Using RFID to Improve Inventory Accuracy

Accurate inventory is a key to effective supply chain management and store execution, affecting forecasting, ordering, and replenishment. Prior empirical research, however, shows that retailer perpetual inventory (PI) is inherently inaccurate. Radio frequency identification (RFID)-technology enables visibility into the movement of inventories within the supply chain. This research investigates the effectiveness of this visibility in improving retail store inventory record accuracy. We perform daily physical counts of 337 stock keeping units in one category in 13 stores of a major global retailer over 23 weeks. Eight stores auto-adjusted PI based on RFID-enabled visibility; five stores were RFID-enabled but did not auto-adjust PI. The preliminary results of the study show that RFID-enabled visibility results in a significant decrease in PI inaccuracy. We conclude that this visibility can help retailers improve store execution, specifically by reducing surplus inventories and labor costs.