Will “Slap-and-Ship” Work?

By Bob Violino

A Pragmatic Approach to RFID
Anthony Higginbottom, Global Director for RFID, Deloitte Consulting

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In the program it says there will be two people talking to you today. Unfortunately, it’s going to be one, just myself. I apologize for that. I'm a little disappointed because I saw Christine Overby's presentation yesterday and because I thought I would be the only one that was going to have the guts to actually talk about "slap and ship." We all know what slap and ship is and we all heard from Wal-Mart that it’s a bad word. [Wal-Mart said] you should be looking internally for the value in your own organization and not taking this kind of slap and ship mentality.

Well today, what we want to do is ask the question: Will slap and ship work? Hopefully, by the end of today’s session, you will all have a better understanding of exactly what slap and ship is. Because I know that some of you don’t because I spoke some of you in the conference this week and I think you will all be able to answer that question yourself, and understand if it will work, where it will work, and where it will be successful. (Download presentation.)

Here's the agenda in brief. We'll just make sure we all understand what slap and ship is, and what it isn’t, how we define Slap and Ship within Delloitte. I'll go on to talk a little about when slap and ship will work and then what is this path that we have defined to integrate solution? So, really let’s talk a little bit about what is slap and ship is and really when you think about it, it’s the tagging of products at the distribution center just before shipment to a customer rather than in the production stores.

So I guess when we all started down the RFID path, everybody came up with these grandiose ideas of where tagging should take place and the manufacturing point makes perfect sense, and that’s where we get the return on investment. Only that's not necessarily not the case. The reality is that a lot of people want to spend a small amount of money and have a very tight time frame and so really God has given a lot for people to think a little bit differently about where they tag.

Another definition for, or another factor that defines slap and ship, is limited integration of data or the reengineering the business process. The key word is limited. Slap and ship involves no integration or no reengineering. We are trying to minimize the amount of investments in time, asset, people, technology that we need to do in order to modify these technology processes.

And the third point is that it satisfies the mandate without much effect to people, process and technology. There is always going to be some affect. Some people have overlooked that to their detriment, and today we are going to explain to you exactly what we think you should be thinking about when it comes to people, process and technology. And then finally, slap and ship re-enables the company learn about RFID technology. It allows you to carry out this gradual implementation.

We thought we can provide a good perspective because we have done this stuff before. Before we do this big bang rollout, we need to really understand the technology and understand the issues that are affecting the industry today. So, conceptually, this is how slap and ship works.

Think of a manufacturing company in the consumer products market. You identify a product you sold it and you figure out why you are actually going to be tagging. You then break down the pallets. You tag all your cases. You do the verification of the readability, make sure it’s working and then you remake the pallet, and ship it out the door to Wal-Mart, Target or Albertsons.

So, really what it's going to do here is it’s going to drive some changes. It’s going to require some additional DC labor. A lot of what we did in the early days is go out to the DC and we can see so many opportunities here for you to save labor in your business. You are no longer going to have forklift truck drivers that go around and get off the truck and scan the bar codes and get back on. And that is the case to a certain extent. We think the increase in the amount of labor just to do slap and ship is going to be significant, so you are going to see a net increase in the number of people working in a DC to just deal with this compliance of slap and ship approach.

Also, you have got the requirement of the label and coders. We also have the readers as well to verify the readability of the tags. We are going to find that some of these tags don’t work, and we need to make sure we verify that. Also there is going to be an investment in IT hardware, software to support RFID. That’s inevitable.

So, what is some of the advantage of slap and ship? We believe there are some absolute advantages in the marketplace. One of them is low cost or lower cost should I say. You are going to avoid the huge expenditures required for a full-scale adoption. We have done the analysis. We have looked at all the figures. We worked with a lot of research firms to understand the marketplace and what it’s going to actually cost both to the slap and ship and also to do a full-scale implementation and the amounts of money we are talking about are incredibly significant with a full-scale implementation. Even for slap and ship compliance the figures are large.

