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The Truth About High Inventory Accuracy

Process change—not magical thinking—will lead to increased sales.
By Bill Hardgrave
Feb 21, 2016

Fact: Inventory accuracy does not increase sales.

Some retailers will find this statement shocking, and may even say I've been misleading them. But if you read any of my previous columns, you'll see I've never said increasing inventory accuracy results in increased sales. RFID increases inventory accuracy, from an average of 65 percent to more than 95 percent. And high inventory accuracy can lead to increased sales—but only if retailers use the data to improve their operations and processes. This is an important distinction, and it's key to the success of any RFID deployment.

Recently, several retailers have contacted the RFID Lab to report "issues" with their RFID proof-of-concepts (PoCs) or early pilots (which we did not work on). The issue in every case, it seems, was unmet expectations—specifically, the retailer had trialed RFID in one or more stores and, while inventory accuracy increased, sales did not.

A bit of forensics revealed the underlying problem. During each trial, the retailer used RFID to read the tagged items, and in each case, inventory accuracy increased to more than 95 percent. But all the retailers failed to act on this new information. Because of the limited nature of the PoC or pilot, the RFID data was not integrated into existing back-end systems to, for example, automate replenishment. That's typical with limited trials and not a major concern.

Even without integrating RFID data into back-end systems, the retailers could have used the inventory information to ensure items were on the shelves when customers wanted to buy them—but they didn't. One of the retailers had set a pre-PoC expectation to reduce shrink by 4 percent. When we asked what it had done to reduce shrink based on the RFID data, the company indicated it hadn't made any changes—it was hopeful simply having high inventory accuracy would lead to reduced shrink.

These mistakes could easily have been avoided by focusing on inventory accuracy as an enabler, not as an end result. Think of increased sales as money locked in a safe and inventory as the combination to the safe. Just knowing the combination doesn't get you the money; you must properly use the combination to open the safe. For retailers, this means using the RFID data to change store processes and improve store execution to increase sales.

Many retailers that use RFID for item-level tracking have increased sales. They now know what they have and where they have it, and they are acting on that data to improve in-store replenishment. They have also integrated their accurate inventory data into existing back-end systems, so they can reorder products more effectively. And they have complete visibility into products, so they can confidently offer customers an omnichannel shopping experience, increasing online sales and buy-online-pickup-in-store purchases.

High inventory accuracy, powered by RFID, is not some fairy dust that magically creates increased sales. But if used properly, it will lead retailers to the increased-sales promised land.

Bill Hardgrave is dean of Auburn University's Harbert College of Business and founder of the RFID Lab. He will address other RFID adoption and business case issues in this column. Send your questions to hardgrave@auburn.edu. Follow him on twitter at @bhardgrave.

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