Wal-Mart Tackles Out-of-Stocks

Going forward
Wal-Mart rolled out the new inventory system in mid-January, so it’s still too early to say how much the system is improving on-shelf availability or boosting sales. But Langford says that an in-store test showed that on a busy Saturday night, only one in 12 items that were out of stock was actually replenished in a timely fashion. He believes that RFID-enabled inventory will be able to improve upon that considerably.

The test in that one store also showed that, on average, associates had 30 to 35 cases out on the sales floor at any one time that would be brought back and put away in the back room. Automating the process of creating pick lists and prioritizing the products that should be replaced first will go a long way toward solving this kind of inefficiency.

Wal-Mart’s aim is to install RFID readers in up to 12 distribution centers and 600 stores in the United States by the end of the year. As the retailer rolls out the technology to new geographic regions, it will also deploy whatever new applications and business processes it has developed to those facilities. And it will continue to work in a concentrated cluster of stores to develop new applications and enhance existing inventory management systems with RFID. When the benefits have been proved, those enhancements will be rolled out to the other facilities as well. “It’s still early days,” says Langford. “But the really exciting thing is we’re starting to work more efficiently already.”


Sharing Data with Suppliers

To really reduce out-of-stocks, retailers and suppliers need to work together to better match supply and demand. Even though Wal-Mart is in the early stages of its RFID deployment, it is already sharing information in near-real time with suppliers that are shipping tagged goods to RFID-enabled distribution centers and stores.

Within 30 minutes of a pallet or case tag being read—at the back of the store, between the back of the store and the sales floor, or at the trash compactor—Wal-Mart updates the status of the case or pallet in its Retail Link, an extranet that it has used for years to provide suppliers with point-of-sale transaction data.

Already suppliers are starting to use the visibility data. Today, they depend on average lead times to determine when to replenish. So if it takes, on average, a week to sell 40 cases of detergent and it takes the detergent shipment three days to travel from the factory to the distribution center to the store, the manufacturer can schedule shipments to avoid an out-of-stock. But the average isn’t always right, and if it takes longer for a product to arrive, a store could well experience an out-of-stock.

RFID data lets manufacturers see exactly how long it takes a product to move through the supply chain. Langford says some suppliers have been surprised that products may take a day longer than they expected to move through a certain point, which affects how much product should be replenished and when in order to ensure it’s received just in time and in the right quantity. This information has proved to be so valuable that some suppliers are electing to tag one pallet of a stock-keeping unit that they are not tagging today so they can get the visibility of all their items and see how long they take to move through each point in the supply chain.

The rollout is still just getting started, and Wal-Mart has not collected enough RFID data to enable suppliers to begin to change their replenishment algorithms. But suppliers that have installed RFID readers at their own distribution centers are gaining insights into how their products move through their own supply chain. Over time, the RFID-driven business process changes that Wal-Mart is implementing will be complemented by changes implemented by suppliers, and that’s likely to reduce out-of-stocks—a problem that has plagued retailers and frustrated consumers since forever.