Sam’s Club Letter Shakes Things Up

By Mark Roberti

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.

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What 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.