Figure 1 - Key Reasons for Implementing RFID
By a wide margin, the top reason for implementing RFID is to Improve Inventory Accuracy. This makes sense, since improved inventory accuracy is central to driving sales uplift and many of the other benefits and goals for RFID. Let's break down how this works: RFID enables cycle counting to be done about 25 times faster than traditional manual bar code scanning. Frequent, accurate cycle counting improves inventory accuracy, typically by 20%-30%, allowing a number of retailers to achieve 99% inventory accuracy. This enables replenishment alerts to be reliably generated, increasing on-floor availability and decreasing out-of-stocks, typically by 15%-30%. This in turn results in sales uplift in the range of 1% to 10% or more for those categories.
The resulting increase in sales is the fundamental core financial driver of most RFID implementations in retail and illustrates the central importance of improving inventory accuracy and reducing OOS. The dominance of this particular driver for RFID implementations is even more pronounced when you consider that three of the answers to our question in Figure 1 are just different aspects of the same core driver: inventory accuracy, reduced out-of-stocks (OOS), and increased on-floor availability. When added together, these encompass the prime reason retailers implement RFID.
What Are Retailers Using RFID For?
We asked retailers what they are using or planning to use RFID for (see Figure 2 below). At first blush, this data appears to tell a different story from Figure 1, since Loss Prevention in Stores was selected as the most common planned use of RFID. However, we caution against interpreting the results from this question to mean that Loss Prevention is the primary driver of most RFID implementations. For this question, rather than forcing respondents to rank their priorities (as we did in Figure 1), we asked them to simply check "all that apply." Based on the responses to all the other survey questions and our interviews, we conclude that the use of RFID for Loss Prevention, while popular, is in most cases being used in combination with an inventory/replenishment application. The relative importance of inventory-based RFID applications is also supported by the data in Figure 2, where Item-level Replenishment from Backstock and Cycle Counting in Stores are practically tied with Loss Prevention as the most widespread use of RFID. With the exception of some very high-value products (e.g., jewelry), it is not common for RFID implementations to be justified on the basis of loss prevention alone.
In fact, this is a fairly common pattern we've seen: RFID is justified based on the ROI for a prime use case (which is typically inventory accuracy, driving reduced OOS and increased sales) - then, once the retailer is doing RFID anyway, they explore other possible uses and benefits. Loss Prevention is the most common among those other possible uses, but there are many others as well. Supply chain uses are almost as popular as LP: RFID in the DC to verify goods receipt, pick, pack, and ship was selected by over 40%, and over one third of respondents are tracking goods from the source.
Figure 2 - Current Use Cases for RFID
As we look further down the list at the wide variety of use cases, it is important to consider there are many types of retailers, store formats, operational models, and product categories, each combination having different use cases that make the most sense for them. Nearly a third of respondents are using RFID for both in-store fulfillment and to let store associates check on item availability, location, price, and other information. That shows that RFID can be an important component of an Omni-Channel program (more on this below). Also of note, though source tagging is increasingly common, a surprising number of retailers (nearly 25%) are still tagging in the store.
Product authentication, selected by just over 20% of respondents, is primarily the domain of luxury goods, such as high-end handbags. A few private label retailers are using RFID for sample management to try and streamline and compress the upfront development process. In addition, private label retailers are more likely to do source-to-store tracking using RFID.
Display and promotion management, home delivery, and using RFID for warranty have seen some piloting, but few widespread implementations. Using RFID for home delivery is being explored by ecommerce providers, especially for large complex deliveries requiring onsite assembly and installation, in order to ensure accurate picking and optimized logistics processes such as precise truck loading sequence and delivery confirmations. Customer experience applications of RFID, such as Smart Mirrors or Kiosks, have gotten their share of media buzz but are seeing very little adoption to date.
(This article is excerpted from our new research report, "The ROI for RFID in Retail: Use Cases Driving the Current Surge in RFID Adoption". For a complimentary copy of that report, please click here.)
Bill McBeath is Chief Research Officer for ChainLink Research. Bill leads ChainLink's research efforts, as well as the procurement, strategic sourcing, design collaboration, and online marketplaces practices. With more than 20 years of experience in a variety of roles as a business and technology researcher and consultant, high tech executive, and software architect, Bill is recognized as a leading expert in extended-enterprise business models. Before co-founding ChainLink Research, Bill was Managing Director of Emerging Technologies at Benchmarking Partners/Surgency, where he formulated and executed successful go-to-market strategies for dozens of startups and established firms.