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Sorry, It’s Out of Stock

There's a huge return on investment in RFID if it can be used to solve the $69 billion problem.
By Mark Roberti
Apr 01, 2005Not too long ago, I spent hours researching which elliptical trainer to buy. I went to Consumer Reports’ Web site and searched opinion sites for comments from people who had bought trainers. I picked out the one I wanted, went to the manufacturer’s Web site to find which retailers stocked it, then set out, armed with my hard-earned cash in hand, to buy one.

The first store was sold out. The second store was sold out. When the third store told me, “Sorry, it’s out of stock,” I bought an inferior brand and walked out none too happy.

Both the maker of the elliptical trainer I wanted and the first two retailers I visited lost out on the sale of a high-priced item. This is all too common. Today, companies are investing in RFID to reduce, if not eliminate, out-of-stocks. But technology alone won’t do it. Our forward-thinking story “The $69 Billion Problem” (page 23)—part of a cover package examining the out-of-stock issue—explains that retailers and manufacturers also need to share more data and overcome cultural inhibitions that thwart collaboration.

Still, retailers have to begin somewhere, and Wal-Mart is off to a good start. Simon Langford, manager of the retailer’s global RFID strategy, gave me a tour of one of the first RFID-enabled Wal-Mart stores in Texas and showed me how RFID is enabling the retailer to change business practices and attack the inefficiencies that contribute to out-of-stocks. You can read my report, “Wal-Mart Tackles Out-of-Stocks,” on page 30.

After my tour with Simon, I’m more convinced than ever that companies must apply RFID within what RFID Journal calls the “benefits stack” to create real business value. That means you need to focus on all the small issues that contribute to one macro-level problem, such as out-of-stocks. What some people have failed to grasp is that it’s possible to use an RFID infrastructure for many applications at once. Because tags can be read automatically, there’s no extra cost each time a tag is read. So, you can attack inefficiencies—such as administrative mistakes and inventory errors—that would require too much labor if you tried to remedy the problems by having people scan bar codes.

Skeptics still insist there’s no return on investment from RFID. But our case study shows why one Wal-Mart supplier thinks otherwise and is meeting the retailer’s tagging requirements ahead of schedule. See “Beaver Street Fisheries Catches RFID” on page 38.

Best Buy is also jumping into the RFID arena, to make sure goods are always in stock and to reduce obsolete inventory. The company is even looking to tag goods at the item level. This issue’s Vertical Focus, “The Buzz in Consumer Electronics” (page 47), explores why both manufacturers and retailers are likely to benefit from using RFID in the supply chain.

Early adopters, such as Best Buy and Wal-Mart, might be the first to prove that reducing out-of-stocks delivers an ROI. I’m just hoping the rest of the retail industry gets on board before it’s time for me to buy a new elliptical trainer.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below.
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