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.

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