Use RFID tags to Improve Inventory Management process

Companies are constantly looking to innovate to manage their inventory to improve forecasts and make smart decisions about replenishments of their stock. Walmart in January 2005 mandated that its top 100 suppliers use RFID labels on all their shipments[1]. Radio Frequency Identification(RFID) is an electronic tag that is attached to an object. The tag when read will automatically identify the object and transfer the information about the object to a secure system. RFID thus has immense potential in terms of managing inventory. Stock keeping by recording items coming into a warehouse, pushing it onto the floor, and through checkout was a manual process that RFID can now automate. This results in significant savings in labor and time. In this post, I will highlight the benefits of using RFID for inventory management and its applications in the retail industry.

RFID tag used by Wal-mart -

Tagging shipments with RFID is achievable, however, a Dutch bookstore took tagging one step further to the item-level. The retailer invested $100,000 in RFID technology. This included setting up labels, scanners, readers, and antennas. The retailer saw improvements in lost inventory since it was able to track every book, and was also able to provide in-stock status to customers at kiosks installed within stores. This investment thus enabled the retailer to provide a great customer experience, while using the data to make smart decisions about replenishments. [2]

As another example, Levis Strauss & Co, Mexico ran a pilot program with RFID. It tagged each pair of jeans, top, and jacket with a label and a human-readable sales price. The challenges involved with every apparel store is to keep track of the back-store inventory, items on the floor, and items in the dressing rooms. With RFID labels in place, the store representatives were able to use a transponder and complete a inventory status check in an hour, a process that used to take them over two hours. When the product was sold, the label was read off, and thus company executives were even able to keep a track of what's selling at all times. The RFID pilot program is said to have improved sales and the project was expected to the rolled out to other retail stores for good inventory management.[3]

Jewelry business is challenging due to the value of every rare stone that is being sold in the stores. A jeweler in Indiana who is also an importer of diamonds and colored stones implemented RFID technology to keep track of inventory. Before using RFID, the inventory taking process meant manually counting every item which meant that the process was highly prone to manual error. The errors were intolerable since the items being counted are expensive and highly valuable in nature. Inventory taking was extremely time consuming and resulted in high labor costs. Implementing RFID technology costed the retailer $15,000, however, the retailer views this as a one-time investment and believes that this technology will drastically reduce time and result in a lot of labor savings.[4]

RFID is a heavy investment that retailers need to make. However, the benefits of using this technology make the investment worth its money. Some of the benefits a retailer could gain from using RFID are as follows[5] -
1. Improvements in productivity at various touch points of the item from warehouse to distribution centers to point of sale as there is a clear visibility of the items at every point.
2. Significant reductions in out-of-stock situations as the system can alert the operations teams and take the necessary replenishments decisions.
3. There is a reduction in shrinkage and errors encountered during the supply chain.

Having given examples of books, apparel, jewelry, can you think of other areas in which RFID technology can really improve inventory management process for retailers? Do you think it is worth investing in RFID technology  given the high costs associated with it? Can a strong business case be built around using RFID technology to collect data, observe trends, and improve forecasting techniques for retailers which might convince them to invest in this technology?

[1]: Walmart Mandate - http://en.wikipedia.org/wiki/RFID#Wal-Mart_mandate
[2]: Dutch Bookseller takes RFID to Item Level - http://www.informationweek.com/dutch-bookseller-takes-rfid-to-item-leve/189401951
[3]: RFID is in fashion - http://www.rfidjournal.com/article/purchase/2408
[4]: Indiana Jeweler Uses RFID to Track its Trinkets - http://www.rfidjournal.com/article/articleview/2558/1/1/
[5]: RFID in Retail - http://www.retaileconomics.com/rfid-retail.html