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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.
By Beth Bacheldor
The study focused on only one product category—air fresheners—though that included about 300 products from a variety of manufacturers, says Bill Hardgrave, executive director of the ITRI and director of its RFID Research Center. The study lasted approximately 23 weeks, from May to October 2007, during which time a national inventory-auditing group determined each day's on-hand air-freshener inventory by manually counting every item in all 16 stores.

"Right now, the only way you can know if inventory is accurate is if you manually count all the items regularly," Hardgrave says. But manually counting items on a daily or even weekly basis is not feasible for retailers, especially Wal-Mart and others with hundreds of thousands of items in a single store. "This study had 300 [types of] items, and it took hours to count that, and we did it every day," Hardgrave says. "Multiply that by 100,000 or more [types of] items, such as in a Wal-Mart supercenter, and there is no way to do it."

Retailers typically determine PI by less frequent inventory counts, records of orders shipped and received, and point-of-sale data. According to the white paper's authors, previous studies have found that retailers have accurate inventory information only for about 35 percent of their items. "When PI is wrong—in particular with understated PI—retailers will order more than they need," Hardgrave says, adding that excess inventory can ultimately lead to extra holding costs, excessive markdowns that impact the bottom line, reduced inventory turns and other problems. Improving PI accuracy using RFID, he states, "really reflects the opportunity to reduce holding costs that turn into millions of dollars."

The study determined that RFID reduced the degree of "inaccurate" (incorrect by an amount exceeding two cases of product) understated PI by 13 percent, relative to the control stores.

"Unfortunately, we can't report a lot of the details," Hardgrave says, because Wal-Mart has requested that such information remain confidential. "But 13 percent, when only looking at one side—understated PI—is really remarkable. Personally, I didn't expect that much of an improvement." Hardgrave says he thinks retailers will be "pleasantly surprised" by the study's results. "Improving PI is one of those silver bullets of ROI," he says. "If we can fix PI, we can fix many problems plaguing retailers."

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