How to Serve the Multi-Channel Consumer

Dec. 1, 2010
The modern retail supply chain requires accurate cross-channel inventory visibility and radio frequency identification is a key enabler.

The importance of agility of product movement can't be understated in today's retail supply chain. Consumers demand anywhere, anytime access to products via the sales channels of their choice, and they expect to take delivery of those products — at home or in stores — on their terms. These demands have huge supply chain implications. They require inventory fluidity and accuracy the likes of which the retail supply chain has never before seen, much less been expected to provide.

Challenge notwithstanding, fulfillment of consumer demand in this new retail world creates many logistics-dependent opportunities to delight customers. For example, in a first step toward a seamless cross-channel experience, many retailers began making their online inventory available to shoppers in stores via kiosks that offer in-store pickup or home delivery. Several well-known retailers have now begun complementing this “endless aisle” concept by making in-store inventory available to online shoppers, so that the store experience extends beyond the four walls. Retailers who succeed on both fronts will optimize the utilization of their total inventory across all of their sales opportunities.

However, offering in-store inventory to the online shopper dramatically increases the pressure on retailers to maintain accurate inventory databases. After all, it's not appropriate to invite a customer to come to a store to pick up an item that's not really there, nor is it fitting to promise next-day delivery of an item from a store that's not equipped or trained to act like a distribution center. On the other hand, it's almost just as bad to turn away shoppers because of insufficient buffer stock to compensate for database inaccuracy. Without accurate inventory, these tactics backfire and disappoint, rather than delight.

Mastering Inventory Accuracy

Visibility into inventory has always challenged retailers. While the bar code and computer-based POS (point of sale) improved that visibility, it remains a given that an inventory database adjusted for POS data will eventually misalign with actual on-shelf inventory due to a combination of poor replenishment practices, theft and loss, inaccuracy at the POS, shipment shortages due to vendor or DC compliance issues, and even erroneous manual adjustments to the database. Yet counting one by one, with or without bar codes, remains prohibitive due to expense, errors, and the disruption it causes.

Counting with a hand-held RFID (radio-frequency identification) reader is on the order of 25 times faster than scanning items tagged with barcodes, in large part because the need to handle each tagged item is eliminated. The execution of cycle counts with RFID is therefore less costly and less disruptive. With labor, cost, time, and disruption burdens reduced, cycle counting can be implemented more frequently as part of normal operations, allowing actual on-shelf availability to track as close as possible to the optimum.

A growing legion of leading retailers have broken away from the status quo and achieved inventory optimization by deploying RFID technology in the earliest points of the supply chain. Emboldened by the rapidly falling cost of the technology and the proven success of recent RFID deployments among their peers, these retailers no longer tolerate the dismal-but-accepted industry average of 70-or-so-percent inventory accuracy. They're now realizing inventory accuracy of tagged items in the high 90s, which is facilitating the optimization and fluidity that's required by demanding cross-channel consumers.

As a result of accurate and constant visibility into their inventories, retailers are optimizing those inventories by gathering valuable BI (business intelligence) from RFID-tagged merchandise. Some examples of RFID-enabled accuracy that helps retailers refine and optimize inventories include:

Operations: Measure and Improve

What can be measured can be improved. As an example, shelf replenishment is one of the key steps in the process of keeping store shelves properly stocked, yet it's notoriously one of the most difficult to assess. Many retailers keep a significant back stock at the store level, and rely on POS data to trigger replenishment at the shelf. Ironically, poor performance in restocking duties disproportionately impacts availability of the best selling products. RFID shines a light on this process, allowing store and department management to be held accountable for the performance of this crucial function, inevitably improving how well restocking activities are carried out in the first place. Frequent inventory taking with RFID allows the retailer to correct on-shelf availability problems as they emerge, but more importantly, it can help prevent those problems in the first place.

RFID-driven replenishment is helping retailers sell even more of their best sellers. One small-appliance manufacturer realized a double-digit sales increase of its best-selling product by deploying RFID to ensure that the product was replenished accurately in stores. It's not uncommon for retailers to reduce their occurrence of out-of-stocks 30% by deploying RFID, resulting in double-digit sales gains.

