Reference #: ITRI-WP107-0311 Date: March 11, 2008

Does RFID Improve Inventory Accuracy? A Preliminary Analysis


For the adoption of RFID to continue at or beyond its current pace, it is important to investigate the business value created by the technology. In previous studies, we have shown how RFID can improve in-stock position. Other studies have shown the benefit of RFID for promotional items. In this vein of continuing to prove the business case for RFID, we examine RFID’s impact on inventory accuracy. Inventory accuracy is one of the keys to an efficient and effective supply chain, yet is often referred to as the ”missing link” in retail execution. Forecasting, ordering, and replenishment use inventory records as input, and the quality of these functions are impacted by inventory accuracy. To study the impact of RFID on inventory accuracy, Wal-Mart commissioned a study to examine the store-level influence of RFID on perpetual inventory. For 23 weeks, a single category of product (air fresheners) was inventoried daily in eight test stores equipped with a new RFID-based perpetual inventory adjustment tool and eight matching control stores (without RFID). Preliminary results presented in this paper indicate that RFID does reduce inventory inaccuracy in the presence of normal business processes for on-hand adjustments (i.e., RFID as a supplement to existing manual adjustment processes).