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Achieving Six Sigma Retailing

Retailers would like to perform at the same level as manufacturers that have embraced Six Sigma strategies, but it can't happen without RFID.
By Mark Roberti
Let's say a retailer orders 100 units of a new digital camera for the month of July. It sells 50 units in the first two weeks of that month, then 30 units and then none. It might appear that demand has fallen off, and that the units do not need to be replenished in August—or that they need to be replenished, but in a smaller quantity.

But what if the demand were for 50 units per week—yet only 95 units had been shipped to the store, 10 were pilfered by employees and another five were stolen by customers? That would mean only 80 units were available for sale, and had quickly sold out. The retailer should thus be ordering 50 units per week and communicating that demand to its suppliers, but incorrectly believes the demand is a lot lower.

By capturing data regarding the movement of goods at every point in the supply chain, RFID can provide information that indicates only 95 were shipped. And by taking daily inventory counts, the retailer knows that units are being stolen, and can therefore inform suppliers to replenish more quickly, thereby ensuring that fewer sales are lost. Moreover, companies can analyze data to see where problems occur in the supply chain and in the store, so that corrective actions can be taken.

At a macro level, better perpetual inventory allows the retailer to gather and analyze more accurate data from across the entire chain, and to order replenishments more efficiently. Sharing this information with suppliers enables those suppliers to react more quickly to changes in demand, without having to maintain large safety stocks on hand in case of a spike.

Would radio frequency identification have prevented the problems described in the Wall Street Journal article? If all items had been tracked with RFID and the data had been analyzed properly, the retailer would have had a clearer picture of demand, based on more accurate in-store inventory counts. And armed with that information, the company would have then been able to provide more accurate data to its partners, thus enabling them to replenish more effectively.

Supply chain partners are more reactive than ever before, but companies do not always react to accurate data, and there is no way to achieve Six Sigma performance without basing performance on accurate information.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or click here.

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