Merchandising: the Shopper's Experience

RFID is helping to improve inventory selection and merchandising decisions by allowing buyers and merchandisers to analyze the movement of tagged items throughout the store. For example, is the same style shirt repeatedly taken from the sales floor into the dressing room and back onto the sales floor, as opposed to the POS? Could this indicate a problem with the style, fit, or size Through cooperative programs, suppliers and retailers can use the RFID tag on the item to provide a unique interactive, even personalized, brand experience to the shopper, and to gather valuable marketing statistics from in-store activity. RFID provides a unique window into shopper response, contributing to optimization of not just inventory, but the way it's merchandised and sold.

Loss: Detection and Prevention

The Global Retail Theft Barometer conducted by the Centre For Retail Research reports that retailers lose $115 billion per year to theft. This wreaks havoc on inventory optimization. It's impossible to optimize inventory if what's missing, when it left, or where it was lost are all unknowns. Unlike traditional EAS tags, RFID can tell the retailer exactly which items left the store and when. In one case, this extra data allowed a retailer to tie multiple thefts over a period of time to a single person, raising the stakes from misdemeanor to felony. Also, they were able to make sure that the thefts did not result in a subsequent out-of-stock event for a future customer. While stolen RFID-tagged merchandise is stolen merchandise nonetheless, it affords knowledge that provides a far greater opportunity to develop a case, prosecute, and recover the goods.

Because of the dangers and difficulties of pursuing a shoplifter out of a store in response to an alarm, traditional EAS tags serve mainly as a deterrent. RFID can offer the same deterrence but with the added benefit of loss detection.

With RFID, it's also possible to implement different levels of security for different products in the same store. For example, a retailer might decide to implement a silent alarm when expensive items on display near the back of the store are first detected approaching the exit, while inexpensive items on display near the exit have only an audible alarm that sounds when the items are clearly leaving the store. Only RFID can do this.

With RFID tagging at the source it's also possible to apply visibility-based loss prevention to the entire supply chain, and to determine rightful ownership of recovered merchandise.

In each of these examples, RFID protects or repairs the integrity of the inventory position, helping retailers improve their operations, correct the database, and optimize their inventory in real time.

RFID Today

The R&D investment unleashed by the UHF Gen 2 standard has led to rapid improvements in performance and robustness of RFID products. Compared to only three years ago, today's best tags and readers work together to deliver up to ten times the readability at a fraction of the cost. This extra performance can be used to deliver smaller, less expensive tags and enable tagging of a wider range of items including hard and soft goods. Today's hand-held readers, powered by sophisticated chips that offer consistent high performance at low power, are complemented by high performance compact fixed readers that can operate from power delivered over an Ethernet cable.

Until recently, conventional wisdom held that the selling price of an item was a key factor in determining the feasibility of RFID. Experience has shown us that frequency of replenishment, sales volume, and SKU complexity are more important than item price, as these are the factors that lend most to inventory database inaccuracies. Coupled with a dramatic reduction in the cost of RFID tags and equipment, and true ease-of-use, some successful programs include tagging of items that sell for as little as five dollars. As RFID and EAS converge, and as fixed and automatic reader systems further reduce or eliminate labor, even retailers with less severe inventory visibility challenges are embracing RFID.

Retail inventory management is a complex and dynamic business that has intense sales consequences. The optimization of inventory in this cross-channel, consumer-driven industry requires a combination of fresh thinking and proven technology. Chuck Lasley, director of merchandising and supply chain applications at Dillard's, provides an example. In a recent RFID pilot study conducted in conjunction with the University of Arkansas, Dillard's improved inventory accuracy of its pilot merchandise 17%. It took Lasley 10 minutes to conduct a cycle count of pilot inventory, while it took a team of five employees using barcode scanners three hours and 45 minutes collectively. “There was a 96% time savings in cycle count with improved accuracy using RFID,” concludes Lasley.

In concert with the RFID solution providers and standards communities, the world's leading retailers are supplying the fresh thinking. Increasingly, RFID is the proven technology they seek.

Larry Arnstein, Ph.D., is the senior director of business development for Impinj, Inc., providers of UHF Gen 2 RFID solutions. He can be reached at [email protected]