Wal-Mart Gets Tough On RFID

Wal-Mart has apparently tired of its investments in radio frequency identification turning into a prolonged pilot study and is stepping up pressure on suppliers to comply with its 3-year-old inventory-technology mandate. The retailer says that beginning Jan. 30, it will charge suppliers a $2 fee for each pallet they ship to its Sam's Club distribution center in Texas that doesn't have an RFID tag. The charge is to cover Sam's Club's cost to affix tags on each pallet, says a Wal-Mart spokesman. "It's really designed as a short-term solution for those suppliers that may need a little more time to implement their own tagging solution," he says.

The retailer hasn't taken such a strong-arm approach yet with the more than 15,000 suppliers that still haven't complied with its request to tag pallets and cases headed for its Wal-Mart stores. Instead, it seems focused on turning its 700-store Sam's Club warehouse-outlet division into an example of RFID supply chain technology in action, down to requiring item-level RFID in 22 distribution centers by 2010. It makes sense: Sam's Club has far fewer suppliers than Wal-Mart stores, and customers buy products by the case, the pallet, or individual packages that are larger (like a 48-count box of granola bars) than what's typically sold in retail stores. That means fewer RFID tags, at about 20 cents a piece, which makes the cost more digestible for Sam's Club suppliers. The division contributed $41.5 billion to Wal-Mart's $344.9 billion in revenue for its 2007 fiscal year.

SURPRISE! IT'S RFID TIME

Wal-Mart, which has been talking to Sam's Club suppliers for months about RFID, sent them a letter dated Jan. 7 that included a 21-month timeline for RFID compliance. Still, the pallet fee apparently came as a surprise to some suppliers. "We started getting calls from people on Jan. 8 and 9 about this," says Jim Caudill, senior VP of marketing at RFID tag and software vendor Xterprise.

All this has execs at companies that conformed early to Wal-Mart's RFID mandate, including Daisy Brand, smiling smugly. The manufacturer of sour cream and cottage cheese started shipping RFID-tagged cases and pallets to Wal-Mart in the fall of 2004. Daisy says its investment in RFID has been a boon, helping it better manage the flow of its perishable products through Wal-Mart stores and ensure marketing promotions proceed as planned.

Daisy's information systems manager, Kevin Brown, says he can track, by lot number, how quickly pallets of products make it to stores and when they're unpacked using Wal-Mart's Retail Link Web site for suppliers, since Wal-Mart has readers at its dock entrances and on its cardboard-case compactors. If a Wal-Mart store is scheduled to run a sales promotion on sour cream, certain information will signal that the promotion is taking place as planned, such as the destruction of a large number of cases in order to fill up the waist-high coolers typically used for refrigerated-product promotions. In fact, some in the industry speculate Wal-Mart soon will require any retailer running a promotion in its stores to use RFID.

Daisy already is compliant with Sam's Club's mandate to have cases and pallets tagged for all distribution centers by October 2009. But Brown admits things will get interesting when the 2010 deadline for item-level compliance arrives. "For inexpensive consumable items, it will get down to the value derived from tagging at the item level," Brown says. "I'm looking forward to learning more about their item-level plan."

The Sam's Club pallet fee should serve as a wake-up call to suppliers that Wal-Mart is serious about RFID.