Wal-Mart Pushing Suppliers For RFID

Weather Storm brings us an InformationWeek article about Wal-Mart's push for suppliers to RFID tag their product shipments. Wal-Mart seems to have lost patience in waiting for its suppliers to adopt the inventory tracking initiative. From InformationWeek: "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. 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."

Comments

Can you charge a supplier $2?

[JimboFBX]

So in other words, Sams Club is going to try to give themselves a $2 discount? I think I tried that with my cell phone bill because the service wasn't as good as I wanted. It didn't work out very well.

Re:Can you charge a supplier $2?

[rkcallaghan]

JimboFBX wrote:

So in other words, Sams Club is going to try to give themselves a $2 discount? I think I tried that with my cell phone bill because the service wasn't as good as I wanted. It didn't work out very well. Imagine you were, well you, and you were standing under King Kong's foot. If he steps on you, the obvious happens. Kong demands "a $2 discount" from you, even though you are his banana supplier.

The question of the day is, does Kong get his bananas for $2 less? For extra credit, can you explain why reverse would not be true, if you attempted to demand a $2 on Kong's security services he's providing you?

~Rebecca

Re:Can you charge a supplier $2?

[gatkinso]

It would have if you were responsible for a large fraction of global celluar activity.

Love em or hate em, Walmart has the clout to do so.

Re:Can you charge a supplier $2?

[Anonymous Coward]

I'm not sure I understand; could you phrase it as a car analogy for me?

Re:Can you charge a supplier $2?

[kenh]

No, Wal-Mart is charging for a required service the Mfg./Supplier isn't complying with. Two dollars per Pallet is a fair price (IMHO) as they have to tag, inventory, and verify each non-RFID pallet that enters this one facility. That is an important point, BTW - this only impacts one Sam's Club distribution center. This is a reasonable business decision, much more reasonable than their previous position that untagged pallets wouldn't be allowed in their facility after a certain date (with no accommodation like the one reported being made).

IMHO, this will cause many smaller suppliers to simply abandon their RFID efforts and pay the $2/pallet fee - it will be much cheaper than an in-house effort.

And finally, let me be the first to link to proof, I say PROOF, that RFID is evil and will bring about the end of western civilization: Spy Chips, the book - seen to be a major motion picture from Tin Foil Hat Productions! Check out their other titles and press reports here.

Re:Can you charge a supplier $2?

[homer_s]

Let's say a warehouse employee makes $18/hr. (They make less, I'm sure, but it makes the math easy.) $.20 goes to the cost of the tag, and $1.80 goes to the cost of putting the tag on. This means that it takes 6 minutes (1/10th of an hour) to tag a pallet? If it took 3 minutes, I'd be very surprised. That employee should be able to tag 1 pallet per minute, easily. Remember, he doesn't have to actually COUNT the product, since even the tagged ones still need to be counted. He just needs to read the manifest and enter it into the computer, and slap the RFID tag on.

Cost of employee to tag at 1 per min= $0.30
Cost of labour training=0
Cost of payroll tax, HR management=0
Cost of chip = $0.20
Cost of ordering the chips = 0
Cost of receiving the chips = 0
Cost of storage of the chips = 0
Cost of restocking the chips = 0
Cost of quality control = 0
Cost of equipment to affix the chip=0
Cost of insurance=0
Cost of billing the suppliers and paperwork involved =0
Interest on capital employed for the above=0

Yep, your math works out. You should start your own business instead of posting here on slashdot.

Re:Can you charge a supplier $2?

[ShieldW0lf]

Imagine you were, well you, and you were standing under King Kong's foot. If he steps on you, the obvious happens. Kong demands "a $2 discount" from you, even though you are his banana supplier. The question of the day is, does Kong get his bananas for $2 less? For extra credit, can you explain why reverse would not be true, if you attempted to demand a $2 on Kong's security services he's providing you?

Qualifying questions:

If I give Kong a discount, am I still going to be able to eat? Or am I going to die slow? Can I feed my bananas to another monkey and have them grow while Kong shrinks? Do I enjoy my life enough that I wouldn't just tell Kong to fuck off out of spite?