For most companies, especially those in the Wal-Mart 100, we are certainly looking at several million dollars worth of investment. And a lot of people are pushing back and they are saying, "Hey, I didn’t budget for this. I don’t have the money for this. I have got a stock market that’s beating on my door everyday and telling me to cut cost and increase profits." So, it’s a concern and again that’s not a driver that’s really making people focus on slap and ship to finally reduce the costs.

Another advantage of slap and ship is compliance. To become compliant is relatively simple and doesn’t take a significant amount of time. What we are doing here is all relative, and we are really comparing this to a full-scale implementation. So relatively, it's a kind of a small amount of time and effort. Also minimal disruption. You are not going to have a lot of changes to existing processes and infrastructure that you need to do to actually get comply this slap and ship. Again, we said a lot of this is a manual change in process, so there will be some change, but not a great deal.

One of the key advantages of slap and ship we see is the learning curve, is being able to really replicate best practices used by earlier adopters, understanding if they are going to work in your environment and within your organization or not. A lot of people have already dealt with compliance. The likes of Gillette and Procter & Gamble and these guys have got a lot of best practices that are readily available if anybody is a member of EPCglobal, and all the standards bodies and they are sharing this information.

[Another advantage is being able to use] slap and ship to measure the usefulness and effectiveness of RFID. You can use this as a barometer to check whether or not we are really going to see the return on investment if we go with a full-blown implementation. Use it as a mechanism for being able to measure that going forward in developing a business case and ROI. A lot of people are saying we need to do the business case first. But we don’t, we need to get some experience and understand the technology before we even think about the business case. How can we understand the applicability to business if we don’t even understand the technology itself?

[Slap and ship] also allows technology vendors to prove out their products and we are going to talk a little bit more about that if we go forward. Obviously that’s an advantage if we start small we can change things as we move forward and allow for clarity on standards to develop. Standards are an issue today. They are moving in the right direction. But these really are the advantages of taking a slap and ship approach, and it does actually minimize the risk to a lot of companies in the marketplace.

So, what are some of the disadvantages? Again, there are disadvantages for slap and ship. One of the key ones is hidden cost. Everybody says we are just going to do the minimum. We are going to slap a tag on the case, and we will ship it out the door because this is easy. The hidden costs that we have uncovered are things like changed management and training. We are talking about changed management with a different breed of people. They are not the white collared workers that we typically do change management programs for. These tend to be a lot more of the blue-collar workers. We need to be creative, and we need to come up with solutions and programs that are really unique and actually work. There is a cost associated with training. That cannot be overlooked.

Another key cost is the slowdown in processing time. Even if people get up to speed, there is a change in process and this often increases the processing time. So that’s going to increase your costs. So, again, it's something else you need to think about when you are talking about the overall cost of this program to your business.

If the cost of the RFID solution is going to increase your cost of doing business in the marketplace today, you need to clearly understand what that additional cost is going to be. We are talking about tags at 60 to 70 cents a tag, and at the case level—you can do the math. You have to think about the pallets and some companies have been asked to take it down to the item level already. There are significant costs associated with it.

Really, at the bottom here, the key disadvantage is no ability to attain benefits or ROI value, and we believe that's absolutely the case when it comes to slap and ship. It's a cost of doing business; it’s a cost-plus solution. There is no data to capture, or very little data to capture, plus no process change means there is no real tangible benefits to you as an organization.

So, when does slap and ship work? We are actually convinced that slap and ship does work. It can be very effective with a lot of different companies in the short run. Okay. We are absolutely advocates of doing this tactical approach for all of the reasons we just described. So, we absolutely do think it is the right way to go in the short run. We think that long-term use of the slap and ship approach will lead to competitive disadvantage. A lot of companies need to understand that this is a stopgap tactical solution to deal with compliance. It's not a long-term solution. It is going to very difficult to scale that solutions to make it more strategic.

The key point here is every organization must determine its own unique tipping point. We are going to talk a little bit about this tipping point. We think it’s very important to understand this. And it isn’t a complex thing. We are going to show you what it is and you need to understand what your tipping point is because some companies we have talked to the tipping point is very close and they need to make some immediate decisions about what they are going to be doing within their organization.

