The fact that the buck stops first at the Texas distribution center for Sam's Club, rather than at Wal-Mart stores, took some by surprise, but Fontanella said the supply chain management strategy makes sense. About 60% of suppliers for the 700-store Sam's Club chain also do business with the much larger constellation of Wal-Mart stores.
"It wouldn't surprise me in the least to see Wal-Mart using Sam's as a proxy to further drive compliance to its RFID initiatives and very quickly applying the same kind of fees and penalties to its Wal-Mart suppliers," Fontanella said.
Wal-Mart suppliers no doubt will chalk up the order to the cost of doing business with a behemoth.
But industry observers like Fontanella, who have followed the hype and the horror stories surrounding RFID technology for years, said the mandate from the world's largest retailer could accomplish something more. Due to the volume of goods required to have radio frequency identification tags, companies might finally be forced to tease out the value proposition in identification automation.
"RFID is tricky," Fontanella said. "The use cases for RFID are not as obvious as some proponents would have you believe."
"In many cases, the bar code works just fine," Fontanella said. "The use cases for RFID aren't as obvious as people would have you believe."
For RFID to be anything more than the cost of doing business with Wal-Mart, companies will have to be much more innovative about the way they use the technology.
"RFID requires a change in the way people work. It takes the human element out of a process. And to automate a process requires a fairly significant amount of re-engineering," Fontanella said.
A good example is how most companies check pallets for accuracy, making sure they have the right cases and the right products on them.
"Today there are quality inspectors who go around and physically count a pallet. They reconcile it to the order and make sure what is supposed to be shipped is shipped," Fontanella said.
RFID in the future should be able to scan that pallet once and be able to reconcile it electronically, with 100% accuracy. "What's the best a human being can do? Ninety-six percent or 97% accuracy. A human being just can't get past that."
In the meantime, companies required to conform to the Sam's Club mandate should, at minimum, probably rethink how and when they affix the RFID tags. Many companies still apply the RFID tags at shipping docks.
But the "slap and ship" approach to radio frequency identification tags is very expensive for large volumes of goods. "That method just doesn't scale," Fontanella said.
Now might be the right time for Wal-Mart suppliers and their partners to do the hard work of re-engineering the process and apply the tags on the production line, when the case is being filled with product, rather than paying through the nose when it's time to ship.
Let us know what you think about the story; email: Linda Tucci, Senior News Writer