Sam’s Club suppliers not using RFID may face service charges

WalMart has aggressively been implementing radio frequency identification into its stores and distribution centers, and now its warehouse store, Sam’s Club, is doing the same.

Beginning in February, suppliers shipping to the Sam’s Club distribution center in DeSoto, Tex., will face a per-pallet charge if their pallets did not have an RFID tag, according to a letter sent to Sam’s Club suppliers in January. The letter said the per-pallet charge would start at $2, rise to $2.50 in October and $3 starting February 2009.

Sam’s Club is officially calling this a test, but rollout to 21 other distribution centers was identified in the letter to suppliers. Four facilities will require pallet-level RFID tags by Oct. 31 and 17 more will require them by the end of January 2009. Sam’s Club also will have a rolling schedule for moving to case-level RFID tags and item-level tagging. By October 2010, the 22 distribution centers identified in the letter to suppliers will require item-level tagging or suppliers will face a service charge.

Suppliers met with WalMart and Sam’s Club last year, so the rollout didn’t catch anyone off guard, but the implementation time was short and the associated service charge could be prohibitive.
“What’s a surprise is the service charge that’s associated with it and the size of the rollout,” said Dean Frew, president and CEO of Xterprise, a software and solutions company specializing in RFID. Frew has seen the letter, which some of Xterprise’s customers received.

So far, perishables are not required to have RFID tags because the DeSoto distribution center is for dry goods, according to a company spokesperson. Other test programs run by parent company WalMart have included fresh-cut processors and other fresh produce suppliers.

“This is one component of a multicomponent plant and we’ll likely see more rolled out over time,” Frew said.

Suppliers involved in WalMart’s RFID pilot program were mixed on the benefits of implementing such a program. Some felt that the requirements put an added cost on them with no real benefits. But other produce companies, such as Dole, have invested heavily in RFID technology to create quick and accurate traceability records.

The biggest surprise of the letter, Frew said, was the inclusion of direct-store-deliveries (DSD). DSD has not been a focus of any of WalMart’s previous tagging tests, so the inclusion could be a surprise to beer and soda manufacturers, who will have to figure out how to tag cases and individual units shortly.

But the Sam’s Club memo to its business partners goes one step beyond pallet tracking. The letter states that by the end of October 2009, each item must be tagged with an RFID tag. That may not be feasible for whole produce, but it may be used with individually packaged items like fresh-cuts. The service charge for not tagging will likely get more expensive as cases and individual products have to be tagged.

“It’s a lot more expensinve to pay the service charge than to do it yourself, especially as you move to the case and item level,” Frew said.

From WalMart’s perspective, having trackable products can reduce the number of out-of-stock items and improve customer service, but RFID technology is not a business that the retailer wants to be in, and thus the service charge, Frew said.

“Our focus on using RFID to improve in-stocks for our customers means eliminating extra trips they may make to our store, or to others,” Rollin Ford, executive vice president and chief information officer for the retailer, told an RFID group last year. “On a daily basis, more than 24 million people shop our stores. If 100,000 extra trips are avoided by having items in stock, we will save customers $22.8 million a year in gas savings and reduce greenhouse gases by 80,209 metric tons.”

With the technology, WalMart would know where its products are and possibly who bought them. In the event of a recall, the retailer would be able to trace forward all the way to the customers’ refrigerators.

“In the near future, customers may be able to enjoy advantages such as automatic warranty activation on electronics, freshness assurance on foods thanks to cold chain monitoring and enhanced product safety as a result of faster, more accurate recalls and better freshness monitoring,” he said.

There may be slight benefits in workflow and monitoring with the technology, but the real advantage is with traceability – now an integrated part of a processor’s food safety plan. Traceability – and RFID – is becoming a cost of doing business in today’s marketplace. For suppliers of Sam’s Club and WalMart, spending the money on RFID technology now may be a good investment. There’s little doubt that WalMart will abandon its RFID plans, so preparation key. Suppliers to the Sam’s Club Texas distribution center had less than a month to comply or face a penalty, and with the timeline in place there’s sure to be more products involved soon.