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'Slap and Ship' Drives Automation

While many companies are applying tags to goods just prior to shipment to retailers, others are finding ways to limit RFID costs, according to a new survey.
By Bob Violino
Oct 31, 2004By Jonathan Collins

Nov. 1, 2004-The slap-and-ship technique of adding RFID tags to cases and pallets as they leave a suppliers distribution center is not a single straight-forward answer to implementing RFID to meet retailer mandates, according research firm ARC Advisory Group, which recently completed a survey of 24 companies deploying EPC RFID technology. Instead, companies are taking a flexible approach to slap-and-ship that sees them using the tags to automate some processes. ARC's survey consisted of 19 Wal-Mart suppliers, a supplier facing a similar mandate from grocery chain Albertsons, two pharmaceutical companies, a third-party logistics provider and a packaging manufacturer.
Steve Banker

"It is surprising how companies are going about deploying RFID capabilities. In distribution center deployments, slap and ship is common. But 'slap and ship' is a process that is being used in a much broader way than just putting tags on cases and pallets," says Steve Banker, supply chain practice service director at Boston-based ARC Advisory Group, which carried out the survey over the past few months.

According to the survey, 16 percent of RFID deployments at distribution centers are using the applied RFID tags to automate a process within the center, such as the movement of tagged cartons from the point of labeling to the shipping docks. Four percent are opting to add tags to cases as part of an existing pick-and-pack operation, where specific orders are assembled. Sixteen percent said that within the same distribution center, they are applying and managing RFID tags in multiple ways such as automated tag application and moveable tagging stations. In addition, according to the survey, 15 percent of RFID deployments are taking place at factories, not distribution centers, which shows that some companies are investing in RFID further upsteam in the manufacturing process, which can drive additional benefits such as automation at an earlier point in the supply chain.

Of the companies 24 surveyed, only one believed it could get a return on that investment within two years, while the remaining 23 respondents believed the payback period would be greater than two years.

As a result, Banker maintains that many Wal-Mart suppliers hope to keep their RFID deployments to a minimum. "By January, some suppliers to Wal-Mart will be tagging everything, while some others that sell hundreds of SKUs to Wal-Mart will be tagging less than a dozen," says Banker.

From its survey, ARC has modeled a typical example of the ROI situation these suppliers are facing. If a company shipped 50 million cases a year to Wal-Mart at a cost of 20 cents per tag, that company would be faced with a $10 million cost in tags alone. In addition, the company could expect around a million dollars in expenses to prepare the RFID infrastructure, as well as half million annually in additional labor added to warehouse processes. This company would need to generate about $11.5 million dollars in new savings to break even, but is only likely to see savings of $1.5 million annually from lower charge-back fees and other savings.

While $10 million may be just a tiny fraction of such companies' yearly revenues, it is still a significant expense, says Banker. "The way they look at it, their margins are already small, and they see it as Wal-Mart wiping out $10 million of their margin," says Banker.

According to ARC, before ROI potential can improve, a number of developments aside from lower tag prices need to exist, including more efficient warehouse operations and a critical mass of retailers that have RFID mandates in place. The critical mass for moving the tagging process from the DC to the factory is generally thought to be reached when a supplier tags 40 to 60 percent of the goods it ships, says Banker. He adds that many large CPG companies ship about 20 to 30 percent of their total volume of goods to Wal-Mart, and critical mass is achieved when all SKUs heading for Wal-Mart are tagged and when enough other retailers have sufficient volume to push them over that tipping point.

ARC's survey is part of its new Emerging Practices in EPC RFID report. Priced at $1,900, the report also includes details on the status of the Wal-Mart mandate and advice for suppliers on how to prepare for mandate meetings with retailers. It can be downloaded from ARC's Web site: www.arcweb.com.

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