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What Retail RFID Mandates Mean for Suppliers

Articles about the recent major item-level RFID tagging initiatives in retail (Macy's, JCP, M&S, et al) have focused on what it means for the retailer. Here we examine some impacts for suppliers.

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Some of the biggest names in retail—such as Walmart, Macy’s, Marks & Spencer, Dillard’s, JCP, and others—have implemented large-scale item-level RFID initiatives, in full production rollout. Macy’s announced that all ‘size-intensive replenishment’ items are being tagged, representing about 30% of their total annual sales. Marks & Spencer is tagging all apparel and home goods products at all of its stores. American Apparel is rolling out RFID to all of their stores. JCP has backpedaled from its announced intention to tag 100% of products—for the time being it will be tagging only shoes, bras, and denim—but don’t be surprised if that list grows later this year.

Last year, well over one billion apparel items were tagged and that number is expected to rise substantially this year. Though there are a variety of use cases and goals, the primary driver for most of these large-scale implementations is to improve inventory accuracy, thereby reducing out-of-stocks and increasing sales.

Much of what has been written about these implementations has focused on the central issues and impact to the retailer, at the store. But these initiatives also represent a flurry of new mandates for many suppliers. Here we will explore what these changes mean for suppliers.

The Move to Source Tagging

In early pilots, retailers largely tagged items themselves at the store or in their DCs. In some limited instances, such as Borsheims’ tagging of jewelry or B:MING Life Stores’ use of RFID for inventory tracking and POS checkout, the retailer is still applying the tags to the merchandise themselves, either in their DC or store. But in the majority of cases, it is much more cost effective to have tags applied by the manufacturer at the source. That is exactly what the major retailers are telling their suppliers they must do. These requirements have been added to the vendor compliance manuals of these retailers.

Piggybacking on Current Ticketing Processes—With a New Twist

Most retail suppliers that have been in business any length of time already have substantial experience in complying with various retailers’ mandates, including very specific requirements for tagging and ticketing items. The new RFID mandates are, to a large extent, simply extensions of the current ticketing requirements. RFID may be integrated into the barcode label or tag or it may be an additional new hangtag or label.

However, in order to avoid penalties/chargebacks if the retailer receives non-functioning RFID tags, suppliers need to do at least one step: testing to verify that the tags actually work. This testing is typically done in bulk mode (often by a service bureau) before the tags are applied. However, more diligent suppliers are also adding a testing step after applying the tags to the items, but before shipping, to make sure there are 100% readable tags going into the carton.

A Microscope on the Supplier

RFID can expose sloppiness or lack of precision on the supplier’s side. RFID automates the receipt accuracy checking process for the retailer, comparing what was actually received against what was ordered and what was in the ASN. Some retailers find, as they start implementing item-level RFID, that the rate of supplier error seems to rise suddenly. Of course suppliers aren’t suddenly getting worse. Rather now their errors suddenly become visible. This can result in an increase in chargebacks unless suppliers correct the issues.

Of course, vigilant compliance management on the supplier side keeps them ahead of this issue with strong integrative systems between the supplier and their retailer. Leveraging the EDI transaction data and keeping track of change orders from the retailer can assure that all the data and processes the supplier must adhere to are taken into account. Retailers do provide specific guidance from the largest to the minutest requirements. And although it is a big task, the benefits of avoiding charge-backs, as well as reducing ship-to-shelf cycle times, can offset the cost of achieving this vigilance.

Reducing Disputes

RFID provides a level of electronic Proof of Delivery (e-POD) not previously attainable with barcodes. RFID provides automated 100% verification of what was received at the item level, providing an electronic record of what was received. This can help reduce the level of disputes, especially when the supplier has verified the shipment before sending.

Errors in the e-POD may occur when a tag malfunctions or cannot be read or when an item was mistagged (e.g. wrong tag on the item, missing or duplicate tags on an item). This is another reason for suppliers to verify correct packing by reading the tags before actual shipping (see below Potential Benefits to Supplier’s Operations). That will catch most of these errors and increase the chances that everything matches up.

