Consumer Goods Manufacturers: Slaves to the Wal-Mart Enterprise

We are the generation of automation. RFID tags, or radio frequency identification tags , “often as small as a grain of rice, now hide in ID cards and wristbands, windshield-mounted toll tags, gasoline quick-purchase tokens, and electronic ear tags for livestock, and they have begun to appear in auto key-chain antitheft devices, toys (Hasbro Star Wars figures) and other products” (Want).

RFIDs are rapidly changing the way mass sellers conduct business and are forcing their business partners to respond without question. According to Roy Want, writer of “RFID: Key to Automating Everything”, “Wal-Mart announced that it will require its top 100 suppliers to place high frequency tags on cartons and pallets shipped to its stores.” In the eyes of Wal-Mart, this will ideally help cut back on labor costs, minimize and track store shrinkage, including theft and damaged goods, and monitor shelves to ensure more consistent sales. Many shoppers complain about Wal-Mart’s infamous out-of-stock items. Wal-Mart hopes that through smart-shelf systems, aided by the RFID technology, the stock levels will be constantly monitored and when items are few in number, new orders can be automatically placed directly to manufacturers without any human interface.

As we explored this cutting-edge concept of RFID technology in class, I felt that it was important for me to discover how this technology was impacting the industry that I will soon be working for upon graduation, consumer goods. I have found that consumer goods manufacturers have become slaves to Wal-Mart’s dictatorial authority due to sheer volume alone. According to “Wal-Mart's RFID Deadline: A Chunky Mess” a consumer goods company, such as General Mills, gets 13 percent of its $10.5 billion in annual sales by doing business with Wal-Mart. This number is so significant that not obeying the wishes of the super-power Wal-Mart would take a costly hit on the entire business of General Mills and other consumer goods companies.

The article also uses Campbell Soup Company as a benchmark in the industry, and further states that, “moving to radio tags won't be simple. Analysts say Campbell must deal with an immature technology, unclear messages from Wal-Mart and the basic difficulty of adopting a new system to identify all its products, after the decades-long introduction of the UPC system” (Dignan). Furthermore, these companies utilize scanner data, received from barcodes, to track when each item was purchased and goes home with a customer. Without keeping the barcode data intact, consumer food companies will be loosing out on a major resource for research and sales data. Thus, while bar codes are not a priority for Wal-Mart currently, manufactuers’ products may not be missing them, even with the addition of RFID tag technology.

Thus, consumer goods companies are at the mercy of Wal-Mart’s demands. This deadline to place RFIDs on each SKU is extremely costly. “Wal-Mart’s RFID Deadline: A Chunky Mess” says “leading consumer goods manufacturers will spend from $13 million to $23 million each in 2004 to comply with Wal-Mart's mandate”. Not submitting to this powerful and lucrative customer will be detrimental to one’s business and allow for competitors to gain a competitive advantage with the largest global customer. For most consumer goods companies, going against the grain is simply not an option. As I move into my new career in consumer goods, I am interested to see how General Mills responds and serves Wal-Mart as both a customer and as a superior.

Dignan, Larry. Wal-Mart’s RFID Deadline: A Chunky Mess. www.eweek.com. December 15, 2003.
Want, Roy. RFID: Key to Automating Everything. Scientific American. 2003.