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Can RFID Solve Out-of-Stocks?

A leading expert says it can make an impact on some causes of the problem, but companies need to be smart about how they deploy the technology.
By Alexander C.H. Skorna and André Richter
Jul 31, 2007—By Mark Roberti

A great deal of attention has been focused on a study of radio frequency identification's impact on out-of-stocks at Wal-Mart. The study, conducted by the University of Arkansas' RFID Research Center, indicated that the use of RFID reduced out-of-stocks by 16 percent overall at RFID-enabled stores—and by more than 60 percent on fast-selling products. But a leading expert on out-of-stocks says that RFID won't completely solve the problem, and it might be ineffective if not deployed smartly.

Tom W. Gruen, associate professor of marketing and e-commerce at the University of Colorado's Graduate School of Business Administration, authored the seminal 2002 study on out-of-stocks for the Grocery Manufacturers Association. That study indicated that globally, mass merchandise retailers don't have an item on the shelf about 8 percent of the time.

As soon as companies deploy a new technology solution, they immediately use it to increase the complexity of their operations.
In a speech to retail executives in Mexico City in May, Gruen pointed out that over the past 15 years, companies have thrown a lot of technology at the out-of-stock problem—bar-code scanners, handheld computers for store employees, collaborative forecasting and replenishment software, and so on—with little success. The out-of-stock rate has remained stubbornly at 8 percent.

With all the investment in technology, why haven't retailers had more success replenishing the shelves? Gruen said he thinks a key reason is that as soon as companies deploy a new technology solution, they immediately use it to increase the complexity of their operations. They add more stock-keeping units (SKUs) or new display methods or some other innovation that offsets the benefits of the technology.

He suggested that retailers deploying RFID might suffer the same fate—that is, they might use the improved tracking capabilities RFID provides to increase the complexity of their operations, instead of reducing out-of-stocks. That's possible, but unlike other technologies deployed to solve the out-of-stock issue, RFID enables companies to better manage complexity by allowing for the automatic capture of data and alerting people to anomalies.
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