Feb 19, 2008This article was originally published by RFID Update.
February 19, 2008—The new pallet, case, and item tagging requirements Sam's Club announced last month represent a major step in its RFID efforts, but it's a step that the discount retailer's suppliers appear to be taking in stride. The new requirements -- which call for most products to be tagged at the sellable-unit level by 2010 -- have led neither to a flurry of implementation activity by suppliers, nor an outcry of resistance, according to solution providers and analysts who work closely with consumer goods manufacturers.
On January 7, 2008, Sam's Club sent its suppliers a letter that outlined new RFID tagging requirements going into effect on January 31st. The requirements are phased based on the specific distribution centers that suppliers ship to and the level of tagging required. Most pallets provided to Sam's Club will need to be tagged by the end of this year. By the end of next year, all shipments to Sam's Club should be tagged at the pallet and case levels, and by late 2010 all merchandise should be tagged at the sellable-unit level as well. Suppliers who do not apply tags by their deadline will be assessed a $2 service charge per pallet, which escalates to $2.50 and then to $3, based on how long the supplier is out of compliance with requirements. Sam's Club itself will tag merchandise that should be tagged but isn't, and in fact, the company indicates that the service charges are not actual penalties, but a way for it to recoup the costs associated with tagging noncompliant merchandise. (See Sam's Club Suppliers May Face RFID Fines from Wal-Mart and Sam's Club Wants Item-Level RFID Tagging by 2010 for more details.)
RFID Update interviewed a number of solution providers and analysts about what the end user reaction has been to the new mandate. It turns out that, unlike other times when major new RFID tagging requirements were announced, affected suppliers seem to have a good understanding of their needs and are taking a measured approach to meeting them.
"The recurring theme we hear from suppliers is, 'We knew this was coming, but we didn't know when,'" Mike Beedles, director of integration services and development at SATO America, told RFID Update. SATO America, of Charlotte, North Carolina, is an RFID printer/encoder manufacturer that offers a variety of services and solutions to Sam's Club suppliers. Beedles' summary of market reaction to Sam's Club's most recent requirements was largely echoed by other solution providers contacted by RFID Update.
"The Sam's Club announcement will be a catalyst for RFID adoption, but not necessarily a big catalyst. I don't see it happening at a frenzied pace," Steve Banker of Dedham, Massachusetts-based consulting firm ARC Advisory Group told RFID Update. He published an assessment of the program that asserts Wal-Mart (parent company to Sam's Club) has not strictly enforced previous RFID requirements, and that the new Sam's Club program could end up being similarly accommodating of noncompliant suppliers.
Others think enforcement will be markedly more aggressive, and cite the expensive service fees Sam's Club outlined as evidence. Except for very low-volume suppliers (which are very rare in the Sam's Club supply chain), the tagging fees make it cost prohibitive not to comply.
Although suppliers were expecting new RFID guidelines this year, the fees Sam's Club will charge were something of a surprise to many companies, solution providers say, but even that was not wholly unexpected. Fines and deductions have long been part of the bar code shipping label requirements many retailers have in place, and last year giant German retailer METRO was reported to be moving forward with RFID noncompliance fees (see METRO to Penalize RFID Non-compliance).
"There does seem to be quite a bit of surprise about the service fee. Sam's Club wouldn't have put that out there if they didn't intend to enforce it," Dean Frew, CEO of Xterprise, told RFID Update. Dallas-based Xterprise has provided RFID solutions to dozens of Wal-Mart and Sam's Club suppliers and has discussed the new requirements with many of its current customers and new prospects.
"Whenever new requirements come out, there are always a lot of people who wonder 'Is it real this time or not?'" said Jeff Tazelaar, RFID product manager at Lowry Computer Products in Brighton, Michigan. "I think it became a lot more real to them when Wal-Mart said: 'If you don't tag, we're going to charge you.'"
Few suppliers appear willing to let Sam's Club do the tagging for them. Solution providers say suppliers understand it is more cost effective to put their own tagging systems in place, and are taking a long-term view of their systems needs. Suppliers are increasingly looking to integrate RFID tagging with internal operations, rather than planning standalone, "slap-and-ship" systems.
Before joining Lowry to help suppliers implement RFID systems, Tazelaar was a member of Wal-Mart's RFID strategy team. He sees a big difference in reaction to new RFID tagging requirements today compared to 2003 and 2004 when Wal-Mart first began communicating its plans.
"Today there are two schools of thought on RFID requirements," Tazelaar said. "There are still companies that just want to make the mandate go away and plan to just take the hit by putting in a basic system to be in compliance," he said, referring to the reluctance witnessed widely after the first Wal-Mart mandate. "But now there are also an increasing number of companies who say 'RFID is not going away. How can we benefit from this data?' Those are the people who are getting tremendous value from the systems they develop."
There are other signals that the market is maturing and suppliers are much better prepared to meet new requirements than they were when earlier programs were announced: solution providers say there is less concern or discussion about tag and equipment prices; companies want guidance on how they can benefit from RFID internally; and there is little panic about getting systems in place in time to meet deadlines.
"The maturity of the dialogue is at a different place now [than a few years ago]," said Frew.
"Now companies aren't just looking to comply, they're looking down the road and developing a longer-term strategy to benefit themselves," said Jim Caudill, Xterprise's senior vice president of strategy and marketing.
Some see Sam's Club's expanded efforts and suppliers' willingness to comply and go beyond as a validation of the value that RFID provides. Others feel suppliers are merely being pragmatic while Wal-Mart continues to change its RFID programs in an attempt to find value. The pace and extent to which supplier tagging programs are put in place will bring clarity to these issues, but not likely before the next big wave of RFID-tagged pallets are due to hit Sam's Club distribution centers in October.