Wal-Mart are a short ways from collapse at all times, it's a consequence of their "Keep no back stock" policy. They run everything at the edge, and at some point, it's going to bite them hard.

In the end, didn't King Kong get killed when everyone united against them?

Re:Can you charge a supplier $2?

[kenh]

Your analogy is asinine - let me explain...

Wal-Mart has set the bar and said that they require RFID tags by some day in the future to do business with Wal-Mart - suppliers that do not meet that requirement will not be able to sell their goods to Wal-Mart. Wal-Mart is offering an accomodation to suppliers that want to sell at Wal-Mart but either can not or will not be able to include RFID tags on their pallets to this one distribution center (and yes, it will creep into their entire supply chain).

To build an analogy for your cell phone purchase, you would have to communicate to the Cell Phone stores in your area that you were interested in getting a cell phone and offer them the chance to bid on your business. You would also have to explain to them before they reply to your RFP that your purchase is contingent on have the phone unwrapped and ready for use immediately upon delivery. Then, when none of the local stores respond to your RFP, you can tell them that if the "ready to use" requirement was too onerous, you would be willing to take a packaged, not ready for use cell phone, but you would charge them some few dollars to accommodate your effort. Then, when they agree to offer you a phone you can act accordingly. That is what Wal-Mart is doing.

Re:Can you charge a supplier $2?

[rkcallaghan]

ShieldW0lf wrote:

If I give Kong a discount, am I still going to be able to eat? Or am I going to die slow? There's a web full of anti wal-mart sites out there that can show you just how many companies (Levi Jeans, Master Locks, Huffy Bikes, etc.) this has happened to.

So your first question is unfortunately irrelevant. Your second, is however, as the only winning move in this situation is not to play with King Kong at all, and attack him instead of yourselves as he demand. How to get that to happen is a topic for another day, under another revolution thread; as the Kong you'd have to defeat here has help this time.

~Rebecca

Re:Can you charge a supplier $2?

[Paradise Pete]

So you think it's fair to charge $2 to slap a $.20 RFID tag on a pallet?

If they charged their cost, then the supplier could, in effect, "hire" the Walmart guy to put the tags on. It's much simpler - no need to buy the tags or equipment, and no chance of error. Walmart's aim is not to get the $2, it's to get the supplier to put the tags on.

Re:Can you charge a supplier $2?

[DRJlaw]

Even if you did calculate that, most of which will be pennies because we're talking about millions of pallets, not just hundreds, they're still way over-charging.

You're suggesting that Wal-Mart is charging a premium to tag pallets of deliveries that they want to have tagged by the supplier rather than tagging it themselves?

Shocking. If only there were a way for suppliers to tag their own pallets for less...

Re:Can you charge a supplier $2?

[Otto]

No, the difference should be obvious. You're not buying thousands of cell phones. Wal-Mart is buying thousands of items from whoever they buy from.

It's a volume thing. When you buy in bulk, you pay a different price. Wal-Mart buys enough bulk merchandise to be able to demand special terms.

Re:Can you charge a supplier $2?

[shark72]

"So you think it's fair to charge $2 to slap a $.20 RFID tag on a pallet? As far as I can tell, this is not 1 RFID per item, it's 1 per pallet. It is -only- used to track shipments, not individual products."

I suppose we can add channel management, supply chain management and logistics to the areas of knowledge that Slashdotters know everything about.

Distribution centers have rules about receiving products. These rules are necessary to keep the inventory flowing and to keep costs down. Retail DCs (owned by Best Buy, Target and the like) have them, as do distributors, like Ingram and D&H.

The missing RFID tag is a McGuffin -- it could be anything. Missing RFID? Low pallet count? High pallet count? Pallet packed with unexpected dimensions? Unannounced change in the case pack quantity or outer box pack quantity? The product doesn't conform, so it needs to be segregated to another part of the warehouse, and people need to be assigned to rework the product. In the meantime, it's dead inventory that can't be sold.

As has already been mentioned, your estimate of the rework cost is low, but that's not the point -- Wal-Mart, Best Buy, Ingram et al aren't trying to build a profit center out of RFID tag reworks or any sort of rework! They pass the cost of the rework along to the supplier, and the goal is to have it not happen again. Product that's delayed in the warehouse or the DC means missed sales, and if it's a load-in for a holiday weekend or a scheduled promotion, lots of money is lost.

