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Wal-Mart-Commissioned Study Shows RFID Improves Store Inventory Accuracy
University of Arkansas researchers found that RFID can reduce the degree of understated perpetual inventory by 13 percent, thereby helping retailers to lower their costs.
Mar 13, 2008—A new research study commissioned by Wal-Mart underscores RFID's positive role in improving inventory accuracy at retail stores. The goal of the study was to examine the store-level influence of RFID on perpetual inventory (PI). PI is an inventory management system's continuously updated calculation of on-hand inventory (which is typically determined by manually counting the items).
The research study was first announced in October 2007 by Carolyn Walton, Wal-Mart's VP of information technology, as one of three initiatives the retailer was carrying out as part of a "change of focus" in its RFID program (see Wal-Mart, Sam's Club Push RFID Further Along). The research was conducted by the RFID Research Center, part of the University of Arkansas' Information Technology Research Institute (ITRI). The RFID Research Center was created to provide research designed to investigate the business value of RF technologies (see University Opens RFID Research Center). A resulting white paper, entitled "Does RFID Improve Inventory Accuracy? A Preliminary Analysis," is available from ITRI's Web site (click here and enter the term RFID in the keyword field.)
The study involved RFID systems, including a new PI inventory adjustment tool, in eight Wal-Mart stores, and was conducted to investigate the impact of RFID on inventory accuracy. The eight test stores have RFID interrogators and antennas installed at various backroom locations, such as receiving docks, doors between stockrooms and sales floors, and box crushers where empty cases are discarded. The PI inventory adjustment tool was basically a software system that used business rules to adjust PI by analyzing the automated inventory counts collected by the RFID readers and antennas, as well as from point-of-sale terminals.
Eight Wal-Mart stores without RFID systems served as a control group during the study. To establish a baseline for PI accuracy, inventory was counted for 10 weeks before the PI inventory adjustment tool was activated in the test stores.
There are two types of PI errors: Overstated PI occurs when the system indicates more inventory is on hand than is actually in the store; understated PI occurs when PI levels recorded in the system are less than the actual quantity on site. Overstated PI is typically caused by such scenarios as theft and cashier errors, while understated PI is often the result of such things as manual adjustments, errors when processing returns or sales, and incorrect shipments from a distribution center (DC) or vendor.
For this study, only understated PI was investigated. For the purpose of analysis, researchers divided PI accuracy into three categories: perfect, meaning the PI matches the actual inventory on hand; close, defined as the PI being within two units (cases) of on-hand inventory; and inaccurate, i.e., the PI is off by more than two units.
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