US retail giant Wal-Mart Stores began testing the use of RFID (radio frequency identification) tagging at seven stores and a regional distribution center in Texas on Friday, in anticipation of a wider rollout of the technology that the company hopes will eventually replace bar codes.

The trial includes participation from eight manufacturers, which have agreed to implement case and pallet-level tagging on a total of 21 products delivered to Wal-Mart's Sanger,Texas, regional distribution center.

The much-anticipated test comes after Wal-Mart threw down the gauntlet to its top 100 suppliers last year, setting a January 2005 deadline for them to place RFID tags on all cases and pallets destined for its Wal-Mart and Sam's Club stores in the Dallas and Fort Worth, Texas, area.

Wal-Mart Stores began testing the use of RFID (radio frequency identification) tagging at seven stores and a regional distribution center in Texas on Friday, in anticipation of a wider rollout of the technology that the company hopes will eventually replace bar codes.

Wal-Mart has been on the front lines of a move by retailers to adopt Electronic Product Code (EPC) technology in an effort to increase efficiency within the supply chain process. The new tags work by using passive RFID chips with small antennas that emit a unique product identifier code when passed near an RFID reader. That information is then transmitted to an inventory control system.

Under the trial, tagged cases and pallets will be read by RFID readers installed on the distribution center's dock doors. The readers will tell the store's operations and merchandising teams, as well as the suppliers, that the products have arrived. The process will be replicated at the seven trial stores where readers at dock doors will confirm shipment of the goods, Wal-Mart said.

While Langford said that many of its suppliers at first had questions about the functionality and cost of implementing the new technology, they now believe that it will result in greater cost savings in the long run by improving the efficiency of the supply chain.

What's more, volume purchasing of RFID technology will drive down the costs even further, he said.

"Just in the last year we have seen the price of tags and readers drop by 50 percent on average," Langford said.

While Wal-Mart and other RFID advocates say that the technology will serve to aid consumers by helping ensure that the products they are looking for are in stock, concerns have been raised that the tags could encroach on shoppers' privacy. RFID tags left activated on merchandise could possibly allow customers to be tracked, they say. Additionally, privacy advocates fear that tags, which store information like purchasing histories, could be "read" without consumers' knowledge.

Wal-Mart is taking measures to allay these concerns by posting signs in stores participating in the trial, alerting them of use of the technology, it said. The company emphasized that their RFID tags do not contain or collect any additional data about customers, and added that it does not expect to have RFID readers on its main sales floors in the foreseeable future.

"There's been a lot of hype around privacy but I think once customers see what's on the tag and what it's used for, they'll feel better," Langford said.

During the trial, the tags will mostly be used in supply rooms, since only the delivery cases and pallets are being tagged, not individual items. However, three products with packaging that also serves as a delivery case will reach store shelves tagged: Hewlett-Packard Co.'s (HP's) ScanJet scanner and two HP Photosmart photo printers.

Wal-Mart said that these items will be marked with an EPCglobal symbol, signifying that the retailer is abiding by the privacy principals set down by EPCglobal, an industry group that develops standards for RFID technology in the global supply chain.

Through EPCglobal, Wal-Mart is working with other retailers such as Target Corp. and Tesco PLC in the U.K., and various airlines and pharmaceutical companies on RFID issues, Langford said.

Wal-Mart will be announcing additional RFID rollout plans in the third quarter of this year, with the U.K. and Canada being likely markets, Langford said. The company is keen to use the technology in Europe but is waiting for tags that include a global RFID standard, which is expected at the end of this year, he added.

In addition to HP, the seven other manufacturers participating in the initial Texas trial are The Gillette Company, Johnson & Johnson, Kimberly-Clark, Kraft Foods Inc., Nestle Purina Pet Care Company, The Procter & Gamble Company and Unilever PLC. Wal-Mart said that it expects more suppliers to join the trial shortly, including 37 small and medium-sized manufacturers that have asked to participate.