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Sam's Club Letter Shakes Things Up

A letter sent from Sam's Club to its suppliers, informing them they'll be charged if they don't put RFID tags on pallets, has changed the mood among suppliers, RFID vendors and the media.
By Mark Roberti
Jan 21, 2008What a difference a single letter can make. In January 2007, many Wal-Mart suppliers were very happy because they weren't being forced to put radio frequency identification tags on more products shipped to the retailer. RFID vendors, meanwhile, were very unhappy because Wal-Mart's suppliers were purchasing very few tags and readers. And journalists were having a field day, writing that Wal-Mart was backing off its RFID implementation, or even that the entire effort was a failure.

Fast-forward a year to Jan. 7, when Greg Spragg, executive VP of merchandising for Wal-Mart's Sam's Club division, sent a letter to all Sam's suppliers asking some of them to start tagging pallets as early as Jan. 30, and cases by Oct. 31. The letter said those failing to do so would be charged $2 per pallet, because Sam's Club would have to add the tag at its own distribution center. The chargeback would go up to $2.50 after Oct. 30, the letter explained, then to $3 a year later (see Sam's Club Tells Suppliers to Tag or Pay).


The result: Some suppliers are now unhappy about having to tag more products (or to begin tagging them). RFID vendors, on the other hand, are ecstatic—and journalists, as expected, are back to bashing Wal-Mart for putting the screws to its suppliers. ("Wal-Mart plans to strong-arm suppliers into using its RFID tagging system…" read a typical article.)

The Sam's letter is big news, but I think it's worth keeping things in perspective. First of all, the charge for noncompliance is hardly onerous. We're talking $2 per pallet, not per case. Second, the timeline may be aggressive, but it's not crazy. Sam's Club is not asking suppliers to begin tagging cases by Jan. 30—only pallets, and only to the Sam's DC in Desoto, Texas. A supplier could order a few thousand tags, get a single reader to encode them and be compliant within 10 business days.

Case tagging is required beginning Oct. 31 for cases shipped to the Desoto DC. Cases shipped to four other distribution centers—those in Kansas City, Mo.; Dayton, Texas; Searcy, Ark.; and Villa Rica, Ga.—must be tagged by Jan. 30, 2009. And cases shipped to the retailer's remaining 17 U.S. distribution centers must be tagged by Oct. 31, 2009.

In addition, Sam's Club wants its suppliers to begin tagging at the item level starting Oct. 31, 2009. This raised some eyebrows because it was presented by some publications as a requirement to tag every can of soup, box of cereal and stick of gum sold through Sam's Club by 2009. But Sam's sells mostly in bulk—so when the company talks about item-level tagging, it isn't referring to each can of soup, but rather sellable units, such as a package of 12 or a case of 24.

Having all Sam's Club suppliers start tagging all cases by the fourth quarter of 2009 will certainly drive up the volume of tags and readers purchased in 2010, which will help RFID vendors make money. It will also drive down the per-unit cost of these items, which will help drive adoption. The key, in my mind, is for Sam's Club suppliers to gain some benefits from tagging pallets and cases. I'll talk about that in my column next week.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below.
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USER COMMENTS

Francis Cioffi 2008-01-25 05:53:55 AM
Sams Shakes Things Up In your recent article, I think that you minimize the impact to suppliers when you state that 1) it's only pallet tagging indicating minimal costs and 2) that it's easy for a supplier to get up and running in 6 days. This is simply not true for large suppliers that ship hundreds of thousands of pallets which would add significant tag cost alone. Secondly, distribution centers today are on very tight time schedules to load and deliver product on time. Manual decisions on what pallets to tag, how to tag them and slowing triailer loading does come a a significant cost to suppliers. With hundreds of SKU's going to various locations it complicates your processes significantly when having to weed out the RFID items..... RFID costs are well beyond the tag - we should not overlook this or minimize their impacts.
Ronan Clinton 2008-01-26 05:22:49 AM
Sams Club What is most disturbing about Sams Club's enforcement is that it is purely a case of corporate bullying. Equally disturbing is that entities like RFID Journal see this as a positive step as it potentially means more RFID and readers in the world. God bless the almighty Dollar.... Implementing RFID can be difficult. Slapping an RFID tag on a pallet at the back door to comply with the big W is back to square one of the biggest barriers to adoption of RFID in the last decade - Return on Investment. Unless suppliers spend millions on RFID implmentations throughout their entire process, they are unlikely to ever see an ROI (Not that they would get one anyway...) and with the availability of money declining, a lot of companies have better things to spend their hard earned cash on. With Sams Club imposing a fine for not having a tag is unbelieveable to me. Rather than the happy picture RFID Journal paints about how happy Walmart are with RFID, I think that this is more of an excercise to recover some of the investment that advocators and manufacturers forced Walmart to spend in the first place to adopt RFID. RFID in Walmart will never die. If Walmart pulled out of RFID, then it would be dead for a long time, possibly as much as a century. Manufacturers like IBM, Avery, Texas Instruments, Alien, Intermec, Motorola etc. will collectively never let that happen. Not in an industry that is potentially multi, multi billion dollars per year. RFID Journal will continuously publish the good statistics and your oponents will constantly publish the bad stories. In the last 3 years, I think the bad stories and statistics far outweigh the occasional good PR story. RFID Journal see the Sams Club letter as positive???? This is just another major headache for suppliers who have to spend huge amounts of money just to be able to supply Walmart. I think that all suppliers should join forces and start charging $3 extra per delivered pallet to Walmart and see what happens. Let Walmart go through the pain of the RFID requirements, seeing as they are the ones allegedly benefitting from the technology.Trying to force adoption will always meet resistance and is not the way forward. If the technology was as simple to implement, then it would undergo a natural adoption. It isn't easy, and never will be - The same as quantam physics will never be easily understood by all. See you in Vegas!!!!

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