The January 7 letter, a copy of which SCDigest has obtained, lays out the following schedule to Sam’s vendors:

The letter discusses a penalty of $2.00 per untagged pallet going to the Texas DC starting January 30, 2008, a cost Wal-Mart says is necessary to offset its cost to tag the pallet itself upon receipt. The penalty will rise to $3.00 per pallet in 2009.

At the pallet level, Wal-Mart will use the tags to automate store receipt and the putaway process. Sam’s stores full pallets of most products in either the back store room or in racking above the selling floor. Currently, manual processes are used to record putaway locations.

According to Xterprise CEO Dean Frew, Wal-Mart will likely use readers integrated with fork trucks, combined with RFID tags for each pallet storage location. When the tagged pallet is put away, the system will automatically record the product and location, a process performed with bar code scans in most automated warehouse locations today. When the product is needed to replenish selling slots, it is assumed the system will use some sort of date logic to send workers to consume the oldest product first, helping with inventory rotation.

Less Pain for Vendors, at Least to Start

The initial tagging requirements will certainly involve much less cost and pain for Wal-Mart vendors than the previous case-level tagging requirements. The cost of an electronic product code (EPC) tag, at something like 20 cents, is proportionately a relatively small hit versus the cost of a pallet of goods; many viewed the cost burden it represented at the case level as painfully high. The application process will probably still be done at the DC by most vendors, not in production, but, nevertheless, it should not represent a significant effort or cost, given the volumes and need for just one tag per pallet.

A number of companies, such as Xterprise, are announcing programs to provide vendors with pre-encoded tags and labels that simply need to be applied to the pallet being shipped to Sam’s to make compliance even easier.

The requirements outlined for the case and eventually selling unit levels will be more problematic. The cost of the tag versus the value of the goods might again become painful, especially if the tagging has to be done as part of distribution processes, not manufacturing. That requires many vendors to have to break down a full case of product, apply the tag, and then rebuild the pallet – highly expensive. It remains to be seen whether manufacturers will again balk, even in the face of threatened penalties, at case or selling unit level tagging for Sam’s down the road.

The one silver lining for some vendors is that the products sold through Sam’s 700 retail locations are either exclusive to Sam’s in terms of packaging – generally, in “warehouse club” sizes that are larger than standard packaging configurations – or at least are exclusively for Sam’s and other warehouse club chains such as Costco and BJ’s Wholesale.

This may make it easier to justify tagging in manufacturing. If the product configuration is sold only to Sam’s, it would have no impact on inventory levels. If it is sold to other channels that do not require tagging, vendors will have to consider whether it is best to:

• Tag as part of distribution center processes for Sam’s Club orders requiring tagging.
• Tag all product in manufacturing and simply absorb the extra tags costs for product not going to Sam’s.
• Estimate the percentage of product requiring Sam’s tagging and tag only that level in manufacturing, necessitating the vendor to maintain separate inventories in their DCs.

Some vendors, however, simply sell the same SKUs/packaging through Sam’s as they do other retailers, making the tagging choices more problematic at the case and selling-unit levels.

What Will Sam’s Do with Selling Unit Tagging?

The obvious implication for the item-level tagging requirements is that RFID will be used for point-of-sale processes at Sam’s. The need for greater speed at checkout is an issue being faced by many retailers – as is the desire to reduce front-of-store labor costs.

This is especially an issue for Sam’s Club, where many of the products are bulky, requiring Sam’s associates to walk around the shopper’s cart trying to locate and scan UPC codes. The situation would also make customer self-service, being used my Wal-Mart aggressively in its traditional stores, highly challenging.

It is not yet clear what Sam’s plans are, and indeed they may still be on the drawing board, but certainly the possibility of portal readers at check out, in which a Sam’s club cart would pass to read the selling unit tags, seem likely.

What’s your take on the Sam’s Club schedule and deadlines? Do you expect renewed pushback when the requirements for case and selling unit tagging hit? What’s the best strategy for tagging and inventory in this scenario? Let us know your thoughts at the Feedback button below.