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.