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Making Progress On Out-of-Stocks

Wal-Mart is using RFID readers at some stores to solve this once intractable problem.
By Mark Roberti
Tags: Retail
May 16, 2005It was just two short weeks after the deadline for suppliers to start shipping tagged goods to Wal-Mart when I arrived at a sprawling Wal-Mart Supercenter—one of seven stores in the Dallas area outfitted with RFID readers. Given all the negative press reports about Wal-Mart being behind schedule with its RFID deployment, I expected to find Simon Langford in a dour mood. After all, as manager of Wal-Mart's RFID strategy, he's the one under the gun to make Wal-Mart's investment in RFID payoff. Instead, he greeted me with a big smile on his face. He was not only relaxed, it was clear he was very pleased with the way things were going. "The really exciting thing is we're starting to work more efficiently already," he says.

Out-of-stocks is a problem that has plagued retailers since, well, forever. Despite millions of dollars invested in supply chain execution and inventory management software and initiatives such as collaborative forecasting and replenishment, the out-of-stock rate remains at about 8 percent globally.


This week's featured story, Wal-Mart Tackles Out-of-Stocks, shows how Wal-Mart is using newly RFID-enabled in-store systems to identify which items are—or will soon be—out of stock, instead of relying on staff to scan the shelves and locate slots that are empty. It's a textbook example of building the bottom-up business case, a concept RFID Journal introduced in the March/April issue (see The Road to ROI).

Wal-Mart is not taking a top-down approach, where readers are deployed on shelves to track product availability. That would be way too expensive and impractical. Instead, it is deploying an RFID infrastructure in stores that can be used to tackle the little inefficiencies that contribute to out-of-stocks, such as the inability to find a case of product in the back and associates who say they replenished an item when they didn't. In a test at one store, Wal-Mart found that, on average, it had 30 to 35 cases out on the sales floor at any one time that would be brought back and put away because those products were not out of stock. "Imagine if we pick the 30 cases that could be merchandised," says Langford.

At this stage, there's no hard evidence that RFID can put a substantial dent in the industry-wide 8 percent out-of-stock rate. But that might not be far away. Bill Hardgrave, an associate professor and the executive director of the Information Technology Research Institute at the Sam M. Walton College of Business, University of Arkansas, in Fayetteville, is studying the difference between out-of-stock rates at Wal-Mart stores with RFID readers and those without. He hopes to have some preliminary data in a few months (see School Studies RFID's Effect on Wal-Mart/).

Only a small percentage of cases sent to Wal-Mart's RFID-enabled stores have RFID tags. So the impact of RFID on these stores is unlikely to be huge. And Wal-Mart’s backend systems will no doubt need to evolve to make better use of the RFID data it collects and shares with suppliers. But the retailer seems convinced that its investment in RFID will pay off by reducing out-of-stocks. Wal-Mart is moving aggressively toward outfitting 600 stores with readers by October. And from what I saw at that one store it Texas, the retailer has good reason to believe that RFID will deliver the goods—to the shelves.

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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