Now Wal-Mart, in its latest supply-chain innovation, has introduced RFID-radio frequency identification microchips, attached to each pallet and merchandise box that comes into Wal-Mart, to replace bar codes, which have to be scanned individually and can get ripped or soiled. In June 2003, Wal-Mart informed its top one hundred suppliers that by January 1, 2005, all pallets and boxes that they ship to Wal-Mart distribution centers have to come equipped with RFID tags. (According to the RFID Journal, “RFID is a generic term for technologies that use radio waves to automatically identify people or objects. There are several methods of identification, but the most common is to store a serial number that identifies a person or object, and perhaps other information, on a microchip that is attached to an antenna-the chip and the antenna together are called an RFID transponder or an RFID tag. The antenna enables the chip to transmit the identification information to a reader. The reader converts the radio waves reflected back from the RFID tag into digital information that can then be passed on to computers that can make use of it.”) RFID will allow Wal-Mart to track any pallet or box at each stage in its supply chain and know exactly what product from which manufacturer is inside, with what expiration date. If a grocery item has to be stored at a certain temperature, the RFID tag will tell Wal-Mart when the temperature is too high or too low. Because each of these tags costs around 200, Wal-Mart is reserving them now for big boxes and pallets, not individual items. But this is clearly the wave of the future.
“When you have RFID,” said Rollin Ford, the Wal-Mart logistics vice president, “you have more insights.” You can tell even faster which stores sell more of which shampoo on Fridays and which ones on Sundays, and whether Hispanics prefer to shop more on Saturday nights rather than Mondays in the stores in their neighborhoods. “When all this information is fed into our demand models, we can become more efficient on when we produce [a product] and when we ship it and then put it on the trucks in exactly the right place inside the trucks so it can flow more efficiently,” added Ford. “We used to have to count each piece, and scanning it at [the receiving end] was a bottleneck. Now [with RFID], we just scan the whole pallet under a bubble, and it says you have all thirty items you ordered and each box tells you, 'This is what I am and this is how I am feeling, this is what color I am, and am I in good shape'-so it makes receiving hugely easier.” Procter & Gamble spokesperson Jeannie Tharrington talked to Salon.com (September 20, 2004) about Wal-Mart's move to RFID: “We see this as beneficial to the entire supply chain. Right now our out-of-stock levels are higher than we'd like and certainly higher than the consumer would like, and we think this technology can help us to keep the products on the shelf more often.” RFID will also allow for quicker remixing of the supply chain in response to events.
During hurricanes, Wal-Mart officials told me, Wal-Mart knows that people eat more things like Pop-Tarts-easy-to-store, nonperishable items-and that their stores also sell a lot of kids' games that don't require electricity and can substitute for TV. It also knows that when hurricanes are coming, people tend to drink more beer. So the minute Wal-Mart's meteorologists tell headquarters a hurricane is bearing down on Florida, its supply chain automatically adjusts to a hurricane mix in the Florida stores-more beer early, more Pop-Tarts later.
Wal-Mart is constantly looking for new ways to collaborate with its customers. Lately, it has gone into banking. It found that in areas with large Hispanic populations, many people had no affiliation with a bank and were getting ripped off by check-cashing outlets. So Wal-Mart offered them payroll check cashing, money orders, money transfers, and even bill payment services for standard items like electricity bills-all for very small fees. Wal-Mart had an internal capability to do that for its own employees and simply turned it into an external business.
Unfortunately for Wal-Mart, the same factors that drove its instinct for constant innovation-its isolation from the world, its need to dig inside itself, and its need to connect remote locations to a global supply chain– also got it in trouble. It is hard to exaggerate how isolated Bentonville, Arkansas, is from the currents of global debate on labor and human rights, and it is easy to see how this insular company, obsessed with lowering prices, could have gone over the edge in some of its practices.