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RFID Study Quantifies ROI for Apparel Suppliers

University of Arkansas researchers find that by using item-level RFID tags to audit shipments, a garment manufacturer could dramatically improve shipment accuracy, as well as confidence in that accuracy, thereby reducing the incidence of retailer chargebacks.
By Claire Swedberg
When auditing is performed manually (versus auditing using RFID), an employee removes items from a carton and scans the bar code on each product's packaging, in order to identify its stock-keeping unit (SKU). Sometimes, as an extra precaution, a second worker repacks the items after again scanning the bar code, to confirm the results. Manual auditing takes place both for the goods that the DC receives from the factory, and those being shipped to a retailer. In other scenarios, roaming auditors pull a random number of cartons and perform spot checks on their contents. At some DCs, the auditors are tasked with auditing both for quality (such as a fabric's weave, as well as ensuring that there are no flaws) and quantity. At others, quality and quantity auditing are two autonomous processes managed by different individuals.

Every supplier involved in the study is receiving RFID-tagged inventory at its U.S. DCs. During the study, data from the RFID conveyor read points (at the two RFID-enabled DCs) was collected, analyzed and compared with information culled from manual item-level pick/pack audits along the same conveyor lines. The RFID system identified up to 4.8 percent additional instances of pick/pack inaccuracy that had been missed during manual auditing.

While the team found that the cost of tags nearly equaled or surpassed that of employing auditors to perform item-level quantity manual audits on all inventory, the researchers report, the reduced error rates can make the use of RFID a financial benefit. Based on data collected from the participating apparel suppliers, the team calculated a supplier's cost of errors for items valued at $2 apiece (a typical cost for replenishable items, such as underwear and socks). Assuming an annual throughput of 100 million products, each valued at $2, for example, with an error rate of 5 percent, the researchers estimated that a supplier's total costs from retailers' claims would be approximately $10 million. On the other hand, the error rate when RFID was used in the same $2-per-item scenario was only 0.01 percent, which—assuming an annual throughput of 100 million items—would result in a total claim cost of only $20,000. What's more, the study found, supplier confidence increased with the use of RFID—a benefit that can not easily be measured, Cromhout notes. Nonetheless, he believes that this increased confidence would help a supplier to more successfully defend itself against a customer's complaint.

"If there is a river of tags passing through your DC, put a reader in there," Williams stated during the webinar. "It just makes sense."

Craft noted that although VF Jeanswear's use of RFID technology commenced in 2005 (see VF Contracts for Millions of Tags), "We still have a lot we're learning." His company, which utilizes EPC Gen 2 RFID labels supplied by a service bureau, is continuing to evaluate the gains that it could obtain from implementing RFID within its own operations.

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