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Sam's Club Suppliers May Face RFID Fines from Wal-Mart

Sam's Club told suppliers it will begin assessing fines for failing to apply RFID labels to shipments as requested, RFID Update has learned. The warehouse-club format retailer, which is owned by Wal-Mart, also gave suppliers to a Texas distribution center a tight deadline for new pallet- and case-tagging requirements.
Tags: Retail
Jan 11, 2008This article was originally published by RFID Update.

January 11, 2008—Retailer Sam's Club sent some suppliers a letter dated January 7, 2008, requiring EPC RFID tags be applied to distribution center shipments by January 31, 2008, RFID Update has confirmed from multiple sources. The letter also outlines fines ranging from $2 to $3 for each non-tagged pallet. This is believed to be the first time Wal-Mart, which owns and operate Sam's Club, has announced specific penalties for suppliers who do not follow RFID tagging guidelines.

The January 31 deadline applies to companies who supply a distribution center in DeSoto, Texas. Tagging requirements will extend to other distribution centers throughout the year. The fees for non-tagging are said to start at $2 and escalate based on how long the supplier is out of compliance, capping at $3. Tagging requirements depend on how products are packaged and which distribution centers are supplied. Suppliers who ship pallets loaded with a single product reportedly can apply tags at the pallet level, while mixed-pallet suppliers must tag individual cases.

One supplier (who requested anonymity) confirmed to RFID Update that it received such a letter. Dean Frew, CEO of Xterprise, an RFID solutions provider that works with many consumer goods manufacturers who supply Sam's Club and Wal-Mart, said the tagging requirement details obtained by RFID Update are consistent with what Xterprise is hearing from its customers, but no customers he spoke with had been informed of specific fines.

A Wal-Mart spokesperson confirmed to RFID Update that letters were recently sent to some suppliers, but did not provide details or answer questions about requirements, deadlines, and fines. The spokesperson provided the following statement:

"Sam's Club continues to learn more about electronic product code (EPC) utilization and partner with its suppliers in that initiative. Most recently, we issued a letter outlining our tagging direction to some suppliers as part of our ongoing communication. We appreciate the continued support and effort of our suppliers in our EPC Program, and are excited about the mutual benefits and value it will deliver to our businesses and ultimately Sam's Club Members. Suppliers with additional questions are encouraged to work through Sam's Club Merchandising or contact EPCglobal or the University of Arkansas."

A source who attended a Wal-Mart supplier summit last November said the retailer discussed the possibility of allowing suppliers to raise prices to help offset tagging costs, but no such allowances were mentioned in the latest requirements letter.

Wal-Mart previously announced its intention to track pallets at the Texas distribution center in November (see Wal-Mart's RFID Refresh). It is unclear whether suppliers to the DC received notification of tagging requirements before the January 7th letter, but it seems unlikely they weren't previously informed, based on how Wal-Mart has historically managed its RFID programs.

"We do know we're seeing growing demand from Wal-Mart and Sam's Club suppliers for tagging solutions," Xterprise's Frew told RFID Update. "There is demand from our existing customers and new customers. And they're not talking to us to get numbers for a budgeting exercise; they need something now."

Part of that urgency may be attributed to the prospect of being fined for not following labeling requirements. Retailers and other organizations have successfully used fine programs for years to compel suppliers to comply with bar code labeling requirements. Formal penalty programs have been mostly absent from RFID initiatives, but in August reports surfaced that European retailer METRO Group would charge suppliers who didn't apply RFID labels as directed (see METRO to Penalize RFID Non-compliance).

"Wal-Mart suppliers are moving forward with a sense of urgency," said Frew. "They also seem to be planning for high-volume, ongoing requirements, not for pilot or experimental systems."
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