The effectiveness of RFID in backroom and sales floor inventory management

Abstract

Purpose Perceived as an antidote to poor execution, interest in radio frequency identification (RFID)-enabled visibility has grown. The purpose of this paper is to examine whether and how RFID-enabled visibility with item-level tagging improves store execution. Design/methodology/approach The authors conducted three field-based experiments in collaboration with two Fortune 500 retailers. Findings RFID-enabled visibility resulted in a sizable decrease in inventory record inaccuracy and out-of-stocks for inventory held in both the backroom and on the sales floor. The decrease in inventory record inaccuracy and out-of-stocks was even greater among products stored primarily on the sales floor suggesting the benefits from increased visibility accrue to sales floor inventory management processes. In contrast, the authors found no significant improvement in inventory record inaccuracy and no substantive improvement in out-of-stocks among products stored primarily in the backroom suggesting that increased visibility does not improve backroom management processes. Practical implications The authors recommend retailers focus on sales floor inventory management when seeking to improve store execution through the adoption of RFID-enabled visibility. In the context, only partial evidence exists that backroom inventory management improves with RFID-enabled visibility. Originality/value Retailers seeking to invest in RFID technology must estimate potential performance improvements before making firm-specific cost-benefit analyses. They must also understand where and how these performance improvements will accrue. This research uniquely presents the results of a three field experiments that quantify the changes in retail execution associated with RFID adoption.