How to Compete and Win in the High Stakes Omni-Channel Game

March 14, 2017
RFID technology offers a practical way to keep shelves stocked and customers satisfied.

With the stakes getting increasingly higher for omni-channel retailing, companies are placing their bets on familiar technology to guarantee a winning customer experience. By implementing Electronic Product Code (EPC)-enabled radio frequency identification (RFID) at the item level, retailers and manufacturers can be confident in presenting product availability to their consumers, taking the guesswork out of inventory accuracy and putting more product into play.

Despite the promise of a seamless shopping experience, in reality inventory visibility remains weak. According to Retail Systems Research (RSR) analyst Nikki Baird, retailers are, for the most part, continuing to guess how much inventory they have in stock at any given point in time. They want to promise as much as possible to consumers, especially if there is demand online for products that stores might need to mark down soon. With more consumer demand and greater category management complexity, the search is on for a practical way to create supply chain certainty.

Risky Business

There are many reasons why inventory visibility that is "close enough" will simply not do in today's business environment. Kibo's Digitally Demanding Consumer report found that 95% of consumers surveyed prefer some form of omni-channel service when shopping. Attempting a flexible fulfillment offering without being properly prepared can be a huge risk of consumer loyalty. More than half (60%) would purchase elsewhere if their preferred method of delivery wasn't available, even from a retailer they have shopped with many times.

If omni-channel is about delighting the consumer, how can companies ensure that a positive brand outlook sticks with consumers? What has been proven over the past several years is that item-level RFID is foundational to the omni-channel supply chain due to its ability to provide real-time inventory visibility and order accuracy. Let's examine how RFID works to support the needs of today's retail supply chain.

RFID to the Rescue

The use of RFID in retail supports retailers' requirement to pinpoint product through every stop in the supply chain and uniquely identifies that product. Electronic Product Code (EPC), which serializes the identifier for each individual item in a company's inventory, used in tandem with RFID tags, enables the sharing of data through many disparate retail systems. The EPC standard enables improved supply chain interoperability for trading partners, as opposed to dealing with several proprietary systems at once.

Global supply chain item visibility significantly increases when EPC-enabled RFID tags are attached to individual items, not just to cases or pallets. When a manufacturer assigns a unique, serialized identifier to an item, it forms the strategic foundation that allows users to perform outbound reads at a manufacturing site in one country, inbound reads at a domestic distribution center, and then another outbound read as each shipment heads to a retailer.

This complete visibility is essentially a trail of "digital breadcrumbs" that lets users perform downstream inventory reconciliation, tracking products all the way to stockrooms and store shelves. For example, retailers can integrate more granular data with their existing enterprise resource planning (ERP) software and their knowledge about the product can go from "this is a sweater" to "this is a pink cashmere sweater #1 or a blue wool sweater #2." In addition to this level of product serialization, RFID readers can simultaneously scan many tags at a significantly faster rate than traditional inventory management methods that rely on line-of-sight barcode scanners.

With strong support from leading retailers like Target, Lord & Taylor and Macy's, as well as major brands including VF Corp. and Levi Strauss, RFID has become a key driver of innovation in the apparel industry. Recent research from Kurt Salmon indicates that awareness for using item-level RFID has reached record highs among retailers and brands, with more than 73% of retail trading partners either currently implementing or piloting the technology.

For retailers, item-level tagging enables the tracking of every piece of merchandise, in every retail stock location, raising SKU-level inventory accuracy from an average of 63% to greater than 95%, according to research from the RFID Lab at Auburn University. RFID also allows retailers to more effectively communicate with their manufacturers, facilitating faster reordering and improved demand planning and forecasting. For manufacturers, RFID tagging delivers an 80% improvement in shipping and picking accuracy and increases receiving time by 90%, according to the RFID Lab.

Powering Store Fulfillment

It's important to recognize the evolving role of the store when omni-channel is pursued. Accenture Strategy's Global Consumer Pulse Research suggests that "experimental" customers who shop via many channels are actually the most profitable customers over pure digital-savvy customers. An RFID implementation benefits these customers who shop at both stores and online. Particularly as store fulfillment and click-and-collect programs rise in popularity, inventory visibility becomes one of the most important links in the supply chain that needs to be strong at all times. RFID can help instill confidence in those who touch inventory at all levels—from management down to store associates—and is a crucial enabler of that product being located quickly for the customer who wants it.

Flexible fulfillment options can be a boon to time-pressed and cost-conscious consumers, and for retailers who excel at this practice, it can increase sales and expose a larger product assortment for sale. A recent mystery shopping report from Kibo and Multichannel Merchant showed that store associates were able to find the customer's order in under a minute at 43% of the 30 stores that were studied, while 50% took one to four minutes. 75% of locations had orders ready for pickup in 24 hours or less. This study shows operational efficiencies and customer satisfaction are rising as retailers expose the weak links in their supply chain and repair them with practical strategies.

In addition to creating click-and-collect opportunities, adopting and using item-level RFID enables a store to become a distribution center to fulfill any kind of order. Many retailers have already reported tangible benefits since making RFID a key part of their omni-channel strategies. Having true item-level data gives retailers a whole new level of information, which leads to more sophisticated merchandising, planning and allocation systems. Real-time visibility means cleaner data and better delivery insights into real-world conditions. Greater confidence in inventory planning procedures also means a reduced need for safety stock and less risk of over-ordering merchandise.

Adhering to Standards

What the demand for omni-channel and more convenient fulfillment options shows us is that shopping is truly no longer confined by space and time. Online retailers are always open, essentially transforming every place a consumer goes into a showroom. Facing such high consumer expectations, retailers' omni-channel success depends on the alignment of back-end operations and consumer-facing services.

GS1 Standards, such as EPC-enabled RFID, provide the structure to achieve this alignment and make it possible for companies to speak the same language when identifying, capturing and sharing information about products, business locations and more. These supply chain standards have saved trading partners billions of dollars through improvements in data management, business communications and analytics, allowing for widespread and repeatable efficiencies.

Proprietary product identifiers and internal closed systems are, by definition, usually incompatible with other systems, creating unnecessary costs and complications for the exchange of data and goods between trading partners. In a truly omni-channel operation, what a retailer's system says is in stock, needs to actually be in stock. Item-level RFID creates the efficiencies internally to help give the consumer what they want, whenever and wherever they want it.

The retail industry is shortchanging itself if it attempts an omni-channel strategy without implementing item-level RFID. Taking steps to assure customers a unified and coordinated experience will be a company's strongest asset in adapting to the "always on, always open" marketplace. 

Michelle Covey is vice president, retail apparel and general merchandise at standards organization GS1 US.

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