Do retailers need RFID to do BOPIS right?
Radio frequency identification (RFID) enthusiasts have long touted the technology as the key to managing inventory accuracy — a need that’s grown even more critical as omnichannel demands make stock harder to track. In a session at the Internet Retailer Conference and Expo (IRCE) last week, Mark Roberti, founder and editor of RFID Journal, suggested that RFID is the only way to do BOPIS right, stating that the technology’s time has finally arrived.
Mr. Roberti defined inventory accuracy as the retailer’s understanding of what they have in stock, down to the level of a product’s individual features. So, if a retailer has a record of having a small pair of pants in inventory, rather than the actual large pair in stock, accuracy is not achieved.
He said that retailers are only 65 percent inventory accurate at present and tend to overstate their accuracy by defining it less rigorously.
“No one who’s not using RFID is 98 percent accurate in the way I describe at the SKU level,” said Mr. Roberti.
He pointed out some important advantages of having accurate inventory:
- Companies confident in accurate inventory don’t need to hide in-store products from online customers for fear they won’t be there when the customer arrives;
- At least 28 percent (possibly as much as 40 percent) of customers who go into a store to pick up an item make an additional purchase, so failing to have a promised item can lead to sales losses;
- Failing to have an item can lead to long-term customer loss by sending a would-be customer to another retailer;
- With accurate inventory, stores avoid losing items that they then later discover and sell at a discount;
- Inventory accuracy increases ship-from-store margins by cutting down on the time staff spends digging for items across stores and allowing retailers to ship multiple items together to save on shipping.
Mr. Roberti mentioned Macy’s chain-wide rollout of RFID tracking, which has allowed the chain to inventory 7,000 items in one hour, in comparison to 200 to 500 items using barcodes.
Mr. Roberti also mentioned an earlier panel he appeared on with Macy’s SVP of logistics systems Pam Sweeney. He said that in that panel discussion, Ms. Sweeney reported that Macy’s is about 95 percent inventory accurate per SKU.
Discussion Questions
DISCUSSION QUESTIONS: How important is true inventory accuracy to addressing the challenges of making BOPIS profitable? Is RFID the answer for most retailers? Are there inventory challenges with BOPIS that RFID won’t address?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Bob Amster
Principal, Retail Technology Group
Perhaps the question should be: Do retailers want to upset consumers by showing an item is in stock and then not having it available when the customer arrives to pick it up? If the answer is “no,” then retailers need to know exactly what they have in inventory. Any technology that can provide that level of inventory detail should be utilized.
Inventory accuracy is the essential building block to successful store fulfillment – be it pick up in-store or ship from store. The question of profitability is of course important, but long before we worry about profitability we should be worrying about the customer experience. In this era of fleeting loyalty, failing to keep our promises to shoppers can be an unrecoverable mistake. Accurate inventory — and RFID is certainly a powerful and efficient way to achieve high degrees of inventory accuracy — is without question the critical first step on the road to profitability and, just as importantly, reliable omnichannel order fulfillment.
I couldn’t agree more! Accuracy equals trust. If you tell a customer a product’s on your shelf, they drive across town and can’t locate it (and neither can your team) that trust can be so difficult to recover.
This is a no-brainer! If you tell the customer that the item they just purchased is ready for pick up, it better be ready for pick up. RFID is the only method/technology available by which a retailer can know with certainty that a unit of an SKU is in stock at a specific location. However, the process also has to ensure that the item has been located by store staff and put aside in a will-call location. Only then should the customer be notified that the purchase is ready for pick up.
BOPIS is a side benefit. If true full coverage RFID could be implemented in stores, the amount of money saved on physical inventories would stun everyone. The amount of time and money spent on actually performing physical inventories twice a year (or once if you can “get away with it”) is stunning.
I have never understood why this is not talked about more. It has always been about reader prices, not tag prices, and my understanding is that reader prices are starting to come down. Engage the CFO (who owns the PI process) and have him work with you on the ROI. It always boggled my mind how much we spend on preparing for, executing and then reconciling the (typically RGIS done) physical inventories, to get “close.”
As a side note, I think that the retail method of accounting contributes to inventory inaccuracies, since cost is imputed based on departmental, rather than specific SKU-related information.
It’s worth repeating; “If true full coverage RFID could be implemented in stores, the amount of money saved on physical inventories would stun everyone.”
I could not say it any better. There are many ways to work with vendors to get the costs of implementation down. And the results speak for themselves. And that is my 2 cents.
Paula … could not agree more on the way retailers measure success with their physical inventories. While they might only be 2% off financially, their accuracy down to the SKU level is considerably lower. This does not affect what the CFO shows to Wall Street, but it affects their ability to satisfy this new “channel-less” customer by having the right product on the shelf or for digital fulfillment.
