updated 4/30/2004 3:43:29 PM ET 2004-04-30T19:43:29

Wal-Mart Stores Inc. and a number of its suppliers are using a Dallas distribution center as the starting point for a technology that's targeted to one day replace the bar code.

The radio frequency information, or RFID, tags provide automatic tracking of pallets and cases of goods. Starting Friday, eight suppliers are to participate, using 21 products to be tracked. Wal-Mart said Thursday that it will have more than 100 suppliers using the tags by January.

Wal-Mart chief information officer Linda Dillman would not say how much the Bentonville, Ark.-based company is spending but said the tags are on the top line of Wal-Mart's technology budget.

The RFID tags contain a chip that is imparted with information. In a backshop retail environment, the tags will contain the details of what is in a case or on a pallet of goods. Rather than have a worker with a handheld scanner logging in barcodes, the system will let a computer system use a radio signal to log the goods as they arrive at the loading dock.

The tags can also be used in the manufacturing process, which Dillman said can help suppliers become more efficient, and the tags will help companies on both ends know where their products are at all times.

Wal-Mart says the tags will help reduce theft and counterfeiting, the latter particularly affecting prescription medicines.

Steve David, chief information officer for Proctor & Gamble Co., said counterfeiting costs industry $500 billion worldwide and backshop theft costs companies $50 billion per year.

David was part of a presentation organized Thursday by Wal-Mart in Dallas, and he spoke with Dillman and Ian Robertson, director of Hewlett Packard's RFID program.

Robertson said HP has put the RFID technology in place in some of its production facilities.

"We felt that the best thing to do was get on the ground and try it," he said. Robertson said the company found it could better track its materials and could read the RFID tags where it was impractical to have a human standing by to scan barcodes.

Dave Hogan, chief information officer for the National Retail Federation said the RFID tags could gain an important place rather quickly. He said barcodes will likely be around for quite a while and that he expects them to be used in concert with RFID tags even when the new technology moves to store shelves.

"This is all about the distribution center and the supply chain, case and pallet. That's the big win," Hogan said. "I kind of get a little squeamish when I hear about tagging items (on store shelves)."

But, Hogan said the goal is to have the tags on individual items.

David said one of the objectives of having the tags in distribution is to help ensure that store shelves stay stocked. By extension, tagging individual items will help that goal.

"I like calling it a glass pipeline within the supply chain," Hogan said.

Hogan said Target Corp. and Albertsons Inc. are taking on the technology, but Wal-Mart is pushing it most aggressively to its suppliers. Wal-Mart says the technology will help it keep costs low, which it can pass on to its shoppers.

David said the hope is that RFID tags will catch on more quickly than the dozen or so years it took barcodes to become common. The executives said driving the cost of tags to below 5 cents each will make them affordable and that the cost will be driven down as use of the tags grows.

"It's really about getting to this critical mass juncture so we can learn and roll faster," David said.

The executives said there are still elements of the system under development, such as finding a mechanical method of putting tags on products rather than applying them by hand. There is some inertia in that tag manufacturers are waiting for greater demand but that demand won't come until industry standards are refined.

Regardless, Dillman said Wal-Mart is pressing suppliers to get on board.

"We believe in it," she said.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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