What the Sam’s Club Announcement Means

By Mark Roberti

Sam's Club's letter confirms the company's commitment to EPC RFID technology, gives suppliers additional time to meet the tagging requirements wisely, and should also serve as a wakeup call to all other retailers.

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One year ago, Sam’s Club, the wholesale division of Wal-Mart, announced plans to track sellable units—50-pound bags of kitty litter, oil drums and everything else in its wholesale clubs—with RFID tags based on Electronic Product Code (EPC) standards, starting in October 2009 (see Sam’s Club Tells Suppliers to Tag or Pay).

As I wrote back then, it was a very aggressive timetable (see Sam’s Club Letter Shakes Things Up). Now, Sam’s Club has sent a letter to its suppliers indicating they will have additional time to comply (see Sam’s Club Provides Clarity on EPC RFID Plans). What does this mean for the adoption of EPC RFID technology?




No doubt, many will read about the announcement and conclude that Sam’s is backing off from EPC RFID adoption. We saw this same phenomenon when Wal-Mart refocused its EPC RFID efforts. Even though Wal-Mart continues to work with suppliers to quantify the technology’s benefits, the press has presented this as “backing off” from its plans to employ EPC RFID to improve its supply chain operations. Those who jump to the erroneous conclusion that EPC RFID does not deliver value in the retail supply chain should examine the issue more carefully.

I think the letter is good news, for several reasons. First, it states that Sam’s Club has installed EPC RFID interrogators at the receiving doors, sales floor transition areas and box crusher areas of all 599 of its clubs. It’s highly unlikely Sam’s would invest in that much hardware if senior management wasn’t convinced the technology would deliver benefits.

Second, Sam’s Club has stated that it’s working on EPC RFID-enabled checkout registers, which explains its focus on sellable units. If everything in the club is tagged, Sam’s members will be able to zip through checkout lanes. As someone who detests standing in line at a store, I can tell you this is one application that will have a huge impact on EPC RFID adoption in retail stores. When customers flock to Sam’s Club for the ease of checking out, all other retailers will examine whether they can provide the same benefit to their patrons as well.

Third, and most importantly, the letter states Sam’s Club wants to quantify the benefits of pallet and sellable-unit tagging, both to itself and to its suppliers. In my opinion, this more collaborative approach is the right way forward. Suppliers will always push back if they believe they must bear all of the costs while the retailer receives all of the benefits. If Sam’s can show suppliers they, too, will benefit, then those suppliers will be more likely to go along with the plan.

Wal-Mart is also taking a collaborative approach. It has launched a trial in which a group of suppliers tag every case in several product categories with the aim of quantifying the benefits of tagging to Wal-Mart and those suppliers. Wal-Mart believes that if the suppliers are convinced tagging all cases will deliver benefits for them, they will be more willing to tag additional goods shipped to Wal-Mart. Simon Langford, Wal-Mart’s director of EPC and RFID technologies, told me that tagging all products in additional categories will begin by the end of this month, and that the results will be gathered and analyzed in April.

My biggest concern regarding the news that Sam’s is offering suppliers additional time to tag sellable units is that the suppliers likely will fail to use the time wisely. Very few responded to Sam’s Club’s January 2008 letter stipulating an Oct. 31, 2009, deadline by investigating how to tag sellable units, so it’s possible suppliers will wait until six months before the new deadline to begin doing anything.

However, I believe that would be a mistake. To reduce labor costs associated with tagging sellable units and achieve any benefits, suppliers need to integrate tagging with their operations, link tagging systems with their back-end systems and develop applications that utilize the EPC RFID data Sam’s Club provides back. It’s a big job, and Sam’s CEO, Doug McMillon, acknowledged in the letter that it’s a project that will require 12 to 18 months to complete. So Sam’s Club isn’t backing off—it’s wisely giving suppliers more time so they can comply with the tagging requirement in a way that will allow them to achieve benefits.

My guess is that Sam’s Club is considering an early 2011 timeframe for implementing EPC RFID-enabled checkout. If I were a supplier, I’d begin working toward that goal now, giving my company time to phase in high-volume tagging, rather than waiting until the last-minute when there is no margin for error.

So will suppliers begin moving forward? I think many will take this deadline seriously, for two important reasons: One, Sam’s Club is giving them a reasonable amount of time to comply, and will provide information that shows it has studied the data and quantified the benefits; and two, if some suppliers don’t comply, Sam’s will have good reason to drop them.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog or click here.