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Sam's to vendors: join the club

In early January, Wal-Mart, which owns the Sam's Club chain of warehouse stores, sent letters to suppliers outlining a series of RFID mandates that it plans to phase in over the next two years.

Suppliers to Sam's Club are scrambling to increase their RFID capabilities in advance of a hail of tagging mandates. In early January, Wal-Mart, which owns the chain of warehouse stores, sent letters to suppliers outlining a series of RFID mandates that it plans to phase in over the next two years.

The first of those mandates—a directive requiring suppliers to tag all pallets shipped to the Sam's Club DC in DeSoto, Texas—has already gone into effect (suppliers had until Jan. 30 to comply). To encourage compliance,Wal-Mart planned to assess a $2 per-pallet fee for untagged pallets. Wal-Mart will use the fee to offset the cost of tagging any untagged pallets itself, although the retailer would much rather see 100 percent compliance than get into the tagging business.


And that was only the beginning. In its letter, Wal-Mart also notified suppliers that it planned to expand the pallettagging program to four additional Sam's Club DCs by October of this year. It also noted that it would raise the "service fee" for non-compliance to $3 a pallet in 2009.

The initiative doesn't stop there either. The mega-retailer is also expanding its tagging requirements beyond the pallet level. In addition to its pallet-tagging demands, Wal- Mart has notified suppliers that it expects them to begin affixing RFID tags to cases of products shipped to the DeSoto distribution center by the end of October 2008. That requirement will be expanded to the chain's 22 DCs nationwide by October 2009.

And by 2010, the retailer will expect suppliers to take their tagging programs to the item level—tagging every sellable unit arriving at a Sam's Club DC. That means every product entering a Sam's Club warehouse store—be it a plasma TV or an eight-pack of Prego spaghetti sauce—needs to carry a tag. It's important to keep in mind that at Sam's, many products are sold as cases or even pallets. So in this instance, "item-level" tagging doesn't mean tagging individual tubes of toothpaste but rather, bundled four-packs of eight-ounce tubes.

The company has not announced what the service charge structure will be for suppliers that miss the deadline for tagging cases and individual items.

Wal-Mart's decision to extend its tagging program to the item level caught even some insiders unawares. "I am surprised, to be honest," says Dean Frew, president and CEO of Xterprise, a provider of source tagging solutions for suppliers to Wal-Mart. "We knew they'd be moving to the case level … but in hindsight, there is likely a huge benefit to go all in. If you are going to use the technology, then use it for everything—at the case, pallet, and sellable-unit level."

It appears that Wal-Mart is set on making its Sam's Club stores the model for its RFID program. And it makes sense. Sam's has far fewer overall suppliers than Wal-Mart does, and the warehouse store setup requires more planning to avoid out-of-stocks. The biggest challenge is that product is not sitting on a shelf above a display but rather, is stacked three rows high on a rack and requires a forklift to be pulled down. "It's a bigger challenge when moving product to the sellable level in the store," says Frew.

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