Supply Chain Management at Wal-Mart - Case Study Example

Student’s Name] [Instructor’s Name] [Class Name] Supply Chain Issue Choose a company you are familiar with and write a report on the company’s supply chain of one of its products or analyze a supply chain issue faced by the company. Situation Analysis In the modern world, technology permeates business in many different ways but regardless of the technology used or the business where the technology is being applied, the primary motive for the application of technology is to improve the efficiency of business and to make a company more effective than it is. Radio Frequency Identification (RFID) is one such technology since it is an automated system for identifying products, animals or individuals which relies on data stored in RFID tags (Fitchard, 2005). The business applications for RFID become obvious when we consider how it can be used in the retail industry to track products as they go from the producers to the consumers. In the retail industry itself, there is no company larger than Wal-Mart which is an international company founded by Sam Walton in 1962. It is the largest retailer and the second largest company behind Exxon Mobil. In 2005, the company had a net income of $11.2 billion and sales of $316 billion (Fortune, 2006). Being the largest private employer in America and Mexico it is often in the crosshairs for its treatment of employees and other issues yet at the same time, it is admired by analysts for its business performance, tech savvy and efficient operations. Internationally, Wal-Mart operates as ASDA in the UK and as The Seiyu in Japan. Overall the international sales account for a fifth of the company’s total business (Wikipedia, 2006). Very recently, Wal-Mart has started using RFID to improve its business efficiency and this has been given mixed reviews by industry analysts. While some suggest that Wal-Mart would certainly benefit from using RFID (Roberti, 2003), others think that this can not be as cost effective as Wal-Mart is hoping it would be (Buckler, 2005). Embedding the RFID tags into products is often expensive for the suppliers and they find it difficult to comply with the Wal-Mart mandate. At the same time, there are others who are worried about how RFID information would be used and there are significant privacy concerns which must be addressed by the company (Pethokoukis, 2005). Given the mixed opinions, the aim of this report is twofold. First, to see how RFID is going to benefit Wal-Mart and help the company in improving the currently established business processes and second, to understand the counterpoints made by the critics regarding the use of RFID in the supply chain. These objectives can only be met by researching deep into the use of RFID in terms of how Wal-Mart is using the technology and by looking into expert opinions regarding the dangers as well as the advantages of RFID. Identification of Main Issues and Problems Fundamentally, Wal-Mart seems to be looking at the early mover advantage and the long term effectiveness of using FRID tags within their stores (McClenahen, 2005). In the short term the idea looks rather weak since the early adoption of a new technology is often a very risky undertaking. However, the uses of RFID technology and the business applications of using the technology in a retail environment are so many and so attractive that a global company like Wal-Mart simply has to jump on the opportunity provided. To better understand how Wal-Mart intends to leverage these advantages, it is important to first understand what RFID is and how it works in the real world. Rhode (2004) explains in some detail the use and operation of an RFID tag but the most important information given by her concerns the nature of the tag itself. Essentially, it is a computer chip with an antenna and an optional power supply. The tag is embedded, stuck on, or put into the packaging of an item and the chip draws power from the installed source to broadcast an identification code. A tag that can broadcast information is an active tag while others which merely respond to transmitted inquires are passive tags. The practical advantage of using RFID as a tagging method comes from the fact that it can be read from a distance and from any angle. A tag reader does not have to come in contact with the tag and in fact the reader can be anywhere within a distance of thirty to a hundred feet to know that a certain tagged object is being moved or is being taken out of the store (Fitchard, 2005). This is an extremely important benefit for retail enterprises and the tags are already in wide use by Tesco and Germany’s Metro AG (Rhode, 2004). Moreover, people have been using this technology for many years without being afraid