RFID and Wal-Mart: It's All About Money

RFID and Wal-Mart: It's all about money
By Frank Hayes

May 5, 2008 (Computerworld) What if you threw a technology party and nobody came? Wal-Mart is in that position with RFID. In 2003, the retail giant said it wanted its 100 largest suppliers to put an RFID tag on every pallet of merchandise delivered after January 2005 -- and the rest of its suppliers to join the party soon after. But as Computerworld's Sharon Gaudin reported last week, it hasn't worked out that way.

Five years in, Wal-Mart says many of its top suppliers are tagging their pallets. Some, like Procter & Gamble, met the 2005 deadline. But about 70 of the top 100 didn't. Today, some smaller suppliers are on board as well, including Daisy, a family-owned sour cream maker that started RFID tagging in 2006.

But most of Wal-Mart's 60,000 suppliers aren't using RFID. They complain about costs and technology immaturity and costs and lack of examples and -- oh yeah -- costs. But, bottom line, they're not doing it.

By any reasonable measure, that marks Wal-Mart's RFID mandate as a failure. After half a decade, the party seems to be over.

You're probably not Wal-Mart. But on a smaller scale, you have the same problem. You have to find ways to get suppliers on board when you're trying to implement a new technology that extends beyond your business.

Maybe it's RFID, or old-style EDI, or a supply chain system. Whatever it is, there's one thing you've got to remember:

It's all about money.

It's not about technology. It's not about business processes. It's not about the size of the supplier or customer. It's not about coercion or cooperation.

In the end, it's about the cost of doing business. Cost is what your new system is intended to reduce for your company. And cost is what will make partners balk at signing on.

That's important to remember, because we in IT tend to see the world in terms of technology and process and scale and integration. To us, money isn't the hard part. But for suppliers being strong-armed into an IT project, money may be the biggest part of the deal.

And that can be an advantage.

Case in point: Wal-Mart's answer to suppliers that still haven't implemented RFID is a money solution. Wal-Mart subsidiary Sam's Club will soon start charging suppliers $2 or more for each pallet that doesn't have an RFID tag.

It's a clever solution: Wal-Mart isn't calling it a penalty, just a charge for putting the 10-cent RFID tag on the pallet. And that makes the supplier's business decision one about the cost of implementing RFID vs. the cost of not implementing it.

Even Wal-Mart can't force suppliers to join its RFID party. But the company can turn a decision about technology into one that's about dollars.

You can't force partners to buy into your technology plans, either. And your CEO won't dump a supplier just because it doesn't conform to IT's plans.

So assume that some suppliers won't buy in. Be sure you build a way around that problem into your technology plan. And make certain you include from the start what Wal-Mart only added years after its original RFID mandate: a clear dollar cost to suppliers that reject your new technology.

That way, you don't need to count on buy-in. And you won't have to eat the cost of that half-empty party yourself.

Sure, you'll still have to sell that idea to your CEO. But even the most tech-clueless CEO understands money. And that somebody has to pay for the party -- one way or another.

Frank Hayes is Computerworld's senior news columnist. Contact him at frank_hayes@ computerworld.com.


Sally Bacchetta - Freelance Writer
Freelance Writer
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