Re:Can you charge a supplier $2?

[shark72]

Good points. I can add:

• Overhead costs for warehousing the non-nettable inventory: zero
• Lost sales due to inability to ship: zero

I think more Slashdotters should go into the retail business. God knows we have the music business already figured out. Too bad we're all too busy playing WoW to change the world.

Re:Can you charge a supplier $2?

[0100010001010011]

In Levi's case, they just run a separate production line. Less thread count, less stitches, cheaper materials. If you get a pair of Levis from walmart and compare them to a pair of Levis from another store, you may very well get a completely separate pair of pants.

Snapper Lawnmowers on the other hand put their foot down and said No. Walmart asked for that $5 discount and Snapper came back and said No and pulled there mowers.

Some companies still have a bit of integrity.

Re:Can you charge a supplier $2?

[shark72]

"So what you're saying is that bullying is OK - that the larger party deserves concessions, and can do whatever the hell they want just because they're larger, and that this is perfectly acceptable."

This is hardly something that Wal-Mart invented -- all distributors and major retailers assess charges to rework product that doesn't arrive in the expected form. RFID tags are just the latest technological item (which is why this warrants discussion on Slashdot), but if you tell a distributor or major retailer that you're going to ship your product in ten-packs, then ship it in five-packs, you'll be charged to have it reworked. While I grant that this might be surprising news to many Slashdotters, people in the retail industry will react to this story with a collective yawn.

Things like this happen in every industry, in lots of scales. No doubt you've been involved in a contract (such as a rental agreement for an apartment) which states that a late fee is charged if an invoice is not paid by the expected date. Call it "bullying," but it's rather pedestrian.

Re:Can you charge a supplier $2?

[Gewalt]

"So what you're saying is that bullying is OK - that the larger party deserves concessions, and can do whatever the hell they want just because they're larger, and that this is perfectly acceptable."

That, right there, is damn near the DEFINITION of a free market.

Re:Can you charge a supplier $2?

[that this is not und]

And somebody needs to investigate how well Snapper is doing as a result of that move. You never hear a follow-up.

Here locally, I can tell you that the small mom & pop hardware store, the kind of place Snapper wants to sell through (higher markup, more money per unit sold for Snapper) is now out of business and the building is in the process of being converted into a strip mall.

So let's see some links to a follow-up story, not that same tired old link. How is Snapper doing a year or so later?

Re:Can you charge a supplier $2?

[Bhalash]

Inventorying an incoming pallet simply isn't as easy as reading the manifest. You have to physically check that the contents of the pallet match what is on the manifest or you will have stock loss (and lost money!). One major area of stock loss for many companies is transit. Either the company who shipped the goods didn't manifest them correctly, or they accidentally shipped the wrong goods, or stock was misplaced or stolen while in transit. When you receive an order you need to count what is actually on the pallet against what is on the manifest and then have another person verify this. Depending on the goods, this can take time. Big jugs of milk - easy. Clothing, small domestic appliances - not so easy. Items like small TVs, mobile phones, laptops, game consoles, MP3 players and cameras are all high-value, low-profile, and easy steal goods that need to be physically counted at easy stage of transit. After this you still need to have someone (usually a clerk dedicated to this task) add the goods to the electronic inventory of the receiving company, raise discrepancy issues, etc. I've spent ten years working in inventory, and I'm currently the inventory specialist for a national company. RFID tagging is an excellent idea for tracking stock movement and Wal-mart's initiative into this is ahead of it's time. RFID will be way that all stock control will go in the next decade, but it will never replace the need to physically inventory goods. Their charge for the both tag and labour on Wal-mart's part is actually pretty reasonable, but it only tracks pallets and not the goods on them, which is what is important for companies.

Isn't this a good use for RFID?

[morbiuswilters]

It's not being implanted in anyone, it's not being used to track personal information, it's just for inventory control. Maybe I'm missing something here, but this seems like the kind of application we should be supporting. Complaining about it seems almost as bad as the people who fought against barcodes because they contain the "mark of the Beast".

Re:Isn't this a good use for RFID?

