of the military is to

improve data quality, item management, asset visibility, and maintenance.

The DOD has done a good job at meeting this goal. They continue to be on the

cutting edge in advances in military logistics using RFID and SCM.

The Army has experimented with a concept called anticipatory logistics.

Anticipatory logistics is quite similar to the corporate worlds SCM. They bothconsist of seven main components. These are suppliers, procurement,

manufacturing, order management, transportation, warehousing, and

customers. Anticipatory logistics is in an attempt to use technologies,

information systems, and procedures to predict and prioritize needs and

provide supplies in a timely manner. The military approach to SCM is only

slightly different than that of the commercial industry. The military focuses

on mission requirements as opposed to profit and loss statements, which are

what drives a corporation.

According to a benchmark initiative by Deloitte & Touche, only seven percent

of companies are effectively managing their supply chains. The interesting

fact is these companies are seventy three percent more profitable than other

manufacturers. This lends to the belief that proper SCM is beneficial to a

companys bottom line. Efficient SCM is difficult to implement and is being

widely studied. Companies must find the right balance between inventory,transportation and manufacturing costs. If this is done properly, SCM will be

successful and the company will likely receive the rewards by way of

increased profitability.


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Successful RFID Implementation in different Industries

Volkswagen

Volkswagen, Europe's largest automaker and the fourth largest auto

manufacturer in the world are deploying RFID technology to speed up vehicle

pickup and improve customer service. The system is used to quickly locate a

car in the holding lot, which has over 10,000 automobiles, and to track the

vehicles' progress through a pre-delivery system.

After the production line, every vehicle is equipped with an i-Q8 tag, an active

tag that contains a unique identification number and pre-delivery tasks. The

vehicle is then delivered to the holding lot. An Intelligent Long Range (ILR) -

enabled van with an RFID reader identifies the targeted vehicle when

approaching the car. After the pre-delivery tasks are completed, the status is

written to the active tag.

After deploying active RFID solution, Volkswagen claims to have witnessed

the benefit of significant reduction of the vehicle delivery time and

productivity has been improved by as much as four times. The solution also

provides additional benefits such as improving quality control, electronic

work-in-process tracking, and automatic status update.

Supermarket tries out smart tagging

The electronic radio tags will allow staff and customers to keep track of the

goods in the store. They will also help prevent shoplifting, tracking the itemsfrom the shelf to the till and out of the door. British supermarket chain Tesco

has started to install smart shelves that can track items as they are placed or

removed. If the product goes through the door without being paid for an

alarm is set off.


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Sun Microsystems sets up RFID test centre in Scotland

Sun maintains that RFID tags have the potential to cut huge costs from the

supply chain of retailers and manufacturers and said the European centre willhelp firms with the tagging of products, integrating the information into back-

end systems and sharing it with their supply chain partners.

I.B.M. Expands Efforts to Promote Radio Tags to Track Goods

IBMs move into the RFID tag printer business with an RFID-capable printer

designed to help customer reduce costs and improve operational efficiencies.

Also I.B.M. consultants began selling advice on consumer privacy issues

related to the use of radio identification tagging of consumer goods.

Texas Instruments

Texas Instruments deploy RFID in the field of logistics/supply chain

management. TI-RFID technology connects all phases of the supply chain,

from resourcing and manufacturing to inventory and distribution. RFID

creates real time information links that speed production, improve quality

and streamline delivery.

EPC global Network

The EPC global Network uses RFID to enable true visibility of objects in the

supply chain. The network has five fundamental elements:The Electronic Product Code (EPC) is a unique number that identifies an item

in the supply chain, whether that is an individual product or a case, or pallet,

of many products being shipped.


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Each silicon chip of each RFID tag is encoded with a unique EPC that identifies

the product. The silicon chip is wired to an antenna, and, using radio

frequency identification technology, each tag communicates to an RFID reader

its EPC.

The Object Name Service (ONS) collects the EPC that is passed on from the

reader. The ONS resides on a computer or local application system. It tells the

computer systems where to locate information on the network about the item

whos EPC it has just encountered. This information will typica lly reside on

the Internet, making it readily available on a worldwide level.

Physical Markup Language (PML) is an XML-based language that is used to

define data on objects.

Savant is the middleware technology that coordinates the movement of

information over the computer systems.

Limitations and Challenges of RFID

Many issues still exist about the implementation of RFID that even Wal-Mart

may have trouble addressing despite their decision to move forward with the

new technology.

Current challenges in RFID implementation are:

Global standards: A single global RFID standard is highly unlikely toevolve. Like barcodes, standards for RFID will probably varybetween many regions of the world. Multinationals like Wal-Martmay need to implement a variety of RFID standards and technologiesacross their global organizations.

Technology problems: Problems such as signal distortion, readeraccuracy and speed, and tag transmission capabilities persist makingRFID still not practical for widespread use. Some of the majortechnical limitations are:


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1. Read-range distances are not sufficient to allow for consumersurveillance: Most of the RFID tags currently in use have readranges of fewer than 5 feet. The read range of the RFID tagsdepends on the antenna size, transmission frequency, and

whether they are passive or active.2. Limited information contained on tags: Although some

researchers on RFID support this aspect of the technology bypointing out that the tags associated with most consumerproducts will contain only a serial number. However, this numbercan reveal a lot of information, which is generally used as areference number that corresponds to information contained onone or more Internet-connected databases. This means that thedata associated with that number is theoretically unlimited, andcan be augmented as new information is collected.

3. Defective and poorly performing RFID tags: RFID tagmanufacturers continue to produce faulty tags. Failure rates inearly RFID pilots have been as high as 30%. Unfortunately,"relatively high reliability" is unacceptable if an RFID mandatecalls for a 100% read rate.

