Item-Level RFID: How Retailers Are Changing the Inventory Process

139069_2693Have you ever been in a retail store - maybe a department store or specialty clothing store - and asked one of the salespeople for a garment or a pair of shoes in a different size, only to find out that no one in the store has any idea whether or not your request is in stock? It's a common problem and one that even industry veterans have had difficulty solving, especially when a retailer carries many complicated SKU's (stock keeping units). The immediate problem is losing a sale and potentially a customer. But retailers also realize that the inability to recognize whether an item is in stock also leads to two other business challenges:

(1) Inventory accuracy, and
(2) Supply chain efficiency

Inaccurate inventory leads to so-called "out-of-stocks" which leads to lost revenue. In some cases the item was in stock but no one in the store could find it. In others the item should have been reordered but wasn't. And in many cases, taking inventory of a relatively small store takes many hours and requires retailers and employees to divert their time from more profitable activities.

Meeting the Challenge:  Item-Level RFID Tags

These challenges led retailers to consider attaching radio frequency identification (RFID) tags to individual items. Called item-level tags, these are linked to a single product rather than cases, pallets or lots, as is usual with RFID tagging. For the last few years, this technology was piloted by retailers selling clothing, furniture and bedding, predominantly at stores and distribution centers on the east coast of the United States. Here are some of the benefits.

Faster inventory counts. In the past, retailers limited themselves to annual inventories because of the time and expense involved. But using RFID tags should offer a much faster inventory experience for employees, in turn allowing counts to be conducted several times each month.

Less disruption on the sales floor. Handheld RFID readers can be used to read tags, moving from the stock rooms to the showrooms. The RFID readers will connect to software that stores data from each tag.

Higher inventory accuracy. One example of this is the retailer, Macy's, who piloted item-level RFID tagging, and discovered that inventory accuracy - knowing which goods were located where - was over 96%.

Decline in shrink. Including both internal and external theft and process issues such as errors in receiving, moving items to the sales floor without creating the proper documentation, receiving items without moving them to the sales floor, and transferring the wrong products between store locations, losses from shrinkage can be significant. Using the RFID tags has given some retailers decreases in internal shrink of more than 50%.

Next Steps For Item-Level RFID Tagging

As more industries understand the benefits of item-level tagging and make plans to implement the technology, there is also a desire for users to collaborate regarding best practices and standards adoption. An organization called the Voluntary Interindustry Commerce Solutions Association (VICS) has created an Item-Level RFID Initiative, pulling together retailers, suppliers, and technology vendors. The association plans to publish a road map by the middle of 2012, aimed at standardizing the deployment of item-level RFID tagging.

And as RFID tag prices continue to drop and practices become more standardized within a vertical industry, the likelihood that retailers will adopt this technology becomes much higher.

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