Wal-Mart says RFID is reducing out-of-stocks by 16%

Oct. 17, 2005
Most of the debate on radio frequency identification (RFID) of late has focused on whether Wal-Marts suppliers will be able to recoup their investment

Most of the debate on radio frequency identification (RFID) of late has focused on whether Wal-Mart’s suppliers will be able to recoup their investment in the technology. Now, via a study from the University of Arkansas, comes word that Wal-Mart customers are able to find items in stock more frequently thanks to the retailer's use of electronic product codes (EPCs) powered by RFID, when compared to control stores.

Researchers at the University of Arkansas found a 16% reduction in out-of-stocks. Additionally, the study also shows that out-of-stock items with EPCs were replenished three times faster than comparable items using standard bar code technology. Equally important, Wal-Mart experienced a meaningful reduction in manual orders resulting in a reduction of excess inventory.

"This is no longer a take-it-on-faith initiative," says Linda Dillman, executive vice president and CIO for Wal-Mart. "This study provides conclusive evidence that EPCs increase how often we put products in the hands of customers who want to buy them."

The 29-week study analyzed out-of-stock merchandise at 12 pilot stores equipped with RFID technology and 12 control stores without the technology. All Wal-Mart formats -- Supercenters, Discount Stores and Neighborhood Markets -- were included in the study.

Specific items were selected to be analyzed at the beginning of the study and these items remained constant throughout the entire process to ensure data consistency. To both establish a pre-study baseline and to measure the impact of RFID, out-of-stock items were scanned every day throughout the study period, at the 24 stores. Other than the introduction of EPCs and RFID technology, the stores continued to operate normally.

The study design allowed the researchers to examine differences between the 12 control stores and the 12 RFID-enabled stores. It also provided the ability to compare performance in the same stores through analysis of the baseline data and the data collected during the use of EPCs.

Dr. Bill Hardgrave, director of the RFID Research Center at the University of Arkansas and executive director of the Information Technology Research Institute, oversaw the study. "Our analysis consistently found -- throughout the test period -- that the RFID-enabled pilot stores statistically outperformed the control stores without RFID technology in terms of providing improved on-shelf availability of items for customers," Hardgrave explains. "Essentially, this meant fewer total out-of-stock items and fewer occurrences of empty shelves when the merchandise was in the backroom."

As part of its standard processes, Wal-Mart has focused on driving improved product availability for its customers through a series of initiatives unrelated to RFID technology. The research was structured to isolate the impact of RFID to be able show the improvements directly attributable to the RFID process improvements.

"The study showed RFID-enabled stores were 63% more effective in replenishing out-of-stocks than the control stores," Dillman says. "The Wal-Mart RFID team knew that this technology would have a huge impact on out-of-stocks. Now we have an independent study that confirms RFID has a significant impact in retailing," she continues. "However, we are not stopping there. This is only one of many changes that RFID will bring. We are already working on initiatives and enhancements that will build on this success."

"The 16% reduction in merchandise out-of-stocks was determined by physically scanning out-of-stocks at the shelf every day. A baseline was established and this was then compared to the number of out-of-stocks in both sets of stores once the RFID technology was enabled in the pilot stores," explains Hardgrave. "The net result of the impact of RFID, removing any other influences, was a reduction of 16% in the occurrences of products being out-of-stock on the shelf.

"In addition to comparing the pilot stores to the control stores," Hardgrave continues, "we took our study one step further by analyzing the EPC tagged and non-tagged merchandise within the same store. We knew that by analyzing these elements, we could further validate the positive impacts we were seeing. And, in fact, this comparison showed us yet again that RFID made a quantifiable difference. Out-of-stocks on EPC tagged items were reduced at a rate more than three times faster than that of the non-tagged items within the same store."

Beyond improvements in in-stock, Wal-Mart also sees benefits in overall inventory reduction, which is key to driving costs down. "The initial changes we made in our stores didn't stop at reducing out-of-stocks. We are also using the technology to reduce our inventory in the whole supply chain," says Rollin Ford, executive vice president for logistics in Wal-Mart. "With little effort we have been able to make inroads into this area. Manual orders placed by stores were reduced by approximately 10%. However, as Linda Dillman has said, impacting in-stocks is only the start."

Wal-Mart is currently more than tripling the number of stores where RFID has been installed. By the end of October, Wal-Mart will have more than 500 stores and clubs and five distribution centers live with RFID.

During January 2006, Wal-Mart's next top 200 suppliers will be live, shipping EPC-tagged cases and pallets. As with its top 100 suppliers, Wal- Mart has collaborated with these next top 200 suppliers, hosting a number of briefings and seminars to share knowledge back and forth. A number of the suppliers who went live in January 2005 also participated with the next 200, passing on their learnings and areas of benefit within their organizations.

In addition to the store and distribution center expansion this year, Wal- Mart will continue its rollout during 2006 and double the number of stores that are enabled, along with distribution centers that service the enabled stores. By the end of 2006, more than 1,000 stores, clubs and distribution centers will be using RFID to deliver improved service to customers.

For 2007, Wal-Mart expects the next wave of 300 suppliers to start shipping tagged cases and pallets by January 2007. Combining the 100 suppliers from 2005 with the 200 suppliers during 2006, this will bring the total number of suppliers live in early 2007 to over 600.


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