4. Damaged RFID tags: Since tag reading happens automaticallywithout line of sight and no human interaction, it can be difficultto know when certain tags are not read. This becomes a seriousissue for business applications built around RFID if 100% read

rates are implicit as part of the core business application design.

Data management: Lack of development of right informationmanagement tools to manage the data effectively, is making it difficult torealize the full potential of RFID in generating a wealth of information.Companies planning to adopt RFID face technical concerns related toeffective data capture (or reading), and to data volume (in databasemanagement and transmission).

Cost: Any developing technology is associated with high costs and so isRFID, which is highly expensive to implement. Individual tags costabout 30 cents each; this will drop to between one and five cents per tagonce billions are being produced . And depending on functionality, tagreaders can cost anywhere from several hundred to several hundredthousand dollars. The largest cost issues, however, reside in therequired size of the databases, their integration with a companys


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current systems and the effective transmission of information.Associated costs can approach the millions of dollars, but they areunavoidable if the full benefits of RFID are to be realized.

Industry Standards: Many privacy advocates are insisting the

companies to state their intended use of the technologydue to lack ofindustry standards regarding the use of personal information that couldbe encoded on the chips.

Privacy and civil liberties: One major confrontation for RFIDtechnology would be to deal with the threats to consumer privacy andcivil liberties. RFID tags can be embedded into/onto objects anddocuments without the knowledge of the individual who obtains thoseitems.

Must be programmed, applied and verified individually, and datasynchronization is usually required.

A final barrier to implementation that may need managing is employeeacceptance, particularly in light of potential job losses.

RFID Practices that should be prohibited:

Merchants must not force their customers into accepting RFID tags inthe products they buy.

RFID must not be used to track individuals absent informed and writtenconsent of the data subject. Human tracking is inappropriate, either

directly or indirectly, through clothing, consumer goods, or other items. RFID should never be employed in a fashion to eliminate or reduce

anonymity. For instance, RFID should not be incorporated into currency.

What Should Wal-Mart Do?

Wal-Mart should redefine the scope of its RFID mandate by narrowing thescope of products to those with limited amounts of metal and liquid. Supplierswould not be affected with a narrower focus on high-priced products likeprescription drugs, apparel, and DVDs etc. It gives additional time for vendors

and suppliers to perfect tag reliability for all products. Forresterrecommends that Wal-Mart use its influence to help create a buyingconsortium, giving suppliers the collective power to cut tag costs.


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What Should Suppliers Do?

Suppliers should use their initial knowledge to shape mandates by Wal-Martand other retailers. In addition to addressing the challenges they are facing inimplementing RFID with Wal-Mart, suppliers should create an internal RFIDlead position with direct access to the CEO.

Future of RFID

Fig 6: State of RFID technology deployment[Source: AMR Research, 2005]

Future Applications

- In the pharmaceutical industry, RFID tags on drug bottles are beingused as anti-counterfeiting devices.

- Pet owners have begun implanting their cats and dogs with RFID chipsto locate them should they become lost.

- In libraries, books are being tagged for self-automated checkout, freeingup librarians to perform other tasks. This also allows a librarian toeasily locate a book misplaced on the wrong shelf.


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- The USDA is pushing to give every cow in the United States its ownunique identification number, making it easier to track diseases, such asmad cow disease, back to the originating farm.

- It has been acknowledged that RFID technology can be used for

marketing purposes or even, in a Brave New World scenario,government tracking of its citizens. For instance, it is possible toubiquitously embed the chip within a product, for instance a pair ofjeans or a set of automobile tires. What is most frightening, however, isthe ability to implant an RFID chip under the human skin.

The future of RFID is uncertain. There has been a mixed reaction from the

various suppliers and customers who already deployed RFID into theirindustry. Industry analysts are unanimous on the view that RFID is going todominate the industry soon. RFID technology will reach the zenith by the endof 2006 and from a retailers perspective the technology will bring arevolution, key retailers such as Tesco and, in particular, Wal-Mart of the USare pushing ahead with the technology that will end up affecting thousandsof suppliers. So too is the US Department of Defense. It will be widely used inretail and consumer goods, automotive, healthcare, military, postaldepartment and other scientific use but if consumers really don't like the

idea if it's too confusing for them, too much technology or their privacyconcerns are too strong will the technology survive is the question to beanswered.

Two things are clear when it comes to RFID. First off, there has been no clearroadmap that a company can employ while evaluating RFID opportunities ormandates. The typical approach has been one of trial and error. Secondly, thefuture of RFID is going to be determined more by the dominant applicationsrather than by the technology. Many see RFID as a technology in its infancywith an untapped potential. While we may talk of its existence and theamazing ways in which this technology can be put to use, until there are morestandards set within the industry and the cost of RFID technology comesdown we won't see RFID systems reaching near their full potential anytimesoon.


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Researchers have concluded that organizations should keep initial RFIDprojects at a simpler scale. This might include single stage implementation,such as tracking cases or pallets within warehouses, or from warehouse tostore, or acting as bar-code replacements 9. Before any organization can

seriously contemplate using RFID to support its operations, it should have afirm understanding of the benefits that the technology can provide. This levelof understanding and experience will be necessary before moving to morecomplicated supply chain implementations in making RFID a big success.RFID learning curve is a long process and starting with small projects andthen establishing standards for efficient future product movement caneffectively implement it.

As the old saying goes, "the early bird catches the worm." Even if the truebenefits will not be realized for several years, establishing the base RFID

infrastructure today is the key driver for total supply chain adoption andbenefit realization tomorrow10.

wal mart project mini

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