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Wal-Mart: RFID Reducing Out-of-stocks

On Friday afternoon Wal-Mart released its first RFID-related announcement in months, and it was a good one. The retailer released the results of a University of Arkansas (UA) study which assessed the effect of its RFID deployment.
Oct 17, 2005This article was originally published by RFID Update.

October 17, 2005—On Friday afternoon Wal-Mart made its first RFID-related announcement in months, and it was a good one. The retailer released the results of a University of Arkansas (UA) study which assessed the supply chain effects of its RFID deployment. Commissioned by Wal-Mart but conducted independently by UA, the study yielded the following key findings:
  • Out-of-stocks decreased 16% on RFID tagged items
  • Out-of-stocks were replenished three times faster on tagged items than on items with only bar codes
  • There was a 10% reduction in manual orders for tagged items
The numbers are extremely promising, and they quantifiably demonstrate RFID's capacity for improving supply chain performance. While the entire RFID "movement" has been predicated on the idea that the technology can wring vast new efficiencies from the supply chain, until now that idea has been little more than assumption and hunch. The study findings are the most compelling data yet published that RFID can actually deliver on its promise. Said Wal-Mart CIO Linda Dillman, "[RFID] is no longer a take-it-on-faith initiative. This study provides conclusive evidence that EPCs increase how often we put products in the hands of customers who want to buy them, making it a win for shoppers, suppliers and retailers."

The 29-week study looked at 24 Wal-Mart establishments, 12 of which were receiving RFID-tagged product, 12 of which were not. The items monitored remained fixed throughout the study, as did as many components as possible to ensure that RFID's effect was isolated as the only variable. Dr. Bill Hardgrave, director of the RFID Research Center at the University of Arkansas and overseer of the study, explained the process of measuring out-of-stocks: "The 16 percent reduction in merchandise out-of-stocks was determined by physically scanning out-of-stocks at the shelf every day. A baseline was established and this was then compared to the number of out-of-stocks in both sets of stores once the RFID technology was enabled in the pilot stores. The net result of the impact of RFID, removing any other influences, was a reduction of 16 percent in the occurrences of products being out-of-stock on the shelf." Furthermore, "Out-of-stocks on EPC tagged items were reduced at a rate more than three times faster than that of the non-tagged items within the same store." Rollin Ford, executive vice president for logistics in Wal-Mart, noted, "Manual orders placed by stores were reduced by approximately 10 percent." Wal-Mart will soon be releasing more details and findings from the study.

As part of the same announcement, Wal-Mart clarified its mandate, offering updates related to Gen2, recent pricing announcements, and its own internal progress:
  • The retailer will start accepting Gen2-tagged products in January
  • By the middle of next year it will phase out Gen1 and only accept Gen2, meaning suppliers will have to fully upgrade by then
  • In light of a significant drop in the price of Gen2 RFID tags, the retailer "fully expects suppliers to start tagging additional SKUs in 2006"
  • By the end of next year, 1,000 Wal-Mart stores, clubs, and DCs will be RFID-equipped
  • The next wave of 300 suppliers will fall under the retailer's RFID mandate with a compliance deadline of January 2007
All told, Friday's press release from the retailer is good news for the industry. Confirmation from an independent, academic institution that "RFID works" is a positive development indeed, as it essentially makes fact of a hunch that had never been publicly tested. (Wal-Mart itself has heretofore been only vague about the results of its now 10 month-old deployment.) Furthermore, the fact that Wal-Mart appears to be moving full steam ahead with its initiative and aggressively embracing the Gen2 standard portends healthy demand for the many second generation products expected for release in the coming year.

Read the full Wal-Mart Press Release
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