I feel like we've passed into a new age, where science fiction has become science and the long-promised intelligent robots like C-3PO will be walking and chatting down the street any day now.
Just a tad of fun exaggeration. But let me tell you, I do find the "smart tags" that Wal-Mart (NYSE: WMT) will be using to control its inventory absolutely fascinating (nerdy as that is). The company reported that it began a test on Friday of this interesting initiative in the Dallas/Fort Worth area, involving several vendors and Supercenters, plus a regional distribution complex. This has been in the works for a while, and everyone in the business and investment community has been anticipating it.
The tags -- which are attached to boxes, crates, palettes, what have you -- employ radio frequency identification technology (RFID) which many believe will eventually become the heir to the Universal Product Code (UPC) throne. They contain information about the inventory they are attached to and can relay it to devices that can decode the data, with the process occurring wirelessly and at a distance. That's an oversimplification, of course, but the essential gist is easily achieved: such a scheme will allow for a radical transformation of the entire science of supply chain management.
Wal-Mart knows this, and it has been working on the system for a while now. The company intends on making RFID tags obligatory with all of its vendors; the current test involves several blue-chip companies, such as Gillette (NYSE: G), Procter & Gamble (NYSE: PG), and Kraft (NYSE: KFT).
The goal is an important one. Remember, the higher the quantity of information a sales clerk, manager, or executive has at her disposal, the better. Frictionless distribution of qualitative and quantitative data on inventory items will help to reduce shrink (which can be paperwork errors or theft on an internal or external basis) and will assist in closing the spread between inventory levels and demand, perhaps someday on a near real-time level. This would help quicken inventory turnover. Plus, RFID protocols linked with point-of-sale systems may radically reduce checkout times.
Investors in Wal-Mart or other retailers such as Target (NYSE: TGT) and Best Buy (NYSE: BBY) love to hear of supply chains with a higher degree of control and efficiency. That's what advances in technology are all about: the new economy adding value to the old economy. And not only should investors of the chains be pleased, but whenever the Wal-Mart effect can be forced upon, say, a Gillette, holders of that blade-sharp concern have reason to crow.
What companies are involved in RFID technologies? Zebra Technologies (Nasdaq: ZBRA) is an example; it is well-rated overall by Investors Business Daily proprietary scores and has already attracted a load of believers. Texas Instruments (NYSE: TXN) and Symbol Technologies (NYSE: SBL) are also in RFID research and development. The scrutiny of this sector continues to grow, justified by the fact that a huge retailer like Wal-Mart is pushing RFID imperatives.
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Fool contributor Steven Mallas owns none of the companies mentioned.
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