Consumer products giant Wal-Mart (Bentonville, Ark.) is expecting its top 100 suppliers to adopt radio-frequency identification (RFID) technology by the end of 2004. The rest of its suppliers are to be on-board with the new technology in 2005. On first glance, the radio identification tags seem like a sound means of inventory control; that alone makes them a good investment. They should allow more-precise tracking of supplies, resulting in less inventory requirements and reducing labor costs, says A.T. Kearney, a Chicago-based consulting firm. As a result, sales are expected to grow, because stores should avoid running out of items. Plus, theft control is another advantage for retailers.

Kearney has found the RFID upgrades would cost $33 million for a grocery manufacturer with $5 billion in sales and using more than 220 million tags annually. The consulting firm believes the RFID investment would be profitable for suppliers of high-value items such as over-the-counter drugs. Grocery manufacturers, however, likely will find it much more difficult to gain as much return on the investment.

The problem is more of a cost issue. Though saving billions of dollars as a result of the new technology, Wal-Mart expects its suppliers to pay the entire cost of buying and applying the tags. Being the largest retailer in the country, Wal-Mart certainly has the clout to make this demand of its suppliers, particularly in the food industry. The giant recorded $54 billion in grocery sales last year, making it the largest grocery retailer in the country, a full $2 billion ahead of second-place Kroger (Cincinnati).

Indeed, two groups will feel the true impact of Wal-Mart's demands: the giant's competitors and the manufacturers' suppliers. Simply put, if Wal-Mart foots none of the bill for the tags, who will? It is not likely to be a cost that the manufacturer can simply swallow. No, more likely, the costs will be passed on to other retailers, for if the manufacturer cannot charge Wal-Mart more, it will have to charge more to its other customers. Indeed, such must be the case, lest the charges ultimately trickle down to the suppliers in the form of reduced orders. Once these costs reach the suppliers, well, there really is nowhere else for them to go.

Excerpts (and the title, for that matter) by Roger Taylor, 1984. Extra points if you can name the group!

Internet Information

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www.Kellogg.com — Kellogg Foods
www.Tyson.com — Tyson Foods
www.chefsolutions.com — Chef Solutions
www.foodbeat.com — Food Beat Inc.
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Associations
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www.crnusa.org — Council for Responsible Nutrition
www.fidassoc.com — Food Ingredient Distributors Assoc.
www.foodinstitute.com — Food Institute
www.fmi.org — Food Marketing Institute
www.ift.org — Institute of Food Technologists
www.iddba.org — International Dairy-Deli-Bakery Assoc.
www.naffs.org — National Assoc. of Fruits, Flavors & Syrups
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