SUMMERLIN, NEV. (Feb. 27, 1:45 p.m. EST) — The idea could be ripped right from a script for Mission Impossible.
Your assignment: to apply billions of radio-controlled microchips to shipping containers and pallets. Your goal: to track every package en route to every destination through a signal sent by the complex circuitry. Your deadline: January 2005.
The brains behind the operation, the Mr. Phelps of this real-life mission: Wal-Mart Stores Inc.
The retail colossus is asking its top 100 suppliers to produce about 5 billion tags for containers, allowing radio-frequency identification of the products inside, said William LeMaire, managing director of consulting firm PackIntell LLC of West Chester, Pa.
Suppliers have until next January to get involved in the program, although the deadline probably will be extended, said LeMaire, speaking during the Plastics News Executive Forum, held Feb. 1-4 in Summerlin.
Wal-Mart is the leading force in the program, which has the Mission-Impossible-like code name RFID, although it is gaining momentum among other large retailers such as Target Corp. and French chain Carrefour.
“It's going to be big,” LeMaire said. “And it probably will work. But without Wal-Mart's involvement, RFID would have languished for years.”
LeMaire, speaking about Wal-Mart's role in reshaping plastics packaging, said the RFID circuitry has not made solid connection with plastics processors yet. Wal-Mart would like its network of warehouses and distribution centers to monitor the movement of each pallet load and, eventually, every package.
But as is often the case with Wal-Mart, suppliers face a daunting challenge of cost containment. Right now, the plan would require about 30 billion tags, and each tiny chip costs about 30 cents, LeMaire said.
That price needs to get to less than a nickel each for suppliers to be able to respond cost effectively, LeMaire said. New labels are being considered that could begin to drop that price. Right now, it is a game to see how long suppliers can hold out, he added.
“RFID still could have many miles to go before it reaches the 1 cent tag level, which is where suppliers would like it to be,” LeMaire said.
Yet, anything initiated by Wal-Mart is worth a listen, he said.
The company now records about $250 billion in annual sales, making it the largest company in the world. Wal-Mart still is growing at a 16 percent annual rate, LeMaire said.
And an impressive litany of Fortune 500 companies, including Clorox Co., Revlon Inc. and Del Monte Foods Co., sell more than a fifth of their products to Wal-Mart, LeMaire said.
Wal-Mart continues to dictate some of the issues on the platter of its packaging suppliers. Case-ready meats is one area; Wal-Mart would like all the meat in its stores — including its new neighborhood supermarkets — to sit on shelves and not have to be purchased fresh from a butcher counter, LeMaire said.
Meat would be cut and packaged off-site and then shipped to stores. That would create a domino effect among suppliers of trays and film to package meat. New oxygen-sensitive films can extend the shelf life of meats from three to seven days.
And new thermoformed trays have become a cottage industry — about 2 billion case-ready packages were made last year, half of them going to Wal-Mart, LeMaire said.
Another push is under way in unit-dose packaging for pharmaceuticals, LeMaire said. The retail dynamo also has asked suppliers for returnable plastic crates, which now hold about 70 percent of fresh produce sent to Wal-Mart sites, and for packages with more visual appeal and more security features, LeMaire said.
While those drives might be good for the growth of plastics packaging companies, they also come with a cost that Wal-Mart is not always willing to pay. That becomes the Catch-22. Suppliers have to work with Wal-Mart, the center of the retail hurricane, to prosper, but also must keep a sharp eye on their own costs if they expect to make money, LeMaire said.
After all, Wal-Mart is not looking out for supplier costs. Instead, in-store price reductions are king.
LeMaire concluded by quoting Secretary of Labor Robert Reich: “Wal-Mart is the logical end point and the future of the economy in a society whose preeminent value is getting the best deal.”
For consumers, that is. Wal-Mart suppliers might think differently about that.