One other thought on retail financials and how they are measured by Wall Street. Retailers are fulfilling more of their explosive Digital growth with “store inventory,” but Wall Street continues to measure their health with store comps. Retailers like Zumiez are fulfilling 100% of their digital business from their stores … and they are still held to this one channel comps metric.
It’s a given that true inventory accuracy has no downsides, but I think I’ve only encountered an out-of-stock BOPIS issue once.
While I’ve been a fan of the technology for multiple reasons for well over a decade, it sounds like Mark Roberti is stretching to make yet another argument for RFID.
Retailers (AFAIK except for Walmart) do little to demand suppliers get on-board with tagged products. The offset in retail inventory management costs and customer frustration mitigation would far outweigh the even what, 25 cents(?) max per item that would be added to the wholesale cost of goods? For the kinds of goods in fashion, department and much of mass retail, it’s a no-brainer. If that would really help BOPIS, all the better.
Still, sadly, I believe we’ll be waiting for RFID mass penetration for many more years.
At an early part of their RFID journey, Macy’s realized that they could be out of men’s size 34 underwear for almost a year without realizing it. RFID is an imperative for larger retailers that carry thousands of SKUs. It’s a “nice to have” for many mall stores but big boxes of all kinds, including department stores, find that automatic counts through RFID are the key to being in stock.
The key to successful inventory management is an accurate system that is supported by a robust process with strict controls. It is not the technology used. Most companies don’t have rigorous inventory procedures (full 100 percent daily inventory checks that are blind, triple-checked and confirmed at the end of each day/cycle). Instead, sample inventories, applied to an entire count, confirmed by a single person is common. Blind inventory counts (where no count is given), that are triple-checked (done three times for accuracy) are almost unheard of except in expensive products (jewelry, cars, etc.). Rigorous systems that are part of the process, and robust controls to ensure inventory counts are properly recorded and reported (and integrated into the accounting system) are still the exception and not the norm. Retailers need this level of discipline and not to spend monies on newer RFID technology. Then items will be accurately reflected online, just as they are in-store and consumers will not be disappointed.
Inaccurate in-store inventory is the single biggest problem hampering retailers’ execution of click and carry (BOPIS), which is the most important initiative that promises to drive retailers’ online efforts toward profitability. I can’t say whether RFID is the best approach, or if the drones and robots that some retailers are experimenting with represent a better one or if there is something else on the horizon. But there is no doubt that solving the “I don’t really know what’s in my store” problem that plagues retail is necessary.
RFID (and other inventory management tools) is a key component to improving the efficiency of BOPIS and customer satisfaction. Another key element is labor. Distribution centers are considerably more effective at shipping direct-to-consumer than any brick-and-mortar store can be. Labor cost, training, inventory picking stations, conveyors, robotics and other factors are in play. Having centralized vs. widely-distributed inventory is a double-edged sword with considerable operating margin effects.
The need for accurate inventory is an absolute must for retailers putting their customers first. The risk from out-of-stock scenarios to the customer experience is too great to ignore. Macy’s worked towards their RFID deployment because they experienced firsthand what happens when your counts show one or two items in stock at a store and then an associate goes to pick the item for a BOPIS order only to find that the item is missing. Their data showed that the probability of this occurring when their inventory displayed two items was so significant, that at one time they would not accept an order if the store showed one item left because the out-of-stocks were too high!
I recall Intel publishing data in the past indicating that a 3 percent increase in inventory accuracy equates to a 1 percent sales increase. Of course, deploying RFID is one part of this equation — the other is ensuring that the real-time data flow into the store network is fast, reliable and consistent so that the databases are updated reliably. Intel has also documented that overstock and out-of-stock scenarios could be reduced by 15 percent just from consistent performance of the store network.
BOPIS is one part of true omnichannel business. Neither can be accomplished without true inventory accuracy to the SKU level. Some companies are doing this so customers get what was ordered when it was promised. Why would a customer choose a company who says a product is available and when it can be picked up or delivered, only to find the company can not deliver? They won’t more than once. Companies have to know where their inventory is.
It’s a real-time world. Last night’s inventory position from the “batch run” doesn’t cut it any more than gaping holes in accuracy. How can a retailer know where there stock is right now? Fixing the record keeping will never get there — having a continuous inventory recording presence will.
Customer order optimization software is a really good stopgap to identify true inventory levels and to create better supply visibility, rather than depending on (often) hundreds of suppliers to comply with RFID mandates. We’ve been talking RFID for decades and, although I’m an eternal optimist, I don’t see a compelling reason for product ecosystems to invest in the capabilities to implement RFID anytime soon. I’m a big fan of what RFID could promise, however it’s just not realistic right now.
As more chains like DSW, Dick’s Sporting Goods, and Zumiez push a higher percentage of their exploding Digital business to be fulfilled from their stores, order optimization solutions are only as good as the data they receive. In a football analogy, Enterprise solutions like your Sterling OMS/Omnichannel solution, Manhattan’s DOM, JDA, all do well between the 20s, but the store inventory represents the red zone for customer success. Adjusting metrics like safety stock to buffer this inventory “inaccuracy” challenge in order to reduce cancellations only hides possible inventory for the customer.