So, what is this tipping point? We have seen, over the last few weeks, more and more mandates coming out in the marketplace. They are not going to stop, by the way. Everybody is watching Wal-Mart, Target and Albertson’s her and in the European marketplace Tesco and Metro. There are a lot of other large retailers around the world. And what about the companies looking to see what’s happening in the marketplace and say that’s a great idea. So there are going to be many more mandates in the future, and this is going to increase the product volume. It’s going to then increase product complexity and it’s then going to increase the tagging cost.

Cost will rise with no benefits to recoup this cost. So, you say, We are going to spend this amount of money to keep Wal-Mart happy and then you are going to get another to mandate and guess what? It’s going to increase the cost. The complexity is going to increase. Volume is going up more and more all the time. And at one point, you have got to have this inflexion point which you going to reach when source tagging provides enough benefits to out weigh slap and ship. You are going to have to figure when that is. So, instead of slapping and shipping in the distribution center, you have to do it at the very-very front end of your process—the source. An that’s going to be expensive and it is going to provide you with a lot of complexity but also when we talk about the benefits and the return on investment that is going to be key to driving down the cost within your own business. So, again it’s all tied into this most strategic approach.

So, what is the tipping point? We have been working with a lot of companies and we ask this question. We are working with a company this week, and they are just starting down this path. So, we wrote on the board what percentage of their products is shipped to Wal-Mart. We aksed what percentage of your product is shipped to Target. Then we did Albertsons, and since they are a global company, we added in Metro and Tesco in the UK. Guess what? We were already up to 50 percent of their volume globally.

And so we said, you have got a tipping point. We need to determine what that is in order to put together a program that’s really going to support you and the tipping point really is case volume, so it’s driven by the amount of volume that is under mandate and then also by the net cost. Then we looked at the tagging of the integrated solution. You can see at the beginning it’s a very expensive solution to put in place. It’s going to cost you a lot of money and the return on investment is going to be minimal to begin with. So you go with a slap and ship approach.

The slap and ship approach is significantly cheaper. There are no benefits but as more and more of these vendor compliance mandates come out, the cost is increasing, and the ability for you to actually respond to these compliance mandates is getting so prohibitive because it’s eating away your margin that you come to a tipping point where it make sense for you to stop what you are doing. It’s the end of the tactical solution. You need to adopt the most strategic integrated solution while you are tagging at source and reaping all of the benefits in the value chain. It is very important for you to really take a look at this and understand what your tipping point is within your organization, because everybody has one and it’s very different for each different company.

A lot of it depends on where are your products coming from, how many DCs do you have, how many categories of products are affected and so on. But everybody has this tipping point. So, the tipping point is only one factor though. It’s the one thing that you need to be aware of. It’s driving the marketplace. There are a lot of things as well. One of them is the tag price. I think everybody talked about the fall in tag prices. Its coming down so quickly that if you just hang on another month or two its going to be at five cents, but it’s absolute rubbish. Tag prices are a pretty static. They are not coming down at the rates that we thought they would be. Now wait for that to happen as if we got somebody like a Wal-Mart to collectively say, hey let’s all chip in and let’s create this consortium for purchasing and drive the marketplace down.

A lot of people are advocating that approach. Tesco in the UK are going that. They are saying that to their suppliers, and by the way, we are going to aggregate all of our suppliers together and we are going to define what we think are the standards, go to the manufactures and say, "We are going to bring you all of his business" and it is somewhat working in the European marketplace. So, it will be great if Wal-Mart did that here in the United States. I don’t think they are going to do it. [Wal-Mart] has taken a very hands off approach when it comes to vendors in selecting products. Let each company make their individual decision. The key message here is tag prices are not falling the way we thought they were.

Product portfolio: Organizations that produce high-value items will be compelled to make this transition from slap and ship. It all depends on the product that you have. If you have a product that suffers from a great deal of shrink and is high-value, you know slap and ship might not be the best thing to do. It might not be the right way to go. You may need to take the more strategic approach initially. Some people in the marketplace have been driven [in that direction] much quicker than others. People who distribute DVD to same item level tagging coming in much quicker than anybody else and again they have got a high-value item with a high margin that represents the fastest selling category in retail today. So, there are some compelling reasons why they shouldn’t really go with the slap and ship approach and should go with the most strategic approach or they may go with the slap and ship with a much shorter time frame than other companies.

