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METRO to Penalize RFID Non-compliance

Earlier this summer METRO Group announced that it will take its existing RFID pilot activity into full-scale deployment, and that it will expect 650 of its top suppliers to begin shipping RFID-tagged product by early next year. In contrast to other major deployments, METRO will impose a penalty on suppliers for each untagged pallet.
Aug 24, 2007This article was originally published by RFID Update.

August 24, 2007—Perhaps the biggest development to occur this summer for the RFID market is the announcement by German retailer METRO Group that it will take its existing RFID pilot activity into full-scale deployment. The company is equipping roughly 200 locations with RFID infrastructure, and it expects 650 of its top suppliers to begin shipping RFID-tagged product by early next year (see METRO Moves RFID Pilot to Production, Taps Reva).

Not only will the METRO suppliers be expected to tag their goods, they will actually be penalized a fee by the retailer for non-compliance. "METRO is going to pass through the additional handling cost of an untagged pallet," ABI Research senior analyst Jonathan Collins told RFID Update. When METRO renegotiates its supplier contracts for next year (as it does every year), RFID mandate compliance will for the first time be one of the items on the table. "Mandate compliance will be built in to the contractual relationship between METRO and each supplier," explained Collins. Specifically, some sort of levy will be imposed for each non-compliant -- that is, untagged -- pallet shipped by the supplier to the retailer.

Exactly what that levy will be is unclear. Industry hearsay puts it at two euros per untagged pallet, but METRO has not confirmed the figure.

This practice is in contrast to that of METRO's counterpart across the pond, whose RFID mandate was considered aggressive indeed but stopped short of threatening a financial penalty for non-compliance. Granted, the volume of goods sold through Wal-Mart for most of its suppliers is so integral to their business that displeasing or, worse, losing Wal-Mart as a customer could be devastating. So perhaps Wal-Mart figured it did not need to define an explicit penalty. Still, METRO's decision to do so positions its mandate as more immediate and firm. "This is a somewhat stronger step than we've seen from other high-profile deployments like Wal-Mart," said Collins. "It is absolutely a statement of intention, and a serious one at that."

According to Collins, METRO's ramp-up will have a positive near-term effect on the RFID reader market in Europe. ABI estimates that METRO itself will deploy about 220 readers in this first stage, which will see infrastructure installed at the company's Cash & Carry supermarkets, Real hypermarkets, and the distribution centers that serve them. Intermec and Sirit are providing the readers. Then there are the readers that the METRO suppliers themselves will have to deploy. Collins noted that it is hard to predict how many reader purchases will result from supplier demand, since some suppliers will only need one, some will need many more than one, and some will need none, opting to pay the penalty instead of comply.

Collins also believes that METRO's expansion will have a ripple effect across Europe, as other companies perceive the retailer's forward movement as a validation of the technology. "The METRO deployment is a good signal that a lot of the hurdles can be managed and that UHF RFID can be done," said Collins, referring to the Europe-specific regulatory challenges that had stalled supply chain adoption on the continent. "The reasons for thinking RFID is a better investment are becoming clear." Furthermore, as one of Europe's leading RFID evangelists, METRO has invested a lot resources in working through the challenges and laying the groundwork from which others can now benefit.

Collins predicted more exciting developments in the not-too-distant future. "I think it's fair to say that in the first half of next year you will see other European companies making similar announcements. Maybe they won't have the same teeth as the METRO announcement, but they will certainly entail rolling out RFID in the supply chain."
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