of it. Automatic toll paying is one place where RFID tags have been employed across Europe and America. Problems with Suppliers The retail giant shocked many and caused panic amongst its suppliers when it declared in 2003 that the top 100 suppliers of the company would be required to have RFID tags on the shipments they make to Wal-Mart by the end of 2004. This was important news for the suppliers and an additional cost where the cost sharing process had to be worked out between several parties. At the same time, the competition sat up and started taking notes about RFID tags and their possible use for themselves (Roberti, 2003). Clearly, there is an application for the RFID tags in the retail industry but the mindless tagging of every item in a Wal-Mart store which may carry thousands of items at any given time seems to be rather excessive. For example, there are items sold at a Wal-Mart where the cost of the tag might be more than the cost of the item itself. Essentially, there is a problem of the return on investment which the manufacturer has to expect from embedding the tag within the packaging especially in the case of things like toothpaste and toilet paper or other low cost house hold goods (McClenahen, 2005). Security is also an issue for some suppliers since a shipping carton can not tell what is placed in it but a shipping carton with RFID tags can serve as a wealth of information. Since Wal-Mart and other retailers are using standard protocols for their tags, Fitchard (2005) reports that this could be a problem since: “The beauty of a closed loop system is its opacity. Data remains internal, and even if a competitor could access those tags, there's no way it could read the proprietary information stored within. With standard protocols, however, everyone with an RFID reader has the ability to access your information (Fitchard, 2005, p. 29).” Technical Issues Additionally, while some manufacturers are more than willing to use RFID, others are not so sure about the technology since the required infrastructure may not exist where the items are produced (McClenahen, 2005). Moreover, there are limitations of the RFID technology for suppliers since certain objects can not be tagged very well. Dignan (2003) gives the example of Campbell’s soups and says that a can of soup simply can not be tagged given the present technology as well as the contents of the tin. As he explained, “The problems with putting radio tags onto Campbell's soup cans are twofold. Radio waves bounce off the cans and don't move through liquid well (Dignan, 2003, p. 1).” No supplier in the world can afford to lose Wal-Mart as a client over RFID tags since Wal-Mart simply dominates the supplier with its size and market penetration. If the giant asks suppliers and manufacturers to go with a certain process or lose shelf space at Wal-Mart, the suppliers and manufacturers have to comply with the mandates even if they gain no strategic or competitive advantages from doing so. Dignan (2003) reports that Campbell Soups is working hard to use RFID tags since 12% of their $6.7 billion annual sales come from Wal-Mart stores around the world. It seems that some suppliers do not realise what an opportunity they have been presented with in the shape of using RFID for supplying their goods to companies like Wal-Mart and Tesco. The suppliers have to understand that the tags are not only for the use of Wal-Mart but also for them and present an efficient way of tracking the movement of goods through an assembly line with the use of computer chips and radio frequency waves (Chau, 2004). Undoubtedly the process is more effective and labour saving than barcodes or visual counting and there is a deeper strategic analysis which can be made from the supplier’s side taking into account Wal-Mart’s requirements. Public Privacy Concerns As with many other technologies there are genuine concerns coming the public and other organisations who believe that RFID could be a greater invasion of privacy than anything else which has been used by retailers in the past. Pruitt (2004) reports that: “While Wal-Mart and other RFID advocates say the technology will aid consumers by helping ensure that the products they are looking for are in stock, concerns have been raised that the tags could encroach on shoppers' privacy. RFID tags left activated on merchandise could possibly allow customers to be tracked, they say. Privacy advocates also fear that tags, which store information like purchasing histories, could be "read" without consumers' knowledge (Pruitt, 2004, p. 2).” Clearly, the situation described above could be more of a hindrance for Wal-Mart since some privacy advocates have asked for warning labels to be placed on items which use RFID tags. Others have