Another key thing here is technology maturity and reliability. We have all been downstairs, we have all spoken to the vendors, we have all heard the claims. We have had our eye on the vendor market for quite sometime. We really do a good job of benchmarking all those vendors and we look at a lot of different characteristics because you know sometimes when we are talking to a client, they will say, "We will like this solution, and we think its a great product," and we say, "You are absolutely right; it is a best of breed. But we don’t think you should take that product because of these reasons."

We are going to do due diligence so that we understand the financial viability of those companies. You understand what’s going to happen potentially in the next 12 to 18 months and the reality is that a lot of these vendors are going to disappear. A lot of them are going to be purchased by larger companies, which you are going to have dramatic effects on the direction of that technology in the future. So you guys need to understand that this is a very fragmented marketplace. The marketplace is very immature from a technology standpoint and you absolutely need to make sure that you align yourself with somebody who can help you make the right decisions, who can see through the noise and understand exactly what direction you need to be going today.

And finally, competitive landscape. What we are finding now is a lot of companies that are coming to light and saying we are not one of those top 100 but our biggest competitor is and we think we need to be doing this RFID thing and we don’t know what it is but we need to be doing really quickly. So, we are seeing a lot of other companies who are really scrambling and running to adopt RFID as a competitive advantage or really to try and stop the competitive advantage of the other company.

It's kind of interesting the dynamics that we are seeing in the marketplace. So, a slap and ship solution is feasible. However, we don’t think it’s is a reasonable path forward. We do not think it’s the right way to go. Don’t think about doing this cheap and dirty solution because you will not get the return on investment you will not get the benefits and ultimately you need to get those in order to justify using RFID. Scaling will expose the shortcomings of slap and ship.

A lot of people will say, "We are just going to scale it. We are just going to put more computers in and put more of the readers in and get more of these migrant workers to slap and ship. It doesn’t work like that because the cost escalate pretty significantly and you are going to get to this tipping point where if you don’t resolve it, it’s going to drive you out of business because you are getting to be selling your product and you are not going to be making the money that you need.

You really need use the best practices and learnings from [your slap and ship] project, keep directing that into your strategic initiative. You need to understand the black art of RFID. And you need to understand the business case drivers, where is the return on investment going to be. Where can we actually save that money and drive down our costs? So, the two approaches are somewhat sequential. Slap and ship is focused purely on compliance and you may be a quarter of the way into that project when you start this strategic RFID solution.

So beyond slap and ship, a strategic RFID solution is absolutely required. You really have to use the slap and ship as a learning exercise—understand it, learn from it, educate your organization and the people in the RFID team. That’s going to help you and it’s going to save you lot of money and make your RFID efforts much more successful. And beyond compliance in RFID applications you need to determine how RFID can drive business benefits.

You need to understand the costs required to attain the ROI decision framework. You need to understand the trigger points, to understand when to strategically deploy and adopt RFID. And global RFID policy put together a framework or a solution that’s global in nature and encompasses all of your business units. And that policy is going to be the blueprint for rolling RFID out along the globe. And that’s the policy that’s updated frequently—every three to six months. The marketplace is changing. What new technologies are there?

So, some conclusions here. We believe absolutely that slap and ship is an effective starting point for RFID adoption. We think it's absolutely the way to go today for a lot of companies. It may not be the best for everybody but we think a lot of companies should absolutely adopt the slap and ship approach in the short term. We found that a lot of leading companies are actually using slap and ship. Its part of the broadest strategic RFID solution. It’s the first step in a strategic initiative moving forward.

And you need to really start planning beyond slap and ship today. Your tipping point might be just around the corner. You need to understand that and you need to understand what the costs are going to be and you need to communicate that as early as possible and set peoples expectation. Thank you.