RFID News: Should Wal-Mart Suppliers Continue Complying with First Wave Mandates?

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- January 8, 2007 -

RFID News: Should Wal-Mart Suppliers Continue Complying with First Wave Mandates?

With Clear Change in Direction in Wal-Mart’s Strategy, Suppliers Should Ensure Added Cost is Really Required

SCDigest Editorial Staff

SCDigest Says:

While still a small percentage of total supply chain costs for consumer goods companies shipping to Wal-Mart, the cost and effort for many are not trivial. Is it worth the effort – and does Wal-Mart really care at this point?

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Something like 600 suppliers have been brought into the fold of tagging at least some SKUs at the case level for products sent to Wal-Mart distribution centers in Texas. With Wal-Mart changing its focus in terms of RFID applications and strategy, the question is, should they continue to do so?

“I think we could stop sending a single tagged case to Wal-Mart right now, and they wouldn’t care,” said the director of RFID for a large food company, who asked to remain anonymous. The company was part of the first wave of 100 suppliers that were asked in 2003 to begin tagging cases in early 2004. That first group was followed by subsequent waves of suppliers that were also asked to comply, with a group of 200 more suppliers brought into the program in 2005, and another 300 asked to comply in 2006.

Original RFID Mandate Over?

The Wall Street Journal and other sources have said that Wal-Mart ended the mandates in 2007, though the company has not said so publicly. In fact, the “mandate” has been a loose one from the start – unlike the early days of bar coding in retail, in which fines were (and still are) imposed by retailers for lack of compliance with labeling mandates, the Wal-Mart program never imposed specific penalties for companies that did not comply. The incentive was a more general one of maintaining status as a good Wal-Mart supplier – and with the huge percent of business Wal-Mart represents for most consumer goods companies, that had the effect of ensuring most of the 600 did tag cases at some level, though the specific SKUs to be tagged was always negotiable.

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But Wal-Mart has announced a series of changes to its RFID strategy, a move dubbed a “change of focus” by Wal-Mart’s VP of Information Technology, Carolyn Walton, at the annual EPC Global conference in October 2007. Under the new approach, Wal-Mart said it was retooling its application approach, focusing on using RFID to better manage store execution of promotional displays, testing the impact on management of a category of products, and tracking pallet locations in its Sam’s Club chain of warehouse stores. (See Wal-Mart is Changing Its RFID Tune, Launching a New Set of Pilots).

But many of the original 600 companies are still tagging cases sent to several Wal-Mart distribution centers in Texas. While a handful of companies have stated they were getting benefits from the RFID-based data on inventory movements and consumption, the vast majority perceived nothing but cost from the program. Besides the cost of tags, companies have to manually apply the tags to cases, which often requires manually breaking down full pallets of product in the distribution center, tagging the goods, only to rebuild the pallets. This often brought the effective cost of tagging a case to 30 cents or more – a huge cost to consumer goods companies. In some cases, manufacturers bought expensive print-and-apply equipment, along with small conveyors and supporting software, to automate this DC tagging process.

Others contract with third-party providers to take pallets of products and apply the tags for products shipped to Wal-Mart in order to outsource the headache – relationships (and costs) that, in some cases, still continue.

While still a small percentage of total supply chain costs for consumer goods companies shipping to Wal-Mart, the cost and effort for many are not trivial. Is it worth the effort – and does Wal-Mart really care at this point?

“While I wouldn’t just stop tagging, I certainly would be asking Wal-Mart if it really needed me to do so,” a supply chain industry consultant who does a lot of work in the consumer goods industry, who also asked to remain anonymous, told SCDigest this week. “It’s bad for both the supplier and Wal-Mart to incur costs if they aren’t adding value.”

What is your take on the status of Wal-Mart’s original RFID compliance program? Do suppliers need to keep tagging? Let us know your thoughts at the Feedback button below – as always, we’ll post your thoughts anonymously upon request.

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