demanded that the RFID tags should be manually removed at the point of exit from all products. Clearly, any such steps would remove the efficiency benefits which Wal-Mart hopes to gain from the use of the tags in the first place. For example, if products are marked with a warning symbol that it contains an RFID tag, it might be treated negatively by the buyer and that could adversely effect the buying decision. Fitchard (2005) has stated clearly that awareness about RFID tags is still not at the level where they become as accepted as bar codes or other universally used product identification methods. A lack of awareness feeds the lack of education about RFID and scaring customers from buying a product is the last thing Wal-Mart needs to do. Looking at the full picture, the problems with the RFID initiative can be summed up as the following in order of priority: Privacy concerns of customers and buyers Technical, compliance and cost issues faced by suppliers Labelling requirements which might be enacted by the government Generation and evaluation of alternative solutions There are several solutions for the problems being faced by Wal-Mart and depending on the issue Wal-Mart is trying to solve their application can be slightly different. For example, while the use of RFID tags is beneficial to say the least, if the concerns ore enough to cause a loss of buyers for Wal-Mart perhaps a better idea would be to go with GPS tracking or positioning of material using barcode signatures. However, replacing the RFID initiative with such as approach is not cost effective since the benefits of using RFID could not be replicated with these approaches. In terms of cost issues, Buckler (2005) suggests that the price of RFID tags will continue to drop and in the coming years, a simple passive tag could cost less than a cent to manufacture and place on a product. It seems that by this time, Wal-Mart and other retailers in the same league would be ready to use RFID on a wider scale across the world thereby improving the efficiency of their global supply chains. The RFID industry has certainly been boosted by Wal-Mart’s decision to go with the technology but it remains to be seen how much the industry will change. Additionally, the larger RFID industry players are also working with software giants as well as application based solution providers like IBM, SUN and Microsoft to produce the next generation of RFID tags which might render the older tags obsolete (Buckler, 2005). As with computer technology and other software programs, updates and upgrades to the technology might leave suppliers with a sour taste in their mouth if they have to invest millions of pounds every time companies like Wal-Mart decide that their suppliers have to start using newer versions of one technology or another. Therefore, the industry will have to ensure that successive generations remain backwardly compatible with older tags and tag readers. For privacy concerns, Wal-Mart could manually remove the RFID tag at the point of exit from the store. At the same time, if RFID tags need to be manually removed at the point of exit from the store, the entire efficiency, labour savings, time benefits and the cost benefits coming from the use of RFID tags could be negated. The labour savings might even turn into costs if the tags have to be torn from the packaging or have to be retrieved from inside the packages by opening and physically removing the tags. Certainly, the easier path to take would be to educate the customer about the RFID tags and how the privacy of the buyer is maintained even if RFID tags are to be used. RFID privacy concerns have already placed one retailer from Britain in trouble. Benetton had to pull back from its plans of embedding RFID tags into clothing items when it was threatened with a boycott from consumer bodies. A simple search on the internet shows that there are significant questions which are being raised by many individuals who may either be ignorant of the use of RFID or genuinely concerned about personal security threats (Williams, 2004). It is doubtful if everyone could be comfortable knowing that a person with a handheld RFID reader could learn about the contents of a shopper’s car as s/he returns home from a trip to Wal-Mart. It is painfully clear that there are no significant ways in which alternatives could be found to the used of RFID and unless technological breakthroughs are made in the future which allow for technology which takes away from the negative values associated with RFID, the problems will need to be handled differently. Since there are no ‘alternative’ solutions, Wal-Mart will have to look at the solutions which come for present problems. Recommended Solution and Justification Wal-Mart should actively