The Detail of Retail: Inventory Management and Loss Prevention with RFID

Posted On: 4/20/2010

A whole new generation of RFID tags and hardware, accompanied by lower price points, are transforming in-store and distribution center-to-store inventory processes -- and creating value in the retail merchandise life cycle. Find out how.

By Jim Caudill, Xterprise

Recently reported sales at U.S. retail stores showed a significant improvement over the same month last year. These results are better than expected at many apparel chains and department stores and likely were aided by easy comparisons to sales of last January, when the recession really took hold in retail.

Overall, leaner retail inventories meant retailers didn't have to resort to steep markdowns to clear unsold merchandise as often as in years past. But simply slimming down inventories alone isn't a sustainable solution - forward-looking apparel, specialty retailers and department stores are leveraging RFID-based store inventory management applications to drive down costs, eliminate waste and improve customer service and store security. In short, RFID is helping to improve the detail of retail.

RFID is no longer a four letter word

In the 1980s the industry ushered in the age of standards and barcodes by adopting the UPC and the use of barcodes with store POS systems to increase efficiency and accuracy. In the 1990s the retail industry eagerly adopted sophisticated planning and optimization tools for forecasting, merchandising, warehousing and distribution, and pricing functions.

The 2000s saw the advent of cross-channel integration, retail ERP platforms, online storefronts, more pricing/markdown optimization tools, and many specialized applications such as retail PLM. Yet, for all the technology investments in these areas, in-store and distribution center-to-store inventory processes have remained largely unchanged over the past two decades. Recent advances in reliability and performance of a new generation of RFID tags and hardware, combined with a much lower price point, have given rise to a class of applications that applies lean principles, RFID technology, and item-level inventory management to address this gap and create value in the retail merchandise life cycle.

Item-level RFID effectively creates a high-definition view of inventory levels for the retailer, ROI of one year or less, and other significant benefits including:

- 90% or more efficient inventory counting processes

- 7% - 15% more accurate inventory as a result of effective measurement processes

- 10% - 25% improved service levels from the distribution center because of real-time replenishment and demand-driven ordering

- 15%  - 50% reduced sales floor replenishment effort/stocking time

The business impacts include higher customer satisfaction, increased revenue, reduced labor and reduced shrink.

Loss Prevention

A key benefit to keeping a closer eye on retail inventory as it moves from the supplier or factory, through the supply chain all the way to the ultimate consumer at the point of purchase, is a marked reduction in internal and supplier theft. Published case studies from leading retailers and academics point to 90 percent-95 percent reductions in this area. This is a significant value point to a retailer as estimates suggest that close to half of all dollars lost to shrink are attributable to employees, the largest overall portion when compared to consumers, vendors or errors.

Retailers have recognized an opportunity to take significant cost out of their store infrastructures with a standardized inventory and a simplified tagging process - leveraging the same RFID item-level store solution infrastructure for EAS item-level consumer theft deterrence, detection and protection. Unlike traditional RF-based EAS solutions widely deployed today, RFID-based EAS gives apparel, specialty and other retailers visibility to theft incidents when they are occurring, but goes further by identifying exactly what was stolen and from where in the store. This invaluable information allows the retailer to quickly restock the otherwise unknown merchandise and avoid missed sales opportunities due to out-of-stocks. The fidelity of the data also gives the retailer insight into theft patterns and trends that might otherwise take weeks or months to see. Retailers also gain a tool that, when combined with close-circuit television (CCTV), becomes evidence against shoplifters, even if they are not ultimately caught until a subsequent incident.

Standards Support Adoption

A recently published standard by GS1 EPCglobal represents just how far the promise of RFID-EAS and Loss Prevention has come. This standard was developed and ratified by the members of this standards group, which includes RFID hardware and technology providers, retailers, application providers and traditional EAS market leaders Checkpoint and Tyco who now clearly accept RFID as the inevitable successor to their existing solutions and technologies. The next phase of the standards development will include updates to address tags that are embedded in products (sewn in for example), and the applications and product categories that will leverage these embedded tags that may require electronic deactivation or tag alteration.

Lean, Mean Retail

While the concept of the "lean enterprise" is not a new, retailers are helping the idea stage a comeback in the post recessionary market as RFID-enabled systems can help them get back to basics focusing on product availability, employee productivity and customer service.

Item-level RFID solutions provide many retailers the tools they need to maximize their lean operating advantage. From better inventory management and more efficient use of store employees' time, to loss prevention improvements, item-level RFID solutions are making better execution a reality at the store level enabling organizations to succeed at the detail of retail.

Jim Caudill is senior vice president, marketing & strategy, Xterprise, (www.xterprise.com).