Increasing the Costs for Suppliers

RFID is not free for suppliers. For high volume operations, tags are the main cost. Tags can add in the neighborhood of 10-30 cents per item shipped, depending on volumes, the type of tag, and services provided by service bureau and/or label convertor. In addition, there are one-time costs for readers and implementation costs such as retraining staff and IT integration (depending on what the supplier is trying to accomplish). The per-item cost can be hard to absorb for low-margin items.

Potential Improvements to Supplier’s Operations

If the supplier does the bare minimum to meet a mandate, then it is all cost and no benefit to the supplier (except, of course, the overarching benefit of keeping that business with the retailer). However, there are potential process improvements that suppliers could make. Some of the more immediate and obvious ones involve using RFID for pack verification, ship verification, and ASN generation. 

Pack verification happens after a worker has packed a case or carton, usually just before sealing it. All of the RFID tags in the case are read and compared against the ship order. This read can happen automatically (perhaps the packing station has a built-in reader) or by the worker using a handheld reader (less new infrastructure, but more per-order labor required than the built-in reader). If everything matches, then the case is sealed. If there are discrepancies, then a worker manually investigates and fixes any issues. As mentioned above, the issue could be that the wrong items are in the carton, but it also could be that a tag is not working or an item is mistagged. All of those issues are much cheaper to catch at the supplier’s shipping operations than at the retailer’s receiving operations.

Ship verification is similar, except that it happens as cartons are loaded onto the truck or onto a pallet. This confirms again that the right items are being loaded. And as before, it is much cheaper to catch these mistakes at this stage than when the items are received by the retailer. At the same time, this information can be fed to the system that will generate and send the ASN. This comes almost as close as we can to a 100% guarantee that the ASN will always match exactly what was shipped. Adding this step can help the supplier to assure that their hierarchy of data and systems from item to carton and up to ASN are all aligned. They can then leverage this data in important ways within their supply chain and accounting systems, as well.

Improving Supplier Inventory Management

As the use of RFID becomes more widespread at a supplier, there is also some potential for RFID to be used earlier in the process. For example, if the tags are applied at the last stage in manufacturing, then they could be used during putaway of finished goods or during picking at the manufacturer’s warehouse. Furthermore, they could be used to enable more frequent and accurate inventory cycle counting in the manufacturer’s warehouse/DC, resulting in much more accurate inventory counts within their system for managing finished goods.


For luxury items, RFID can be one more weapon in verifying authenticity. However, this requires strict security and control over tags, as well as thinking through the supply chain and where in the chain authentication might best be done. Today, ultra-brands are educating their consumers and building out the systems and infrastructure for distributors, retailers, and end consumers to verify the RFID tags and the authenticity of the item.

Protecting your brand should be a front and center issue—and is—for many suppliers. That is why often the suppliers have taken the initiative in RFID. Beyond luxury, other product categories have embraced not just RFID but other methods to assure authenticity. Brand owners' R&D investments into anti-counterfeiting techniques do not stop after their first implementations.

Getting to Benefits for Suppliers—A Long and Winding Road

In spite of the potential benefits, it is hard to find suppliers that are currently doing more than simply meeting the minimum retailer requirements, adding the required RFID labels to their shipments. Partly this is because it takes time and investment to change processes and systems. As a larger and larger percentage of suppliers’ outbound shipments are tagged with RFID, we expect it will reach a tipping point where some suppliers1 decide to implement those process changes and start reaping some of the rewards, so that RFID can become more than just an additional cost for them.

When Walmart announced their case-level RFID mandates 10 years ago, they tried to highlight the potential benefits to suppliers, to position it as a win-win. That was a hard sell and it has been a long and winding road since then. The recent surge in retail RFID volumes over the last year or two has been almost entirely driven by item-level tagging, not the case-level tagging originally envisioned by Walmart. Maybe in the next couple of years, more than a decade after Walmart’s original announcements, suppliers will begin to actually turn RFID into a win-win for themselves and the retailers.

1 Low-end apparel manufacturers who lack operational systems in their manufacturing processes will likely not make the investments anytime soon. But the more sophisticated manufacturers, who are strategic sources for the big brands, are making products that require investing in more advanced equipment and systems. They are more likely to make these investments over time.

To view other articles from this issue of the brief, click here.

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