Executive Briefings

When the Benefits Are There, Why Don't More Companies Use RFID Tagging?

Analyst Insight: Research shows that more than 60 percent of organizations do not yet have an RFID tagging program in place. Many of the organizations that have implemented RFID have done so to satisfy customer compliance demands and have not used their RFID systems to enhance their own warehouse and logistics operations.

-Marisa Brown, director of APQC Knowledge Center, and Rob Spiegel, knowledge specialist

RFID is still in its early adoption stage, so should an organization consider devising a strategy to implement RFID? The logical question is "what are the benefits?" APQC's research on RFID tagging strategies found the most frequently cited benefit was improved distribution processes.

Working with the Council of Supply Chain Management Professionals (CSCMP), APQC is able to bring additional information to light on the question of the benefits of RFID. Research co-sponsored by CSCMP, the Voluntary Interindustry Commerce Solutions Association, and the University of Arkansas found that RFID used at the pallet and case level shows benefits in reduced stockouts and improved inventory accuracy, which is one of the keys to an efficient and effective supply chain.

In one instance in the CSCMP research, inventory accuracy in a retail store using item-level RFID, relative to a control store without item-level RFID tags, improved by 17 percent. In addition to the overall effectiveness of RFID for inventory counting (close to 100-percent accurate), the research showed that the time savings for counting inventory - especially when compared to other methods such as bar-coding - is significant. In one instance, an activity that took only seven seconds for items using RFID tags required nine minutes when bar-coding was used.

The co-sponsored research highlighted another benefit of RFID: it is able to eliminate "frozen" inventory. In some out-of-stock situations the system "thinks" ample product is available when it is not. The inaccuracy could cause the system to not place a re-order for the product. Consider an example where the system thinks it has six units of inventory, the re-order point is five units, and the store actually has none. Since the store can't sell what it doesn't have, the number in the system will not get checked, e.g., it's frozen, and no re-orders will be placed.

This is the ultimate out-of-stock situation - the store has no product and will not order any product because the system thinks it has more than the re-order point. In the retailer in this study, after implementing RFID, the number of frozen items dropped to zero and stayed there. With RFID, in this case, all occurrences of frozen out-of-stocks have been eliminated.

The Outlook

The use of RFID in the retail space has potential benefits for customer service. Accurate and timely information about product order, delivery, location, and stock level help retailers to have the products their customers want when they want it.

Analyst Insight: Research shows that more than 60 percent of organizations do not yet have an RFID tagging program in place. Many of the organizations that have implemented RFID have done so to satisfy customer compliance demands and have not used their RFID systems to enhance their own warehouse and logistics operations.

-Marisa Brown, director of APQC Knowledge Center, and Rob Spiegel, knowledge specialist

RFID is still in its early adoption stage, so should an organization consider devising a strategy to implement RFID? The logical question is "what are the benefits?" APQC's research on RFID tagging strategies found the most frequently cited benefit was improved distribution processes.

Working with the Council of Supply Chain Management Professionals (CSCMP), APQC is able to bring additional information to light on the question of the benefits of RFID. Research co-sponsored by CSCMP, the Voluntary Interindustry Commerce Solutions Association, and the University of Arkansas found that RFID used at the pallet and case level shows benefits in reduced stockouts and improved inventory accuracy, which is one of the keys to an efficient and effective supply chain.

In one instance in the CSCMP research, inventory accuracy in a retail store using item-level RFID, relative to a control store without item-level RFID tags, improved by 17 percent. In addition to the overall effectiveness of RFID for inventory counting (close to 100-percent accurate), the research showed that the time savings for counting inventory - especially when compared to other methods such as bar-coding - is significant. In one instance, an activity that took only seven seconds for items using RFID tags required nine minutes when bar-coding was used.

The co-sponsored research highlighted another benefit of RFID: it is able to eliminate "frozen" inventory. In some out-of-stock situations the system "thinks" ample product is available when it is not. The inaccuracy could cause the system to not place a re-order for the product. Consider an example where the system thinks it has six units of inventory, the re-order point is five units, and the store actually has none. Since the store can't sell what it doesn't have, the number in the system will not get checked, e.g., it's frozen, and no re-orders will be placed.

This is the ultimate out-of-stock situation - the store has no product and will not order any product because the system thinks it has more than the re-order point. In the retailer in this study, after implementing RFID, the number of frozen items dropped to zero and stayed there. With RFID, in this case, all occurrences of frozen out-of-stocks have been eliminated.

The Outlook

The use of RFID in the retail space has potential benefits for customer service. Accurate and timely information about product order, delivery, location, and stock level help retailers to have the products their customers want when they want it.