Nedap Retail > > Why Not Implementing RFID Turns Out to Be More Costly in the Long Run
Why Not Implementing RFID Turns Out to Be More Costly in the Long Run
While many leading brands and retailers around the globe are adopting RFID technology, a lot of hesitators ask the question, 'What do I get from RFID?' Some of them are currently questioning whether RFID is something they should proceed with.
May 6 2021
Specifically, these days, in times of uncertainty, retailers have many other projects going on within the organization. At the same time, there is a long wish list of projects to start. Is one of the reasons why your organization has not implemented RFID one of the below? You are certainly not the only one.
COVID-19 has obviously pushed online shopping adoption ahead by around four to five years. Retailers are betting big on reinventing the in-store experience and react with the broad adoption of omnichannel services. In this context, they realize that it is necessary to improve stock file accuracy since, in times when leaner inventories are the rule of the day, every piece of merchandise counts. Clear visibility of what is in stores and within the whole supply chain is a fundamental foundation to ensure merchandise availability - both physically (in-store) and digitally (online).
Why retailers hold back on RFID implementations
If we look into the actual adoption of RFID in the retail world, we see that it varies very much. A study from Kurt Salmon, Part of Accenture Strategy, with 110 global retail executives in 2018, showed that the adoption in North America is at 92% while it is only 30% in Europe.
Of course, RFID is a technology that means a change in actual organizations, and change comes with efforts, friction, and investments. But the actual benefits are widely proven in the industry. Still, some retailers wait with RFID implementation. Typical arguments are:
'We currently have other priorities internally.'
'The company has no resource or any ownership internally to run this project.'
'We don't clearly understand the full benefit of RFID to the business.'
'That's great that other retailers are doing it, but how do we know it will work for us: we're different.'
'RFID has so many touchpoints, so where do we start?'
Defining an RFID roadmap
While RFID can get complex quickly, it's important to start small, take a pragmatic approach, and scale smart on this over time. Once you have the basics of an accurate stock file as a foundation in your business, you can map out what the RFID road map and phases look like. RFID is a strategic choice that allows you to leverage other investments to provide further insights.
More accurate inventory tracking can drive sales growth by providing associates and customers the ability to find every piece of merchandise down to the last unit available
Typically, retailers may perform an audit on their stock once or twice a year. Starting on the very first day after the audit, the accuracy of the stock file declines up to their next audit date. The internal teams are already available to start to explore RFID further within a retailer, as these tasks are already being performed regularly. Starting with a basic, simplistic, and focused approach, a retailer can deploy RFID with a lightweight team led by a project manager. With the support of the right RFID partner, a business case can be built that then lays down the blueprint for the future direction.
Proofing value of RFID is a numbers game
Retailers that have considered whether RFID is right for their business have made their decision based on a focused business case comparing invested capital against benefits of selected use cases. What does improved stock file accuracy look like when exploring RFID? Better accuracy leads to better product availability and this, in turn, leads to an increase in sales. Sales increases are delivered because retailers have a much better size range available across all represented styles. Based on various proof of concepts with global retailers, we can see the following trends with regards to accuracy and sales uplift in the table below
RFID Accuracy %
Uplift in Sales %
1.4% - 10.4%
Maintaining stock file accuracy is a real challenge for retailers not using RFID. Inaccuracies accumulate from theft, inaccurate deliveries to and from the DC, processual mistakes, and incorrect labeling. Retailers who don't use RFID typically have their worst stock file accuracy when they need their best (peak trading). This is often then immediately amended after the audit in the new year and when consumer spending often may drop off.
If we look at never out-of-stock items, these items have a much bigger impact on sales when they are replenished more frequently using RFID. Retailers using RFID through peak trading can quickly adjust discrepancies, providing customers with a full product offering at the most important times.
Inaccurate inventory costs twice (at least)
The cost of inaccurate stock data cumulates over time, with the increase of stockouts and order cancellations. Ultimately, this leads to missed sales, but more importantly, it can also cause disappointed customers. Retailers who use RFID for their stock management report that a 3-4% increase in stock file accuracy correlates to a 1% increase in sales. If you couple this up with retailers not using RFID during peak trading, these accuracy differences cost even more in lost sales potential.
RFID and omnichannel readiness
RFID is the enabler for omnichannel services. Better stock visibility is the foundation to rolling out omnichannel services, such as Click & Collect, Click & Reserve, or Ship from Store. Recently we can see a direct relationship between the adoption of RFID and how retailers see the technology impacting their omnichannel strategies. Not implementing RFID would mean that retailers miss out on:
Lower thresholds for safety stock (more available stock to sell online)
BOPIS versus Ship to Store
Slow Moving Inventory first
RFID is going to be a critical enabler in order for us to create a fully connected marketplace for NIKE products across both our own stores and our strategic partners
Matthew Friend, Executive Vice President and Chief Financial Officer at Nike
Upstream benefits in retail supply chains
Eventually, one can also use RFID upstream. The obvious one is the benefits in the DC as the RFID labels allow you to do efficient in- & outbound scans of your goods. These outbound goods, especially wholesale, to franchisers and other partners can be tracked for instance, if these are not traded via grey market channels. In short, you can trace back an EPC you find in an unapproved location to the party you sold it to. But even better, you can go upstream more and have your manufacturers make direct shipments to your wholesales channel, cutting out logistic costs to have them in your DC first.
But also customers benefit from broader supply chain data. With provenance checks, they can pick up a product and check its sourcing, authenticity, materials, and its entire lifecycle based on RFID tracking data.
Boosting customer loyalty by making products simply available
RFID allows retailers to have full visibility of their supply chain and know exactly what products they have in all their stores and exactly which location they are in. This means they can make sure all sizes are represented on the sales floor for their customers to purchase.
So, a long story short: without RFID, retailers will continue working with inaccurate stock files. The "price of an inaccuracy" is manifold. These are only the starting losses for not using RFID, as RFID becomes embedded into an organization, further operational gains can be opened quickly, whether these be through the supply chain or providing additional services with confidence to the customer.
Closing remark: For this blog-post I have teamed up with my colleagues Adam Sheppard, Maarten Verbeek, and Nick Markwell who supported with their valuable insights from various customer projects within the last years. Together we were asking us why still some retailers hold back with an RFID implementation and if we could calculate their costs of this missed opportunity.
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