Retail Inventory RFID Practices

¶ … RFID on Retailers Mann I. Grayflannel, Sr. Supply chain performance is significantly improved by the implementation of Radio Frequency Identification (RFID) practices. Companies that adopt RFID practices can expect to develop sustainable competitive advantage. Widespread adoption of RFID technology by retailers shows a steady upward trend. Experts forecast that retail companies will continue to be attracted to RFID in the future[footnoteRef:1]. [1: Cecere, L. (2007). Three Years Of Retail RFID Pilots.

Forbes.] Research indicates that the following areas in company operations typically exhibit positive change: distribution, forecasting, inventory, sales, and supplier when RFID is adopted[footnoteRef:2]. [2: Vlachos, I.P. (2014, January). A hierarchical model of the impact of RFID practices on retail supply chain performance. Expert Systems with Applications, 41(1), 5 -- 15.] RFID innovation has evolved into a major technology implemented around the globe for tracking goods and assets. Radio waves are used in the RFID technology to automatically identify tagged items in real time.

A primary benefit of RFID technology is the high level of visibility it provides for assets and products. A recent study examined eight variables of RFID applications grouped in two categories: location (supplier's warehouse, retailer's central warehouse, retailer's local warehouse, retailer's owned stores) and utilisation (standards, transportation, pallet level, The dependent variables were supply chain performance indicators, analyzed through a hierarchical regression equation with RFID variables as independent variables.

Factor analysis of the results of an online survey administered to 300 retail companies showed effects for seven supply chain performance factors: supplier, inventory, distribution, ordering, plan, sales, and forecasting. The significant findings are described below: RFID practices improve stock availability by 45.4% and overall supply performance by 36.3%. RFID practices reduce waste by 42.2%, and increase sales by 40.1%. RFID can improve the performance of distribution systems, including products dispatched and inventory in transit by 33.8%.

RFID technology has become the norm for the Department of Defense (DoD) and a growing number of major retail businesses. The DoD requires suppliers to use RFID tagging for cases and pallets of merchandise shipped to DoD stores and distribution centers. The influence of DoD and other major retailer mandates to implement RFID practices are driving interest in the technology. Three key challenges must be addressed by retail businesses that intend to adopt RFID practices: 1) RFID hardware; 2) software infrastructure; and 3) evolving business processes[footnoteRef:3]. [3: Sikander, J. (2005).

RFID Enabled Retail Supply Chain. Redmond, WA: Microsoft Corporation.] It is important to note that in order to optimize the benefits of RFID in a retail enterprise, managers need to align KPIs to embed RFID practices in the company Standard Operating Procedures (SOPs). Measurement of KPIs aligned to RFID implementation should be evident in delivery and distribution, forecasting, fulfillment, ordering and replenishment, supply and source, inventory and store operations, and sales and returns.

RFID pilot studies indicate that RFID technology improves the supply chain response of companies, and that roughly 25% to 27% of out-of-stock problems can be improved by RFID adoption. Considering that most out-of-stock problems occur with new product launches and products that have been heavily promoted, and that approximately 80% of lost sales related to out-of-stock episodes of seven day or more duration, retail enterprises can ill afford to postpone adopting RFID practices.

Additional veracity for this recommendation comes from the conventional demand sensing and shaping delays that are evident in most large retail operations. Not withstanding the benefits of RFID, the cost to tag products is relatively high. For this reason, RFID propagation is likely to be first implemented for low-volume, high-value products. The emergence of Electronic Product Code (EPC), a unique identifier that functions like a vehicle license plate in that it is a simple, easy to read tag that is linked to a complex database[footnoteRef:4].

Rather than pointing to a class of products in the manner of a UPC barcode, the EPC points to a specific item -- that is, an instance of a product class. An EPC is an integral low-cost passive read-only part of an RFID tag. [4: Sikander, ibid.] Slide 1 Source: Sikander, J. "RFID Enabled Retail Supply Chain." Redmond, WA: Microsoft Corporation. 2005. Slide 2 Object Naming Service and EPC IS 1. A manufactured product is assigned a local EPC IS. 2. The global EPC IS Discovery service records that a "tag read" is registered. 3.

The retailer receives the product and registers it with the local EPC IS. 4. The global EPC.