US retail giant Wal-Mart's is turning the screw on its supply chain partners to adopt radio frequency identification technology with an ultimatum: use RFID tags or face a $2 fee per pallet.

Apparently fed up with the sluggishness of its suppliers to get on board its RFID wagon, the US retail giant has now taken a more aggressive stance by charging them a fee for every non-RFID tagged pallet they ship to Wal-Mart's Sam's Club warehouse outlet distribution center located in Texas.

Sam's Club contributed around $41.5bn to Wal-Mart's $345bn revenue in 2007. Wal-Mart started pressing its suppliers to tag their inventories with RFID technologies three years ago to optimize supply chain, warehouse, and distribution operations.

The $2 fee per pallet will come into effect on January 30. The fine is roughly an 80 cent premium over the cost of attaching an RFID tag to a pallet, running at around 20 cents per tag depending on volume. It is estimated that over 15,000 Wal-Mart suppliers have yet to comply with Wal-Mart's RFID mandate.

It seems that Wal-Mart is ready to push its Sam's Club warehouse operations as a posterchild for its RFID efforts that aim to provide item (product)-level tagging for all of its 22 US distribution centers by 2010.

"[The fee] is to cover Sam's Club's cost to affix tags on each pallet," said a Wal-Mart spokesperson. "It's really designed as a short-term solution for those suppliers that may need a little more time to implement their own tagging solution."

Our View

Wal-Mart's strong-arm tactics will serve as a loud wake-up call to its suppliers that the company is deadly serious about RFID. Wal-Mart's decision to focus on its Sam's Club operations also makes sense for a couple of reasons. Sam's Club has far fewer suppliers than Wal-Mart's main superstores. Plus Sam's Club customers often tend to purchase in bulk, often in larger individual packets than normal stores and sometimes by the pallet itself, which means fewer and less costly RFID tagging overheads for suppliers.

Suppliers already complying with Wal-Mart's RFID mandate must now be smiling smugly as rivals scramble to catch-up. But things could turn interesting in 2010 when Wal-Mart starts to call for more granular, item-level tagging.