EPC Reduces Out-of-Stocks at Wal-Mart

By Mark Roberti

Oct. 14, 2005—Wal-Mart announced today that an independent study by the University of Arkansas has concluded that Wal-Mart has been able to reduce out-of-stocks by 16 percent by tracking cases of goods with radio frequency identification tags carrying Electronic Product Codes (EPCs). The study, which Wal-Mart commissioned, also showed that out-of-stock items with EPCs were replenished more quickly than comparable items in cases labeled only with bar codes, and Wal-Mart saw a reduction in manual orders and excess inventory within the RFID-enabled stores.

"We're pleased with the results so far," says Simon Langford, Wal-Mart's manager of RFID strategy. "There has been great anticipation about what difference RFID is making. This is the most in-depth analysis of our RFID project so far. It was done independently, and it shows that there are benefits."

Bill Hardgrave, University of Arkansas

During the 29-week study, which ended in mid-September, researchers from the university analyzed the out-of-stock rate on a little less than 4,000 stock-keeping units (SKUs) 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.

This study is the first to compare the impact of EPCs on merchandise availability in functioning stores. Researchers chose specific SKUs being outfitted with tags at the case and pallet level by Wal-Mart's top suppliers, and analyzed the effect of tagging on these products. More SKUs were tagged as the study went on. However, the researchers—led by Bill Hardgrave, director of the university’s RFID Research Center and executive director of the Information Technology Research Institute (ITRI)--only analyzed the effect only on those items tagged at the start of the study to ensure their data was consistent.

To establish a pre-study baseline, and to measure the impact of RFID, researchers combed the shelves at the 24 stores and recorded out-of-stocks throughout the study period by using handheld devices to capture the data. Other than having EPCs and RFID technology introduced into their operations, the stores continued to operate normally. Researchers also factored out reductions in out-of-stocks at both the control and RFID-enabled stores that resulted from any process improvements unrelated to RFID.

Researchers compared out-of-stock rates in the RFID-enabled stores against the baseline data established at the start of the study, as well as the out-of-stock rates at the control stores and those of SKUs not tracked with RFID at the RFID-enabled stores. Ultimately, they determined that RFID reduced out-of-stocks by 16 percent.

To put the 16 percent reduction in perspective, the industry average for out-of-stocks has remained stubbornly at about 8 percent, despite numerous efforts by manufacturers and retailers to bring it down, such as collaborative planning, forecasting and replenishment (CPFR). If RFID were applied across the retail industry, and the same 16 percent improvement were achieved, the out-of-stock rate would fall to 6.7 percent. The study did not measure what effect the improvement in on-shelf availability had on sales.