Wal-Mart Sets Deadline For Sam's Club Suppliers To Use RFIDWal-Mart Sets Deadline For Sam's Club Suppliers To Use RFID

Wal-Mart is stepping up pressure on suppliers to comply with its three-year-old RFID mandate. The retailer says it will charge a $2 fee for each pallet not tagged with RFID that comes into a Texas distribution center for its Sam's Club warehouse stores beginning Jan. 30.

Wal-Mart also has told suppliers that in less than three years, all Sam's Club products passing through 22 distribution centers need to be tagged with RFID at the selling-unit item level.

The charge going into affect this month is to cover Sam's Club's cost to affix tags on each pallet, said a Wal-Mart spokesman, since the retailer needs to have every pallet tagged to meet inventory efficiency goals. The tag fee is "really designed as a short-term solution for those suppliers that may need a little more time to implement their own tagging solution," the spokesman told information.

In 2003, Wal-Mart issued a mandate for all of its suppliers to tag their pallets and cases of product with RFID by 2005 to let both sides better track products in the supply chain and improve store inventory levels. Yet the retailer hasn't taken a strong-arm approach with the well over 15,000 suppliers that still haven't complied with RFID for products heading to its Wal-Mart stores.

Now Wal-Mart seems focused on turning its 700-store Sam's Club division into an example of RFID supply-chain technology in action, down to the item level, by 2010. It makes sense: Sam's Club has far fewer suppliers than Wal-Mart stores, and customers buy products by the case, the pallet, or individual packages that are larger (like a 48-count box of granola bars) than what's typically sold in retail stores. That makes the cost of RFID tags, at about 20 cents a piece, more digestible for Sam's Club suppliers. The division contributed $41.5 billion to Wal-Mart's $344.9 billion in revenues for its 2007 fiscal year.

Wal-Mart's been talking to Sam's Club suppliers for months about RFID compliance, and sent them a letter dated Jan. 7 that includes a 21-month timeline to have RFID in place. The timeline is as follows:

-- Jan 30, 2008: pallet-level tagging for DeSoto, Tex., distribution center.

-- Oct. 31, 2008: pallet-level tagging for an additional four distribution centers, case- and mixed-pallet level tagging for Texas distribution center.

-- Jan. 30, 2009: pallet-level tagging for remaining 17 distribution centers, case- and mixed-pallet level tagging for an additional four distribution centers.

-- Oct. 31, 2009: case- and mixed-pallet level tagging for the remaining 17 distribution centers; selling-unit -level tagging for Texas distribution center.

-- Jan. 30, 2010: selling-unit-tagging for an additional four distribution centers.

-- Oct. 31, 2010: selling-unit-tagging for remaining 17 distribution centers

The pallet fee apparently came as a surprise to some suppliers. What's more, it'll rise to as high a $3 for suppliers who don't meet compliance by next year. "We started getting calls from people on Jan. 8 and 9 about this," said Jim Caudill, senior VP of marketing at RFID tag and software supplier Xterprise Inc. On Jan. 11, Xterprise began offering a service to help companies quickly ramp up. Suppliers can provide configuration requirements and order their RFID tags online from Xterprise, which will print and send them in overnight mail. The letter was sent because "we had to provide a clear direction that stated precisely and exactly what we're asking of them, and the dates by which we expect them to be in compliance," said the Wal-Mart spokesman. "[Suppliers] have asked for that clarity."

All this has companies that came on early with Wal-Mart's RFID mandate, like Daisy Brand, smiling smugly from the catbird seat. The manufacturer of sour cream and cottage cheese started shipping RFID-tagged cases and pallets to Wal-Mart in the fall of 2004, and now all of its pallets and cases have RFID, including those headed to Sam's Club. Daisy says its investment in RFID has been a boon, helping it better manage the flow of its perishable products through Wal-Mart stores and ensure marketing promotions proceed as planned.

Using Wal-Mart's Retail Link Web site for suppliers, Daisy Brand's information systems manager Kevin Brown says he can track, by lot number, how quickly pallets of product make it to stores and when they're unpacked, since Wal-Mart has readers at its dock entrances and on its cardboard-case compactors. If a Wal-Mart store is scheduled to run a sales promotion on sour cream, certain information can ensure that the promotion is taking place as planned. For example, the destruction of a large number of cases suggests that the contents of the cases were used to to fill up the waist-high coolers typically used for refrigerated-product promotions. In fact, some in the industry speculate Wal-Mart will soon require any retailer running a promotion in its stores to use RFID.

Daisy already is in compliance with the Sam's Club mandate to have cases and pallets tagged for all distribution centers by October 2009. But Brown admits things get interesting at the item level compliance required in 2010. Since Sam's Club is a warehouse store, some individual selling units are the cases themselves, so that won't be a problem. "For inexpensive consumable items, it will get down to the value derived from tagging at the item level," Brown said. "I'm looking forward to learning more about their item-level plan as it evolves."

RFID industry experts say item-level tagging can help with "shrinkage" (which typically means customer and employee theft) and also aid in costly product recalls. Sam's Club participated in a few of those last years, including a recall of Cargill beef patties for E. Coli contamination in the fall.

The Sam's Club pallet fee should serve as a wake-up call to suppliers that Wal-Mart is still serious about RFID. And as Daisy Brand shows, RFID could prove beneficial far beyond complying with a customer's mandate.