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Wal-Mart & the Bar Code by Beth Lewallenhome
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How Wal-Mart capitalized on the humble bar code -- and caused a shift in the balance of power between manufacturers and suppliers. Plus, a closer look at the retailer's plans to use radio frequency identification (RFID) technology for even greater efficiency.

Explaining the roots of Wal-Mart's phenonmenal growth and success to FRONTLINE, UCLA Sociology Professor Edna Bonacich put it simply: "The shift in Wal-Mart's power was when it started to really develop its … control over information technology." The key to that -- and what Wal-Mart saw and was one of the first retailers to harness -- was the power of the information that is hidden in the ubiquitous bar code.

The idea of a bar code first emerged back in 1932, during the Great Depression. Though the nation was in crisis, one college student, Wallace Flint, believed that necessity could continue to drive invention. Writing his master's thesis, Flint developed the idea for a system that would help grocery stores identify a customer's needs by simply reading a perforated card on which their shopping list would be labeled. Due to the recession and the lack of technological capabilities, Flint's idea fell by the wayside.

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But the idea resurfaced in 1948, when yet another graduate student, Bernard Silver, overheard a plea for help from the director of a food provider. It was becoming necessary, said the businessman, to discover a way to identify product information at the checkout stand. A dean of Philadelphia's Drexel Institute of Technology turned down the research request, but Bernard Silver and his fellow student Norman Joseph Woodland decided to pursue the challenge.

Woodland first attempted to create a system utilizing ink patterns that were sensitive to ultraviolet light, but faced repeated difficulties such as high printing costs. Determined to persevere, he next turned to an adaptation of technologies already in existence: Morse code and movie soundtracks. Extending the dots and dashes that made up Morse code and adapting the patterns to create lines of varied widths, Woodland then "read" the information through a tube that had been designed for movies made in the 1920s. The tube was able to translate light reflected from the bar pattern into electronic waveforms, which in turn identified the message of the original bar code.

The development of laser light pushed the spreading bar code technology into more efficient and widespread use. The direct laser beam allowed information present in the bar code to be read quickly and from different angles. Beginning again with the grocery store industry, bar codes proved to be invaluable in identifying product information; in the early 1970s Kroger grocery chain became the "guinea pig" for bar code use.

A universal bar code system was adopted on April 3, 1973. The Universal Product Code (UPC), developed by George J. Laurer, offered a bar code that would be recognized by all scanners, thereby eliminating the confusion that multiple systems had previously caused. The UPC is split into two halves, with six digits in each. The code contains information on the product, its manufacturer and its country of origin; the laser beam recognizes all the information as the scanner "reads" the bars by the degrees of light reflected back from the bars and spaces.

Countless businesses and industries have adapted the UPC bar code to their needs, using it to aid in inventory records and the identification of products at the checkout stand. None has used the technology as efficiently as Wal-Mart, however. As former Wal-Mart store manager Jon Lehman explains, through the bar code Wal-Mart is able to "track sales on specific items specific weeks, specific days, specific hours of the day, when [they] sell merchandise the most."

Through this knowledge the company has managed to change its relationship with manufacturers and suppliers. It has, according to Lehman, "completely changed the communication process between Wal-Mart and its manufacturers … It really took it from sort of an archaic or old-build way of just maybe communicating with a vendor every 52 weeks out of the year to communicating every day, every hour, every minute," he says. According to Professor Bonacich, this created a power shift from the manufacturer to the retailer, because Wal-Mart "knows what is being sold … [and] what prices are popular, so they are able to say, 'We want to sell this at a certain price. You make it at a certain price, or we're not going to work with you.' "

Wal-Mart recently announced that it is taking technology a step further, drilling even deeper into sales and production tracking. It will now require its suppliers to provide microchips which will service radio frequency identification, or RFID, which will greatly enhance the systems created by bar codes.

RFID tags are usually from two to four square inches in size, and contain a silicon chip that holds a unique string of numbers identifying the item to which it is attached. A separate RFID "reader" receives the information contained in the tag through the tag's antenna. Unlike a bar code, the signal does not have to be read directly by a scanner; RFID signals need only to be in the vicinity of an RFID reader. The technology is used in automated highway toll collection systems, such as E-Z Pass, and in November 2004, the Food and Drug Administration (FDA) and several drug manufacturers announced an initiative to use RFID tags on medication bottles for drugs such as Viagra and OxyContin to combat theft and counterfeiting.

Descriptions provided through RFID tags are much more detailed than those in a bar code, and Wal-Mart will be able to have instant information on which products are selling and which products are not well-received. This knowledge will be powerful when deciding which products to purchase from its suppliers.

Early tests of RFID have uncovered some shortcomings, such as multiple readings of an item, but Wal-Mart has high hopes for the program. The technology, according to Wal-Mart officials, will allow the company to greatly improve its inventory information. Items could be easily located in the store, and restocking would become more efficient and timely. Eventually, the strong scanning capabilities of RFID technology may be used at checkout lines, allowing customers to simply push their cart through the line and receive a receipt as they leave the store.

Selected manufacturers for Wal-Mart have already begun to use RFID tags, and the system is undergoing testing in Texas stores. Wal-Mart estimates that it will completely shift over to RFID technology by Dec. 31, 2006.

 

Beth Lewallen is a senior at Arizona State University, studying political science and international relations. She was an intern for Hedrick Smith Productions.

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