INTERACTIVE SESSION: ORGANIZATIONS
WAL-MART GRAPPLES WITH RFID
Wal-Mart has required its top
suppliers to use passive RFID tags on cases and pallets shipped to its stores
to help it track and record information flow.
Suppliers have been proceeding slowly because of difficulties in RFID
implementation.
CASE STUDY QUESTIONS
1.How is RFID technology related to Wal-Mart’s business model? How does it
benefit suppliers?
Wal-Mart is the largest retailer on
Earth. Their business model is centered on using a
low-cost leadership strategy in order to achieve the lowest operational costs
and services at a lower price than competitors while enhancing quality and
level of service. Wal-Mart have been able to follow their strategy of keeping
prices low and shelves well stocked by using a legendary inventory
replenishment system (Real Link). Through Real Link, Wal-Mart’s has a
continuous replenishment system that sends orders for new merchandise directly
to suppliers as soon as customers pay for their purchases at the cash register.
At Wal-Mart’s headquarters, the central computer collects the orders from all
Wal-Mart stores and transmits them to suppliers. The objective was to reduce
out-of-stock items by tracking item location more precisely as they moved from
the receiving dock to store shelves.
Suppliers can also
access Wal-Mart’s sales and inventory data using Web technology. Wal-Mart wanted suppliers to use of RFID technology in order
to assist the suppliers in shipping products more accurately and faster. RFID
technology offers other benefits to suppliers. RFID
technology is tied directly to Wal-Mart’s Real Link system. As soon as a
customer purchases an item at a Wal-Mart store, the supplier monitoring the
item knows to ship a replacement to the shelf. Suppliers are able to obtain
real-time access to customer demand, track shipments, and improve inventory
control. Using these technologies, suppliers are better informed of product
demand, and given this information they can use it to predict their own
manufacturing, production, and shipping logistics.
Wal-Mart exemplifies the
power of information systems coupled with brilliant business practices and
supportive management to achieve world-class operational efficiency. The Retail
Link system digitally links its suppliers to every one of Wal-Mart’s stores
worldwide. However, the implementation of RFID systems appeared to be a
top-down mandate by Wal-Mart without the support of the suppliers.
Management:
·
Design an RFID implementation
strategy
·
Educate and work closely with
suppliers
Organization:
· Redesign RFID requirements for different product
· Overcome supplier resistance to RFID
Technology:
· Deploy RFID technology required in implementation.
· Implementation of RFID into suppliers IT infrastructures and
information systems (many are legacy systems and costs would be high).
3. What conditions would make adopting RFID more favorable for suppliers?
Not all suppliers could comply with
Wal-Mart’s demand for attaching RFID tags to all of their products. Only a
limited number of suppliers could afford to make the major technology and
business process changes required to integrate RFID into their IT
infrastructure and information systems. RFID technology is still viewed as
being in its infancy and the benefits are not fully understood or even
measurable. On top of that, this technology is still very expensive and pricing
of the tags themselves make it impossible for the majority of suppliers to do
it.
Wal-Mart must assist suppliers in
making the required changes to their systems so that the can actually use the
data generated by RFID to track their product movement and inventory. Through
education, the suppliers would be better equipped to understand how they can
benefit from RFID.
4. Should Wal-Mart require all its suppliers to use RFID? Why or why not? Explain
your answer.
In February, 2005 Wal-Mart ordered
its top suppliers to place RFID tags on all products shipped to specific
distribution centers. The objective was to reduce out-of-stock items by
tracking item location more precisely as they moved from the receiving dock to
store shelves. The information captured through the use of RFID tags would held
Wal-Mart reduce out-of-stock items, increase sales, and further reduce its
costs. However, suppliers are not totally convinced of the benefits that they
would reap from such an expensive undertaking.
Wal-Mart has the power to exercise
muscle in the supply chain. However, Wal-Mart must streamline their demands in
requiring suppliers to attach RFID tags to all items. From the supplier side,
this top-down mandate from Wal-Mart was simply not economically feasible. The
technology itself is still very expensive and suppliers simply could not state
a good business case to support such expenditures.
Major retailing and
manufacturing companies will no doubt switch to RFID technology as its costs
fall, and its applications increase. Whether or not all major retailing and
manufacturing companies should switch to RFID is a matter of choice. They will
no doubt go this way in the near future. By doing so, they will increase
operational efficiencies, increase profits margins, and gain a competitive
advantage by lowering overall costs to consumers.