Auburn University RFID Blog

The Out of Stock Study That Changed the Way Retail Views Inventory

Posted by Justin Patton on Aug 31, 2016 9:22:18 AM

 In November 2005, the RFID Lab under the leadership of Dr. Bill Hardgrave, published the white paper that changed the way retail views inventory. The lab tackled the first deep investigation into RFID's impact on Out-of-Stocks in retail stores. 

The Out of Stock Study That Changed the Way Retail Views Inventory

2005-era RFID
Things are much different now than when the paper was first published. In 2005, Generation 2 RFID technology was in its infancy, and many of the older tags on the market such as Class 0 couldn't even be rewritten.  RFID was a door portal based technology, handhelds were a few years around the corner, and modern overhead systems were still secret lab projects. 

Item level tagging was a lofty goal; the 2005 focus was all about pallet level and case level tracking.  If you asked any retailer and practitioner what the benefits of RFID were, they would speak at length about Distribution Center efficiency and tracking, data sharing with their product manufacturers, and store shipping accuracy.  A few forward thinkers may have speculated about the benefit to salesfloor store operations in the distant future.

How times have changed
Here in the modern world of 2016, store operations dominate nearly the entire conversation. All of the early gains we hoped to see from case and pallet are still on the horizon.  With almost perfect symmetry, we have arrived right back where we started, only this time we are armed with years of experience and a well established source tagging base to build from.

Hindsight in an emerging technology market is savage. There is a tendency to dismiss all of the learnings of the 2005-2006 large scale pallet and case tagging operations as a mis-step, or a mistake on the path to broader adoption.  In reality it was one of the industry's greatest successes. It discovered and highlighted the necessary shift to the quickest value in store operations, and the refocus on item level tagging that became the defacto market standard from 2008 going forward.

There are two key metrics that bridged that gap and definied the value of the early case and pallet research and remained the focus of the item level store operations projects that followed: Inventory Accuracy and Out-of-Stocks

Inventory Accuracy and Out-of-Stocks
Most retailers, even non RFID retailers, will readily acknowledge that their Inventory Accuracy is somewhere in the 65-75% range. A few still cling to the decade old belief that they have 85% or higher exact match Inventory Accuracy. However, digging below the surface we usually find the books are cooked with tolerances or "good enough" margins of error that allow inventory fields that are only a few items off to be counted as "accurate".  Inventory Accuracy is such an accepted known issue that there are now a slew of "me too" operational projects hoping to use software algorithms or non-hardware operational changes to capture all of the magic of RFID with none of the cost. 

It's hard to believe now, but back in 2005 almost no one knew these problems even existed.  Nearly all retailers truly believed that they were at 95% plus Inventory Accuracy, and why wouldn't they?  Online customer visibility was in its infancy and the term omnichannel was barely invented.  In 2005 a retailer could still maintain a profit by dumping tons of safety stock into a store and hoping it filled in all the Out-of-Stock holes.  The low Inventory Accuracy rates we now know and internationally accept were actually discovered in the early studies from the RFID Lab in 2005 and 2006. This knowledge has now proliferated through the industry far beyond the reaches of current RFID efforts.

Coupled with this knowledge of poor inventory was the corresponding discovery that RFID, even at a limited level on cases, was a panacea for Out-of-Stocks.  Depending on the sales velocity of the items, we discovered massive reductions in on-shelf Out-of-Stocks.  The benefit was so ready and clear that even as we completely shifted hardware focus to item level tagging in apparel, the Inventory Accuracy and Out-of-Stock improvements were, and still are, front and center in almost every RFID project to this day.

The Study That Built The Modern Industry
Included below is our full paper. Reading it with modern eyes requires you to force yourself back into the dock door portal mindset and the technology limitations of the era. It also reintroduces us to the promise of upstream supply chain operations that were too quickly discarded in the rush to sales floor Inventory Accuracy.  Now, more than a decade later in an age of near-ubiquity of retail RFID, we can find the seeds of the next wave of RFID supply chain operations in the research paper that started it all.

 

Click HERE to Download the Entire Research Paper

Topics: RFID, RFID Tags

Auburn RFID Lab

Auburn University's RFID Lab specializes in the business case and technical implementation of radio frequency identification technology in retail, supply chain and manufacturing settings.

In moving to Auburn University in 2014, the lab was reunited with its founder, Harbert College of Business Dean Bill Hardgrave. Hardgrave helped launch the lab at the University of Arkansas in 2005.

The lab has continued to work with leading retail, supply chain, manufacturing and technology companies.

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