[Anonymous Coward]

Seems reasonable to me. Wal-Mart has a lot of "stuff" to track. The better they can track it, the better they can move it to where it's needed, avoid waste, and (it is to be hoped) offer lower prices to consumers.

Re:Isn't this a good use for RFID?

[Serenissima]

Well, it's obviously NOT a good idea because it's in the "Your Rights Online" category. That has to mean there are some rights being infringed up, right? It's not like they would put in the YRO category just to make a sensationalist headline to get hits rather than actually inform people... right?

Re:Isn't this a good use for RFID?

[that this is not und]

I am coming to believe that YRO stands for 'rants against The Man' in some foreign language that most of us don't speak.

Re:Isn't this a good use for RFID?

[MagusSlurpy]

Yes, it actually IS one of the few good uses for RFID, one of the things that it was actually designed for - tracking of pallets in a warehouse environment. Having worked in a warehouse in my undergrad years, I can say quite easily that our "pallet tracking system" (i.e., writing the SKU on it and putting it up somewhere in our 150,000 sq ft) needed some improvement.

I am all for legitimate uses of RFID. When Wallyworld starts demanding that individual items be tagged, then I will be upset.

Sounds like Apple

[cbart387]

Apple takes a similar approach by forcing change, ie floppy drives, the recent Mac Air no optical drive etc. Even though Apple takes a more extreme approach (my-way-or-the-highway versus my-way-or-you-pay-extra) this being slashdot it's because Walmart is EVIL.

demanding free service

[James McP]

Walmart wants the RFID b/c it will lower their operational costs. RFID has one advantage over barcodes; they can be read and counted at a distance and ignore dirt. If a sticker gets dirty, the barcode is unreadable, while if the pallet invoice is facing the wall it's inaccessible. RFID will still work.

But this has a non-trivial adoption cost to the manufacturers. Walmart isn't incentivising this; no offers of cost sharing. Just a flat demand. It's not illegal AFAIK but it is abusive.

Re:demanding free service

[Casualposter]

"walmart isn't incentivising this."

Exactly. For some operations, RFID makes sense, but there isn't just ONE RFID system installed. Most of these companies also supply other big chain stores who may have other requirements. This was the whole reason for going with Barcodes. Barcodes are standardized. RFID systems are not, as far as I know. Walmart hammers it suppliers for price decreases, while the shipping costs rise due to higher petroleum. The supplier has a choice: make money or go out of business. Walmart can use its huge purchasing power to drive companies out of business, so perhaps the company looks at it business and says: losing a dime on ten million units is much worse than making 50 cents on a hundred thousand, and just decides to pass on the Walmart supply agreement. That might be why the selection has been diminishing in Walmart to the point that if I want to buy everything on my list, I have to go to other stores. The only reason that Walmart has been able to bully any suppliers is that the cost of the bullying is significantly less than the cost of the delivered product. Once that changes and the supplier is forced to improvise, the Walmart account might become a liability rather than a profit center.

Re:demanding free service

[jbengt]

It's not illegal AFAIK but it is abusive.

<sarcasm>What, Walmart abusive to its suppliers? Incredible.</sarcasm>

Re:demanding free service

[goldspider]

Abusive? Please. It's the cost of doing business with Wal-Mart. Wal-Mart isn't forcing anyone to do business with them.

Couple of thoughts....

[FooAtWFU]

1. Sam's Club is a good place to try it out for starters. They tend to have a lot of big pallets and since the chips aren't cheap yet it's a good way to get the most for their money as they prove technology.

2. I understand that to not-do-business with Walmart is to await death. To do business with Walmart, however, is to invite death. (Seriously, they will put so much price pressure on you... and are not at all concerned with running you, as a supplier, into the ground, since there are plenty of other suppliers out there...)

Stack them

[Fuzzums]

If wallmart wants pallets with rfid, why don't they put the whole pallets of the supplyers on one of their pallets WITH rfids...

Problem solved. NEXT!

RFID and Walmart and more

[Lord Satri]

Maybe I'm missing something here, but this seems like the kind of application we should be supporting. I agree, without much analysis, to me it seems Walmart is pushing their partners in the right direction: enhanced efficiency for everyone.

