Dec 13, 2013During the past few years, researchers at the University of Parma's RFID Lab, in Italy, have been examining the impact of pallet- and case-level RFID deployments in the fresh food supply chain, with a focus on retail stores. We have studied the benefits retailers could achieve from receiving goods identified with EPC Gen 2 passive RFID tags, including more accurate inventory counts and order reconciliations, and out-of-stock reduction from improved replenishment.
As part of our research, we have tracked the flow of highly perishable fresh foods from different manufacturers through the distribution channel to three supercenters of a major retailer. We have realized that out-of-stocks is an element of a wider issue—a store's overall stock-management policy. Some store managers keep low stocks on store shelves and in the back room, while others maintain high inventory levels. Neither policy is optimal: Lower stocks means you have fresher products on store shelves and a reduction in handling costs and shrinkage—the waste that occurs when cases of fresh goods reach their expiration date and can no longer be sold. But this policy increases the likelihood of out-of-stocks. Maintaining higher quantities on shelves and in the back room reduces out-of-stocks but increases holding costs, handling errors and shrinkage. It also leads to shorter shelf life due to poor rotation. As a result, customers often find a quantity of perishable foods but not necessarily the quality—or freshness—they would like.
Our research indicates that RFID visibility could help retailers address these issues. First, we factored in the number of out-of-stocks that could be eliminated thanks to punctual information about which shelves require replenishment from cases in the back room. We added the holding cost that could be avoided by optimizing safety stocks—cutting out unnecessary stocks that are never touched. Maintaining just the number of goods that is actually needed results in higher product quality and freshness.
Now, we are focusing on RFID's ability to reduce product shrinkage. We are trying to correlate shrinkage to errors in the first-expiring first-out (FEFO) management policy, to determine what part of the shrinkage quota can be statistically correlated to FEFO handling errors.
Typically, store associates replenish shelves with goods from any case they find in the back room. RFID could improve FEFO handling. If cases are identified with a unique serial number, store associates could be instructed to replenish shelves with specific cases.
We expect to complete our research early next year, and then begin a pilot project to RFID-track pallets and cases of perishable goods in the fresh food supply chain. We'll be working with three major fresh food manufacturers (Danone, Mondelez and Nestlé), a third-party logistics provider (Italtrans) and a consortium of retailers (Auchan, Conad and Coop).
Antonio Rizzi is the founder and head of the University of Parma's RFID Lab, in Italy, and a professor of industrial logistics and supply-chain management.