Let’s start with the “disease”! Once deemed incurable and
just treatable, out of stocks and overstocks for retailers have always been a
big hairy problem. If you do not have the right mix of product or specifically
the style, size and color as in the case of footwear and apparel you pretty
much lose the sale, add unneeded cost and in many cases lose the customer too!
How bad is this “disease”? IHL’s President, Greg Buzek, discussed key points of
the inventory distortion study in a recent webinar titled, “Inventory
Distortion ― Retail's $800 Billion Global Problem.” The key points included:
·
Out-of-Stocks make up 56% of the $818 Billion
figure, or $456.3 Billion.
·
Overstocks account for the remaining 44%, or
$362.1 Billion.
·
Worldwide, nearly $1.5 trillion of merchandise
annually is in an overstock position that creates a loss in revenue.
“The study defined out-of-stocks as any situation wherein a
consumer enters a retail setting with the intent to buy a specific item and
does not find the item. Overstocks were defined as any situation wherein a
retailer has on hand more stock of a particular item than is supported by
current demand.”
These are massive numbers for loss of sale and bloated
inventory. With all the advancements in planning and replenishment systems why
is this not getting better? The answer is, you can have the greatest algorithms
in the world but if your data is wrong so are your predictions. People manually
counting items in the supply chain take too much time; it is too expensive and
is also fraught with error. Meaning it
does not work. Technology does have an answer and it is item-level RFID. This
“medicine” today is best used in the apparel and footwear retail segments
because of the physics associated with these products (no liquids and limited
metals) along with the product complexity of style, size and color. The return on investment is the big question
that is circling around and requires close examination before diving in.
Undertaking item-level RFID has a common perception of being too expensive due
to the cost of RFID tags. Also, then there are the other costs which includes software,
hardware, services, store fit-up, process changes and training. Some retailers
are hesitating to raise Item-Level RFID in their budgeted spending priorities. “Let
someone else sort this out and I will jump in when tags get down to five
cents.” Lack of concrete information about the benefits and fear of the
complexity are the main reasons for this non-action decision for item-level
RFID.
Let’s review more about the extended problems that being out
of stock is actually causing today versus just a few years ago. The average
established retail enterprise wide real-time inventory accuracy is sixty to
eighty percent for products in the store. The omni-channel model in retail is
now the widely commonly discussed strategy and includes implementation models
such as: ship-to-store for pick –up and
click – ship from store for next day or even same day delivery. When you accept these measured in-supply
chain and in-store inventory accuracy numbers and multiply them across a chain,
retailers are hemorrhaging profit, losing customers and might not even know it.
Below is a chart from a recent Retail Systems Research (RSR)
study showing retailers ratings of importance versus the actually visibility of
inventory information forget it is only really sixty to eighty percent accurate
at the store. What you see is huge chasms between what retailers now believe
they need and view as important to what they actually have visibility of.
What this means is that on average a retailer’s current
ability to know what is in stock and on a shelf is at best a fair
approximation. It has been cited by a number of sources that the consumers
biggest gripe with retailers is out of stock, not can I check out with a store
associate using a tablet POS.
If a retailer wants to reduce over and out of stocks the
only credible answer is to employ item-level RFID solutions. A retailer must
ask themselves the question can they afford lost sales, excess inventory and
potential loss of customers. The answers and hard facts are out there with
those retailers that have deployed item-level RFID technology and those
solution providers that have successfully assisted retailers to achieve
dramatic results in sales lifts removing out of stocks, shrink reduction as
well as inventory reductions.
In any “technology adoption curve” there are always the
innovators, early adopters, early majority, late majority and laggards. If you
are in either the late majority or laggard categories you will be at a
significant disadvantage to your competitors who did choose to begin the
process of implementing item-level RFID in 2013-2014
