Chips with everything at Wal-Mart

Inventory management technology that uses wireless signals to track products from the factory to store shelves is set to win a major new ally next week: Wal-Mart. The retail giant is expected to throw its weight behind RFID (radio frequency identification) technology at the Retail Systems 2003 industry conference in Chicago on Tuesday. Sources familiar with the company's plans said executives will make a presentation encouraging its top 100 suppliers to start using wireless inventory tracking equipment - chips affixed to products, and scanners in warehouses - by 2005.

Wal-Mart's endorsement of RFID gives an important boost to efforts to overhaul the world's supply chains, a makeover that could provide a shot in the arm for technology companies struggling to find buyers for the latest products and services. RFID is expensive, but backers say it offers long-term benefits that could dwarf the impact of the bar code on inventory control and distribution.

RFID spending will be "bigger than...Y2K," predicted AMR Research analyst Pete Abell. "I imagine there will be a rush on investing in RFID."

Suppliers are already exploring the use of RFID technology in tracking goods from the factory to warehouses. But backing from retailers is considered important because it could ultimately allow products to be tracked on store shelves.

Executives from Wal-Mart are expected to aggressively push for the adoption of RFID technology during a presentation at an upcoming event for retailers, suppliers and distributors, sources said. Part of the discussion will involve the significance of standards development and its effect on the widespread adoption throughout the supply chain.

Wal-Mart representatives did not return calls for comment.

RFID tags have the potential to streamline and improve inventory management by allowing manufacturers to more efficiently enter and track the flow of goods. For example, RFID could let a company add a boxful of goods to its inventory systems all at once, without having to unpack the carton and scan each piece separately. An RFID scanner can pick up signals from all the chips in the sealed box, something bar code systems can't do.

The cost savings could be substantial for Wal-Mart, the world's biggest retailer with sales of $217.8bn in 2002. AMR's Abell estimates that Wal-Mart's costs associated with supply chain - including storing, transporting and keeping track of goods - are about 10 percent of overall sales. RFID, Abell said, could save 6 percent to 7 percent of those costs annually. Using the 2002 figures as a model, that would amount to about $1.3bn to $1.5bn saved.

Such savings are an attractive brass ring, but installing the technology is no small task. Wal-Mart suppliers "may find it difficult to meet the early 2005 time frame," Abell said.

Richard Shim writes for CNET News.com