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EPC Reduces Out-of-Stocks at Wal-Mart
A study by the University of Arkansas found the retailer was able to reduce out-of-stocks by 16 percent through the use of Electronic Product Code RFID tags on cases of goods from suppliers.
"We continuously saw improvements as the study went along," says Hardgrave. "As Wal-Mart made changes to its business processes, we would see that reflected in the data."
The RFID-enabled stores receive SKUs tagged at the case and pallet level from either Wal-Mart's own distribution centers or directly from suppliers. The improvement in out-of-stocks comes from using RFID to monitor how many cases have arrived at the store and how many have been brought out to the shelves, then comparing that information with how many items from those cases have been sold (Wal-Mart uses conventional point-of-sale data to determine sales).
For example, if each case of Pantene shampoo holds 24 bottles and the shelf can hold 48 bottles, Wal-Mart can determine that a shelf is close to being out of stock when 40 bottles or so have been sold. Pantene shampoo is then automatically added to a list of SKUs that must be picked from the back room and brought out to the shelves, or "merchandised." (The processes involved in detail in a case study published in the March/April 2005 issue of RFID Journal magazine, which is available online to premium content subscribers. See Wal-Mart Tackles Out-of-Stocks.)
The study found that automatically creating these pick lists, rather than having associates walk around and add items whenever they found an empty shelf, resulted in SKUs tagged at the case level being replenished three times more often than untagged SKUs. Moreover, it reduced in-store inventory by reducing the number of times an associate placed an order for more cases when cases were already somewhere in the back room.
"With the RFID-enabled stores, we alert them to the fact that there is product in the back room, and that they should merchandise that first before ordering more product," Langford says. That process change resulted in a 10 percent reduction in manual orders placed by store associates. The reduction in inventory in stores was not quantified, but the improvement in on-shelf availability is visible.
"One of my colleagues was down in Dallas this week," says Langford. "He was speaking to one of the store managers down there and asked how it was going. She walked to the side counter and said, 'Look, this is tagged, this is tagged and this is tagged. This isn't tagged.' The items she was saying were tagged were all on the shelf, and the one that wasn't tagged was out of stock. You can see physically that the system is working."
Wal-Mart is expanding its rollout of RFID technology within stores and distribution centers around the country (see Wal-Mart to Expand RFID Tagging Requirements). It also plans to continue to improve processes within the stores that have already been RFID-enabled to further reduce out-of-stocks.
"We knew that RFID would have an effect [on out-of-stocks]," says Langford. "The results demonstrated in the research study are in line with our expectations, but that's just the start. We are developing new tools for store managers to try to achieve even further reductions in out-of-stocks."
"The results of the study are extremely encouraging," says Hardgrave. "Sixteen percent improvement is a major improvement when you consider all the products Wal-Mart runs through its system in a day."
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