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Over the last few years the cost declines of Radio Frequency Identification (RFID) technology, combined with improvements in sensitivity, range and durability, have enabled widespread RFID use in the logistical planning and operation segments of supply chain management processes. Specifically, areas such as security and access control, tracking, and monitoring/management will strategically be enhanced from the use of this technology. An RFID tag consists of a microchip and an antenna, often in the form of a tiny ribbon that can in turn be packaged into many forms, such as a label, or imbedded in between the cardboard layers in a carton. On the microchip is stored information about the product that the tag is affixed to, which can then be "read" when the tag passes within proximity of an RFID "reader". This information is almost instantly relayed back to a computer system that updates the location status of the associated product. This procedure enables great efficiencies and cost reductions with respect to inventory management and control in a physical product environment, and also enables innovative applications in locating and tracking people and assets in a services environment. (Hagans, Andy, RFID Magazine)

This environment changed dramatically last June when Wal-Mart Stores announced that it would require its top 100 suppliers to put RFID tags on shipping crates and pallets by January 1st 2005. Earlier this month, Wal-Mart announced that it will expand its RFID efforts to its next 200 largest suppliers by January 1st, 2006. Each tag would store an Electronic Product Code (EPC) which is a bar code that would be used to track products as they enter Wal-Mart's distribution centers. In turn, these products are then shipped to individual stores. Being the world's largest company in terms of revenue, Wal-Mart changed the strategic foundation of many companies in one such decision.

There are four main aspects of strategic impact from this decision by Wal-Mart. They are, in no particular order: volume and cost, supply chain extensions (upstream), innovation and supply chain extensions (downstream). Looking from the volume and cost perspectives, the economies of scale of RFID manufacture will drastically change due to Wal-Mart's move. As of now, the annual volume of RFID tag shipments from top 100 suppliers is estimated at 1 billion tags. With Wal-Mart being such a powerful company that sets standards for manufacturers, their entrance into this new market will result in other companies benchmarking their behavior, which in turn, will result in a significantly lower price per tag. Current average cost per tag ranges between 25 to 50 cents. With Wal-Mart's entrance, analysts are expecting the price per tag to drop towards the 5 cent range, which will consequently allow the expansion of RFID technology into new markets.

In terms of upstream supply chain management extensions, by Wal-Mart requiring its suppliers to use RFID in its end product packaging, there will likely be an impact of accelerating the use of RFID into the supplier's



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