CASE STUDY
INTERACTIVE
SESSION: ORGANIZATIONS
Wal-Mart
Grapples With RFID
1.How is RFID technology
related to Wal-Mart’s business model? How does it benefit suppliers?
Wal-Mart’s basic business
model is “low cost.” RFID promises to reduce supply chain costs and improve the
availability of items on store shelves. 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.
2. What management,
organization, and technology factors explain why Wal-Mart suppliers had trouble
implementing RFID systems?
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 supplier
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.
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