Bill Hardgrave Auburn University Note: this document is copyrighted ( 2010) and confidential; do not distribute or cite without explicit permission.

 2003 – 2006: pallet -> case; Wal-Mart, Metro, DoD Issue: inventory management in the supply chain; unprecedented ‘affordable’ visibility Epiphany: most problems at the store Result: shift to store-level visibility and item-level  2006 – present: item-level apparel/footwear; American Apparel, Dillard’s, Bloomingdale’s, J.C. Penney, several in Europe Issue: inventory accuracy, loss prevention, etc. Epiphany: multi-use technology, start at the store and go up supply chain Result: more adopters, broader adoption

Playing Investigating Road mapping Phased deployment Full deployment

 Movement is being driven by RFID’s use case applications (solving problems) Inventory accuracy Out of stocks Locating product Loss prevention Dressing room management Price change management Etc.  Focus on inventory accuracy … The big four

Inventory Accuracy Sales

Inventory Accuracy Store execution Theft

Inaccuracy causes Results in overstated PI? Results in understated PI? Can RFID reduce the error? Incorrect manual adjustment Yes TheftYesNoYes Damaged/spoiledYesNoPartial Improper returnsYes Mis-shipment from DC Yes Cashier errorYes

So what can we do? More frequent cycle counts Eliminate / reduce source

 Cycle counting When to count? How often to count? What to count?  Currently, retailers have very little flexibility in answering these 3 questions

Barcode In 3 different settings, a 96% reduction in labor to cycle count (RFID handheld vs. barcode scanner) Barcode avg = 200 items per hour RFID avg = 5000 items per hour

Inventory Accuracy Store execution Theft

 Based on multiple studies … Before RFID:

 Based on multiple studies … After RFID:

Inventory Accuracy Store execution Theft OOS

 Recognizing out of stocks  Acting upon this information Awareness Prevention

 Worldwide average out of stock: ~8%  Potential sales loss to retailers: ~3.2%  Potential sales loss for suppliers: ~2.8%

Inventory Accuracy Store execution Theft OOS 2%, 3%, 10% reductions Supplier benefit

Inventory Accuracy Store execution Theft OOS Excess inventory 6%, 7%, 12% reductions 4.9 months supply to 2 months

Inventory Accuracy Customer satisfaction Store execution Theft OOS Excess inventory

Inventory Accuracy SalesCustomer satisfaction Store execution Theft OOS Excess inventory 2%, 3%, 14%, 15% Reduce markdowns / increase margins

Inventory Accuracy Forecasts SalesCustomer satisfaction Replenish- ment Store execution Theft OOS Excess inventory

Inventory Accuracy Forecasts SalesCustomer satisfaction Replenish- ment Store execution Theft OOS Dressing room Faster checkout Locating product Excess inventory

 Inventory accuracy  Out of stocks  Locating product  Loss prevention The big four

 How many people abandon a store because they cannot find the product they want? What do we have (inventory accuracy issue)? Where is it?

LocationEPCDate/timeReader DC :15inbound DC :22inbound DC :15outbound DC :23outbound ST :31inbound ST :10inbound ST :54sales floor ST :17sales floor If the product needed to be on the floor by 10/10/09 for the promotion, store 567 just missed an important window of opportunity – for themselves and for the supplier …

Backroom or sales floor?

On pallet rack in warehouse or sales floor (e.g., Sam’s)

With handheld or smart shelves

In 3-D space?

Insights / possibilities …  Complete visibility Product and process tracer Where is shrinkage occurring? Visibility where you don’t have it today  e.g., employee entrances; box crusher / trash

Test Store --Employee entrance Customer entrance 10 jeans carried in stack; walking100%93% 10 jeans carried in stack; running90%67% 2 jeans in bag; walking100% 5 jeans in bag; walking100% 1 jeans concealed under arm; walking100%0% 2 jeans concealed under arm; running50%67% *Real life theft: more than $3500 in merchandise left the store without being paid for …

 Technology Smaller, better, faster, cheaper Commodity pricing Variety of devices Variety of sensors Infrastructure considerations (fixed, mobile, shielding, etc.) It works, but must be deployed properly (data issue)

 Critical mass  Unrealistic expectations  Displacement of existing technology  Incremental vs. radical/disruptive: paving the cow paths  Massive investment / ROI / cost  People! (change management)  What to do with all this information …..

Bill Hardgrave For copies of white papers, visit Keyword: RFID