Wednesday, September 17, 2014

Inventory Management with RFID technology

During a business visit to Japan in the summer of 2013, I happened to walk into a retailing store, Uni Qlo, in the Ginza shopping district in central Tokyo. Unlike what you would imagine, the store was 12 floors high and spanned about 5000 square meters. It was gigantic! After strolling through the store for about an hour, I was struck by the fact that, though it was a peak-shopping season, I did not find a single shelf that was empty, or running low on clothes. That store would have had at any given point in time over hundreds of thousands of stock keeping units (SKUs). Taking a physical inventory of this is almost humanly not possible. But they seemed to do it pretty well. How?

Like Uni Qlo, a lot of retail merchandizers are automating their inventory management systems that require little to no interruptions from humans. The Radio Frequency Identification (RFID) technology is leading this transformation in many industries like retailing. RFID tags are intelligent barcodes that are attached to the SKUs and can communicate over a centralized network through radio frequency waves, to identify the product. RFID tags help in tracking a product at every stage of its lifecycle, from the time it is made to the time it is taken off the shelves.

Typical barcodes that we find on most products today require a physical scan, again involving a human element. RFID eliminates this additional time it requires to scan and also reduces the chances of human error and rework. Apart from these obvious advantages, RFID technology can aid inventory management systems across industries in many ways. Lets look at a few of them in detail.

1.     Categorizing Inventory – The use of RFID can greatly improve categorization of inventory. For example products can be easily classified as pipeline, safety or anticipation inventory. The progress of each SKU through the supply chain can be easily tracked through a central monitoring system.

2.     Calculating safety stock levels – As the information about stock levels are continuously fed to the central system by RFID antennas, if the inventory drops below a certain level (reorder point), the buffer inventory can raise an alarm and system can be automatically programmed to place new order of stock for replenishment. This activity can be a proactive system too in which the system can regularly poll the inventory levels (continuous review) and can take action even before the safety levels are reached.

3.     Improving demand visibility – Another major advantage of RFID tags over traditional bar coding system is that RFID is a “read/write” system. The supply chain policy put into place by the company can be actively re-written to the RFID tags, which can accommodate anticipation inventory caused due to variability in consumer demand. This can also reduce the magnitude of the ‘bullwhip effect’ that is caused by change in consumer preferences, which can adversely affect inventory supplies throughout the various stages of the supply chain.

4.     Tracking inventory – With the use of RFID, suppliers and retailers can easily track the progress and exact location of any particular SKU and read/write data onto the tag without having to be in the physical proximity of that SKU.

These are just a few ways in which RFID technology can transform traditional inventory management systems. Though this technology has been around for more than a decade now, it’s potential has not yet been fully recognized. In a survey conducted by the National Retail Federation, as of 2011, only about 9% of the surveyed retailers had implemented RFID. But this is changing quickly. The awareness about RFID is spreading fast. By 2017, RFID related hardware and services are expected to grow to a $70.5 billion market. The potential that RFID possesses is immense and what it can achieve, only time will tell.


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