Wal-Mart customers have been finding the goods they want on the shelf up to 16% more often than before the retail giant introduced its RFID electronic product code (EPC) tagging, according to an independent study conducted by the University of Arkansas.
The researchers at the University of Arkansas noted a 16% reduction in out-of-stocks since Wal-Mart introduced RFID technology into its supply chain. The study also showed that out-of-stock items with EPCs were replenished three times faster than comparable items using standard bar code technology. Equally important, Wal-Mart experienced a meaningful reduction in manual orders, resulting in a reduction of excess inventory.
As Linda Dillman, executive vice president and CIO for Wal-Mart, said: "This is no longer a 'take-it-on-faith' initiative. This study provides conclusive evidence that EPCs increase how often we put products in the hands of customers who want to buy them, making it a winning situation for shoppers, suppliers, and retailers."
Studying the stores
The study, which was commissioned by Wal-Mart, was conducted independently by the university researchers and compared the impact of EPCs on merchandise availability in live stores. Over a period of 29 weeks the study analysed out-of-stock merchandise at 12 pilot stores equipped with RFID technology and 12 control stores without the technology. All Wal-Mart formats (Supercentres, Discount Stores and Neighbourhood Markets) were included. Specific items were chosen to be analysed at the beginning of the study and these items remained constant throughout the entire process to ensure data consistency.
To both establish a pre-study baseline and to measure the impact of RFID, out-of-stock items were scanned every day throughout the study period, at the 24 stores monitored. Other than the introduction of EPCs and RFID technology, the stores continued to operate normally. The study's design allowed the researchers to examine differences between the 12 control stores and the 12 RFID-enabled stores. It also provided the ability to compare performance in the same stores through analysis of the baseline data and the data collected during the use of EPCs.
Dr Bill Hardgrave, director of the RFID Research Center at the University of Arkansas, explained: "Throughout the test period our analysis consistently found 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. Essentially, this meant fewer total out-of-stock items and fewer occurrences of empty shelves when the merchandise was in the backroom."
Wal-Mart has also focused on driving improved product availability for its customers through a series of initiatives unrelated to RFID technology. Consequently, the research had to be carefully structured to isolate the impact of RFID, and to be able show the improvements directly attributable to the RFID process changes.
The study showed that RFID-enabled stores were 63% more effective in replenishing out-of-stocks than the control stores. The Wal-Mart RFID team already knew from their own experience that the technology would be shown to have a significant impact on out-of-stock situations, but Dillman is still pleased to have an independent study that confirms the effect of RFID in retailing. "We are not stopping here. This is only one of many changes that RFID will bring. We are already working on initiatives and enhancements that will build on this success," commented Dillman.
Dr Hardgrave added: "In addition to comparing the pilot stores to the control stores, we took our study a step further by analysing the EPC tagged and non-tagged merchandise within the same store. By analysing these elements we could further validate the positive impacts we were seeing. In fact, this comparison showed us again that RFID made a quantifiable difference. Out-of-stocks on EPC tagged items were reduced at a rate more than three times faster than that of the non-tagged items within the same store."
But beyond the improvements noted in stock availability for consumers, Wal-Mart has also noticed benefits in overall inventory reduction, which is part of the company's strategy for keeping its overall costs low.
"The initial changes we made in our stores didn't stop at reducing out-of-stocks. We are also using the technology to reduce our inventory in the whole supply chain," said Rollin Ford, executive vice president for logistics at Wal-Mart. "With little effort we have been able to make inroads into this area. Manual orders placed by stores were reduced by approximately 10%. However, as Linda Dillman has said, impacting in-stocks is only the start."
In response to the system and process changes made by Wal-Mart, Hardgrave concluded that the research analysis clearly shows the positive impacts each time Wal-Mart made system enhancements to take advantage of the new data obtained from RFID technology.
The new electronic barcode
From the start of its RFID initiative, Wal-Mart has worked with a view to migrating to the Generation 2 standard of EPC tagging (which at the time had not been finalised). Recently finalised and ratified, the new Generation 2 provides a global standard that works in all geographic regions, which means reductions in technology costs, and the inevitable global acceleration in supply chain RFID technology adoption.
"We encouraged our suppliers to purchase RFID printers, encoders, and readers that are easily upgradeable to Generation 2. We also asked them to consider this when purchasing their RFID tags," Dillman said. Now, encouraged by the development and ratification of Generation 2, Wal-Mart is in the final stages of testing the standard, having had good results so far and having seen improved RFID tag read rates as a result. According to Dillman, Wal-Mart will be ready to accept cases and pallets tagged with Generation 2 tags into currently RFID-enabled stores, clubs and distribution centres starting in January 2006.
The costs for Generation 2 RFID tags will almost certainly decrease as the technology becomes more widely used. And with tag prices being reduced by over 70% in some instances, Wal-Mart expects its suppliers to start tagging additional SKUs in 2006. And in mid-2006, Wal-Mart hopes to stop receiving Generation 1 tags following a complete transition to Generation 2.
Wal-Mart is currently in the process of more than tripling the number of stores where RFID technology is installed and, by the end of October 2005, the retailer expects to have more than 500 of its US stores and clubs, and five distribution centres, live with RFID technology.
So far the RFID push has only focused on the retailer's top 100 suppliers. But in January 2006, the next 200 top suppliers will go live with RFID, shipping EPC-tagged cases and pallets. As with the first 100, Wal-Mart has collaborated with the next 200 and hosted a number of briefings and seminars to share knowledge. Some of the top 100 suppliers that went live in January 2005 have also cooperated with the next 200, passing on their new knowledge and experience.
In addition to the store and distribution centre expansion this year, Wal-Mart says it will continue the rollout during 2006 and double the number of stores that are RFID-enabled, along with distribution centres that service those enabled stores. By the end of 2006, more than 1,000 stores, clubs and distribution centres are expected to be using RFID technology.
Looking further ahead to 2007, Wal-Mart expects another group of 300 suppliers to start shipping tagged cases and pallets (by January 2007), bringing the total number of participating suppliers to at least 600 (not including those that have voluntarily complied before time).
The study found a significant difference wherever RFID technology was used. Consequently, as Wal-Mart increases its RFID-enabled facilities - and as the technology costs continue to fall - suppliers are expected to tag an increasing volume of products. Further details and findings of the study are to be made available in the future through a series of white papers from the University of Arkansas.