work towards increasing the public acceptance of the tags by posting signs in areas where the tags are to be used. The company has been very vocal about informing everyone that the tags do not contain or collect information about the buyer and that it does not expect full coverage of all its stores and all its products with RFID for many years to come (Dignan, 2006). Packages where the RFID tags will be passed on to the customer will come with a symbol which signifies that Wal-Mart is abiding by industry group privacy laws regarding data collection with RFID (Buckler, 2005). These are certainly steps in the right direction and it is good to see that the company is already aware of the issues surrounding the tags from the consumer point of view. For the suppliers, to address the second issue of the price of the tag, Wal-Mart is actively working with software and hardware suppliers to bring down the cost of the tags for the entire RFID industry. The ideal price point is debatable since Chau (2004) suggests a price of less than 5 pennies to be ideal while Buckler (2005) recommends less than one cent to be the magic number where RFID adoption would increase exponentially. Chau (2004, p. 30) reports that: “The uptake of RFID products is directly proportional to the price of tags. Though the price of passive tags has dropped to less than a dollar, it continues to be a deterring factor in large-scale installations especially in instances where the price of the article is less than that of the tag (Chau, 2004, p. 30).” Overall, Customer education and increased awareness about RFID tags would also help in improving their acceptance for suppliers as well therefore the industry alliances made by companies like Wal-Mart, Tesco and Target should be quite beneficial in the long run. This only leaves the question of technical issues with RFID which can only be solved through technology itself. Investments in research might have to be made by the company since the decision to go with RFID is firmly in place. A new generation of tags would surely account for these issues as more of them are encountered in the field and even if Wal-Mart does not make significant investments in this direction, it is very likely that the supporting companies of the supply chain management and optimisation industry will come up with solutions for it (Chen, 2004). Whatever Wal-Mart can do to push them in the right direction would be beneficial for the company in the long run. In conlusion, while the use of RFID tags is certainly a problem for Wal-Mart in present times, it is easy to see that with the simple application of media management, public education and information dissemination the privacy concerns can be mitigated. Similarly, by allows suppliers to have cost efficient solutions, the problems of price for the tag or the technical issues associated with the use of the tag can be eliminated. However, Wal-Mart will have to work quickly since the plans for RFID use are already in place and as more and more locations start using RFID it would be better to have safeguards and contingency plans in place before their use results in lawsuits or boycotts which could cause more problems than solutions for the company. Works Cited Buckler, G. 2005, ‘Playing tag with Wal-Mart’, Computing Canada, vol. 31, no. 4, pp. 12-14. Chau, F. 2004, ‘RFID unlocks the enterprise’, America's Network, vol. 108, no. 16, pp. 26-30. Chen, C. 2004, ‘Wal-Mart drives a new tech boom’, Fortune, vol. 149, no. 13, pp. 202-202. Dignan, L. 2003, ‘Wal-Mart's RFID Deadline: A Chunky Mess’, eWeek, [Online] Available at: http://www.eweek.com/article2/0,4149,1415875,00.asp Dignan, L. 2006, ‘In Aisle 7, a tech scrum’, eWeek, vol. 23, no. 8. pp. 28-29. Fitchard, K. 2005, ‘The RFID Revolution’, Telephony, vol. 246, no. 24, pp. 28-31. Fortune, 2006, ‘Fortune Global 500’, Fortune Magazine, [Online] Available at: http://money.cnn.com/magazines/fortune/global500/2006/full_list/ McClenahen, J. 2005, ‘Wal-Mart’s big gamble’, Industry Week, vol. 254, no. 4, pp. 42-49. Pethokoukis, J. 2005, ‘Big box meets big brother’, U.S. News & World Report, vol. 138, no. 3, pp. 46-47. Pruitt, S. 2004, ‘Wal-Mart begins RFID trial’, Computer World, Available at: http://www.computerworld.com/mobiletopics/mobile/technology/story/0,10801,92806,00.html Roberti, M. 2003, ‘Analysis: RFID - Wal-Mart's Network Effect’, CIO Insight, [Online] Available at: http://www.cioinsight.com/print_article/0,3668,a=61672,00.asp Wikipedia, 2006, ‘Wal-Mart’, Wikipedia.org, [Online] Available at: http://en.wikipedia.org/wiki/Walmart Williams, D. 2004, ‘The Strategic Implications of Wal-Mart's RFID Mandate’, Directions Magazine, [Online] Available at: http://www.directionsmag.com/article.php?article_id=629&trv=1 Read More