Let me act as a karma whore (not that I care about virtual karma). Last May Walmart was announcing their embrace of the RFID tech, underlining the "green" component of this tech. Then, /. discussed in October Walmart's faltering RFID initiative. (Flash map of Walmart stores) And today, great news, Walmart is deep into RFID. Technology itself is neutral, it is what we do with it that makes it good or bad.

Other RFID stories that I find pertinent: a successful implementation of RFID tags at the Oak Ridge National Laboratory's Washington Navy Yard. Don't forget we discussed over /. the use by Microsoft of RFID for marketing in groceries. If Microsoft is using it, it must have great potential? ;-) I won't lie that I'm amazed at passive RFID chips being as small as 0.15mm x 0.15mm x 0.0075mm (Hitachi), enabling rather conspiracy-theory applications of the tech. India and China seems are seriously looking at RFID. Well, you get the idea, more stories about RFID here. We live in interesting times. Technology is evolving at an exponential rate... now I wonder if we, as a civilization, will successfully cope with the realities of our resources-limited planet... (I'll stop here, I'm getting off-topic ;-)

It's probably been in their Ts & Cs for years

[originalhack]

They've probably had this in their terms and conditions on their purchase agreements for years.

Imagine you run a monster distribution center. You order from a zillion vendors and pallets of merchandise appear. Some pallets have a nice list attached to them describing what is in them so you can route them to the store without unpacking them. Others just show up with a pile of boxes and you have to, at least partially, unpack and re-wrap them to confirm the contents.

1. Your next version of your terms and conditions require a packing list.

Then, you find that most of the lists have the PO number on them and list the items by part number, but a few just say something like "Here's 10 cases of green shirts." Most have the packing list printed on a label on the side of the wrapped pallet. Some have it inaccessible from the outside.

2. Your next revision of your terms and conditions require the list to be on the outside and dictate the format.

After a few rounds, you realize that these lists are very expensive to produce and to read and all of your suppliers have (or should have) computers anyway, so you have them electronically send you the packing list and specify a shipment number. That number goes on a bar-code label at a specific place on the shipment. On your receiving dock, you have someone dance around each pallet to scan it and then it disappears into your warehouse.

3. Your next Ts and Cs require the bar-code

You find that the bar-code requires stopping the flow of items in all sorts of places. You invest in RFID readers for your whole distribution line. You tag all the incoming shipments as they arrive, and you find that it works.

4. Your next Ts and Cs require RFID labels.

A grace period comes and goes. Tagged shipments fly right through your distribution center smoothly, but you have some suppliers who still don't comply with your agreements with them and you have to stop each of those shipments on your dock and slap an RFID label on them yourself. The industry gets to the point where labels with tags are down to 40 cents in tiny quantities and the equipment to program them is down to under a thousand. There are also companies that will sell tags preprogrammed for a dollar or two. Still, some of your suppliers who were eager to sell to you and signed the Ts and Cs the day they took the order, fail to follow through.

5. You start to either refuse to accept shipments that don't comply with the contract or you charge a fee to fix the sloppy shipments.

Now, a legitimate issue is where the power in the relationship is. WM is well known for holding all the power and that really can be viewed as being all about price and accepting the Ts and Cs in the first place. That's an issue that comes up anytime they meet with a supplier. If your Verizon service stinks, you cannot do anything about it because, when you "negotiated" your contract, you could either sign THEIR terms or you could go to one of a tiny number of serious competitors who seem to have conspired to have equally onerous terms. (This is exactly why legislators keep looking at things like "customer bill of rights" legislation... the individual customer doesn't have the ability to choose a better contract).

Word of the Day...

[RealGrouchy]

When a retailer is able to charge/coerce the people it buys its merchandise from, that retailer is a monopsony. (I'm by far not the first to label Wal-Mart as such)

- RG>

Yawn

[Anonymous Coward]

This practice is known in the industry as Expense Offset. When I worked for them 10 years ago, Federated (now just Macy's) assessed their vendors Expense Offsets for a whole host of things. Basically the merchandise was supposed to come as pre-prepped for the floor as humanly possible, and checklists for each type of item came with a dollar amount for each omission (no barcode tag, not on hanger, wrong creases that had to be ironed out, etc.)