This one dimensional 1974 technology called the bar code no longer works for what the CEO of Zumiez Richard Brooks calls this “integrated experienced channel-less model” of retail. Zumiez, by the way, is fulfilling 100% of their Digital business from their 700+ stores.
Having spent over 2 years selling omnichannel solutions where we hosted ship from store and BOPIS data from over 35 retailers, inventory accuracy is very important for ship from store…but is critical for BOPIS.
In speaking with retailers in the last 3 years about their ship from store program, split shipments (8%-35%) and order cancellations (3%-5%) create unnecessary margin erosion. By the way, if you have an open supply chain, AMAZON does NOT cancel orders … period!
However, when retailers like Target comment that BOPIS represents 15% of their online sales year around, but it grows to around 50% in the month before Christmas (when inventory accuracy is at its worst point), using RFID to achieve high 90 percentile inventory accuracy is mission critical.
If you listen to any retailers earnings calls, BOPIS is a CEO’s best friend since you eliminate shipping costs, you drive customers across channels creating strong loyalty to your brand, and you have attachment rates in the 15%-30% range.
Accurate real-time inventory is imperative for BOPIS and any online fulfillment from store inventory. Without accurate inventory and real-time inventory updates, stores need to have safety stock and can’t sell to the last item, which significantly reduces what they can sell online from store inventories. As a result, retailers are losing sales.
RFID is the most accurate way to solve the inventory accuracy challenge. While it may not make sense for the smallest value items, it makes sense for most products.
With real-time accurate inventory, the other key challenges for BOPIS are employee and process related. Employees need to be trained on the new processes and they also need to be compensated to fulfill orders that currently don’t count toward their sales and commissions. Without credit for sales attribution or some special compensation, store associates won’t be motivated to fulfill online orders. Money is a motivator!
Mr. Roberti’s thesis would have more credibility with me if he acknowledged that RFID is a non-starter in grocery and some other retail categories which have very high turns and nightly re-order processes.
All retail is not the same. PACE matters – Product Activity x Customer Exigency (my coinage).
RFID has real potential in apparel and consumer electronics – possibly in many categories that have seasonal buying patterns.
Replenishment categories, on the other hand, need store-level perpetual inventory and automated nightly ordering. RFID may not be the most effective way to achieve this. Retailers like Wegmans, Sobeys, and Spartan/Nash have achieved near-perfect inventory accuracy in their stores without item-level RFID.
When it comes to BOPIS, one way or another the online ordering system needs to be “aware” of stock on hand in order to avoid disappointing shoppers. A few retailers’ sites already seem to reflect this requirement: Home Depot, Best Buy, even Walmart.com can tell you if an item was in stock at your store as of last midnight. Not all of their items are RFID tagged.
In grocery, store-level out-of-stock rates of 8% or so (reported industry norm) create a near statistical certainty that a multi-item click & collect order will suffer substituted or missing items. I published a paper on this issue a year ago.
I would alter the headline for this discussion to read: “Real-Time Store-Level Inventory Data Is Needed to Enable BOPIS.” RFID may be the right way for some, but not all retailers.
Agree that one solution does not fit all retail verticals. Just look at the evolution of the turnpike as they moved from fast-laning vehicles with RFID tags in selected lanes. Now in many areas like Florida and Boston where they have gantries moving tagged and non-tagged vehicles at full speed by utilizing a hybrid approach … video and RFID.
Inventory accuracy is fundamental when it comes to BOPIS. If a retailer is offering a customer the ability to pick up in store after the customer has paid, the product had better be there when the customer arrives. If it is not, once, maybe twice, the customer is likely not to buy from the retailer again. Since POS systems are known to be an inaccurate picture of store inventory due to shrinkage, poor scanning of multiple items at the register and misplacement, they are not the source of data that can make BOPIS work well. RFID is the only solution that can provide accuracy and inventory frequency to the retailer for BOPIS to work properly. I would also argue that the inventory process should be done daily electronically for the most accuracy rather than weekly or so with handheld inventory scans.
RFID technology will solve BOPIS problems well, but the RFID reads must be done automatically not through the use of associates with hand scanners. IoT RFID solutions will provide readers than scan inventory daily without the need for human labor and inaccuracy.
Promising the customer that the item will be in the store using BOPIS, and then not delivering is the best way to lose a customer. RFID is the only technology that can scan items with enough accuracy and at a reliable frequency to deliver the accurate picture of items in the store to not disappoint the customer. I would also argue that handheld scanning cannot be done frequently enough to provide the accuracy for online display. RFID is the best answer to inventory accuracy, but the use of the technology must be done through automated reads to provide the 100% accurate inventory to guarantee the item will be in the store when the customer arrives.