The top suppliers of consumer goods may have to start opening their wallets a lot wider to accommodate the mandates retailers are asking them to meet with respect to RFID tags.
Minneapolis-based Target Corp. confirmed this week that it will expect its top “vendor partners” to apply radio frequency identification tags to all pallets and cases they ship to unspecified “select” regional distribution centers beginning next spring. All vendors will be expected to comply by the spring of 2007, according to a company spokesperson.
Industry analysts said they expect more retailers to issue RFID mandates in the coming months. Wal-Mart Stores Inc. started the trend last year, asking its top 100 suppliers to begin tagging pallets and cases by the start of 2005 so it can better track goods through its supply chain. Germany-based Metro Group and U.K.-based Tesco PLC followed suit, as did the U.S. Department of Defense.
Target, however, is more tight-lipped about its plans. The company declined to provide additional information about its mandate and refused requests for an interview.
Kara Romanow, an analyst at Boston-based AMR Research Inc., said she expects most retailers to adopt the technology within six to 12 months of Wal-Mart in hopes that they won’t fall too far behind.
But for suppliers, the mandates can be costly, with very little near-term benefit, said Christine Overby, an analyst at Forrester Research Inc. She said the Cambridge, Mass.-based research firm studied a number of the proposed benefits, such as shrinkage reduction, automated receipt of goods, truck yard management and more accurate shipping. But the reality of today’s technology makes it unlikely that suppliers will gain many of those benefits over the next 12 to 24 months, Overby said.
“Every mandate broadens the implementation plans for suppliers, and those plans, even as they’re currently defined, are nearly improbable today,” she said.
Overby advised suppliers to have frank discussions with their retail customers about what they’re doing, what they’re learning and what’s not working so they can reshape the mandates to make them more attainable.
Jeff Woods, an analyst at Stamford, Conn.-based Gartner Inc., said an RFID printer and the software to drive it may cost $100,000 to $200,000, but tags and labor costs can run into the millions. And so far, suppliers are finding no business case other than to satisfy Wal-Mart, he said.
“They are pessimistic and very upset at this point,” Woods said. “They just see it as a huge cost. So the effort is really just to minimize the cost.”
Woods said the new Target mandate won’t necessarily require more effort from suppliers, but it will present a huge additional burden in terms of cost. He said he thinks some manufacturers will simply say no to Wal-Mart, but they won’t publicly acknowledge that position for fear of upsetting such an important customer.
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