Wal-Mart RFID Trial Shows 16% Reduction In Product Stock-Outs

Study also shows that RFID-equipped stores were 63% more effective in replenishing out-of-stock merchandise compared to stores without the technology.

Laurie Sullivan, Contributor

October 14, 2005

4 Min Read

Wal-Mart Stores Inc. says its customers are finding the items they want in stock on shelves more often in stores that are using radio frequency identification technology with embedded electronic product codes, compared with those that are not, according to initial findings from a University of Arkansas study conducted during the last several months.

Researchers found a 16% reduction in out-of-stock merchandise at Wal-Mart stores equipped with RFID labels using EPC codes. The study also shows that out-of-stock items with RFID were replenished three times faster than items using standard bar-code technology. Wal-Mart also experienced a "meaningful reduction" in manual orders resulting in a reduction of excess inventory, according to the university report.

The study also showed that RFID-enabled stores were 63% more effective in replenishing out-of-stock products than control stores not equipped with the technology.

"An RFID tagged item made it to the shelf three times quicker than a non-tagged item," says Simon Langford, strategy manager for RFID at Wal-Mart. "These items were identified as being in the back room three times quicker than those without RFID tags."

Linda Dillman, executive vice president and CIO for Wal-Mart, told InformationWeek last month that the study would provide conclusive evidence RFID technology increases the frequency with which it can put products in customers' hands.

The study is the first to compare the impact of RFID with embedded EPC on merchandise availability in operating stores. For 29 weeks researchers analyzed out-of-stock merchandise at 12 pilot stores, including Wal-Mart Supercenters, Discount Stores, and Neighborhood Markets, equipped with RFID and 12 stores without the technology.

While Wal-Mart commissioned the study, the University of Arkansas conducted it independently. Specific items were selected at the beginning of the study and the items remained constant throughout the process to ensure data consistency. To establish a baseline prior to the study and to measure the impact of RFID, out-of-stock items were scanned every day throughout for 29 weeks at the 24 stores.

Dr. Bill Hardgrave, director of the RFID Research Center at the University of Arkansas and executive director of the Information Technology Research Institute, oversaw the study. "Our analysis consistently found, throughout the test period, that the RFID-enabled pilot stores statistically outperformed the control stores without RFID technology in terms of providing improved on-shelf availability of items for customers," Hardgrave said. "Essentially, this meant fewer total out-of-stock items and fewer occurrences of empty shelves when the merchandise was in the backroom."

The 16% reduction in merchandise stock outs was determined by physically scanning product stock-outs on the shelf every day. Details and findings of the study will be made available in the near future via a series of white papers released by the University of Arkansas.

Beyond improvements for in-stock merchandise, Wal-Mart also sees benefits from RFID in overall inventory reduction throughout the supply chain, which is important to drive down costs. "With little effort we have been able to make inroads into this area," says Rollin Ford, executive vice president for logistics in Wal-Mart. "Manual orders placed by stores were reduced by approximately 10%."

With prices falling as much as 70% for RFID tag inlays that are inserted into shipping labels, Wal-Mart fully expects suppliers to start tagging additional merchandise in 2006. It also expects that by mid 2006, the retailer will move from the first generation of RFID tag " Class 0, Class 0+ and Class 1 to Gen 2 tags. And encouraged by the development, ratification, and improved read rates of Gen 2 technology, Wal-Mart is now in the final stages of testing this global standard.

Wal-Mart this year began installing equipment to more than triple the number of stores where RFID technology has been installed. By the end of October, Wal-Mart will have more than 500 stores and clubs and five distribution centers live with RFID. The next 200 suppliers will join the existing approximately 130 in January 2006, shipping EPC-tagged cases and pallets.

In 2006, Wal-Mart will double the number of stores that are RFID-enabled, along with distribution centers that service stores. By the end of 2006, more than 1,000 stores, clubs, and distribution centers will be using RFID. In January 2007, Wal-Mart expects the next wave of 300 suppliers to start shipping tagged cases and pallets. That will bring the total number of suppliers using RFID in early 2007 to over 600.

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