Optimization, RFID Technologies Are Key to Reducing Inventory Distortion, Says Study

In May of last year, IHL Group released the inaugural Inventory Distortion study, which gave a sobering perspective into just how much out-of-stocks and overstocks are costing retailers worldwide. At the time I speculated whether or not the benefits of RFID technology could help reduce the staggering costs for what was termed retail’s “$800 Billion problem.”

Fast forward to May 2012. Not only does IHL Group’s 2nd Annual Inventory Distortion study suggest that RFID technology could provide a solution, but that there are other technologies that could help put a dent in this global deficit, as well.

And, at an estimated $124 for every man, woman and child worldwide, totaling $818 Billion, the loss is nothing to sneeze at. As a matter of fact, it’s actually increasing by nearly $50 Billion annually worldwide “as emerging economies grow beyond the infrastructure to handle retail growth efficiently,” according to IHL.

I think it goes without saying that retailers need to take this global “epidemic” seriously. But what to do first? And, does this mean more investments for an already spent IT budget?

Well, to start, I think it’s important to realize the major disconnect between retailers and consumers, as noted in the latest study.

For instance, a true out-of-stock goes beyond an empty shelf for many consumers. Shoppers also view an out-of-stock when they can’t find an associate to help them find what they need—or, if they find an associate but the associate can’t find the item. Price discrepancies also constitute for out-of-stocks for many shoppers (i.e. one price is advertised and it’s not the same price when they get to the store.)

Bottom line: inventory distortion isn’t caused solely by a lack of systems—it’s also due to the internal challenges among people and processes. And this, too, must be addressed in order to recover these losses.

Of the $818 Billion total worldwide, research suggests that about $366 Billion is addressable with a technology (like RFID), business process (like promotion optimization), or training issues that lead to the majority of out-of- and over-stocks.

In order to find out which particular technologies could help make a significant difference, I attended the “Inventory Distortion” webinar hosted by IHL Group and Tyco Retail Systems.

Here are some of the key technologies that were highlighted by Greg Buzek, President of IHL Group:

•    Price optimization/markdown
•    Promotion optimization
•    RFID
•    Traffic counting, workforce management
•    Near shoring

However, there’s an interesting twist. Buzek noted that many of these technologies are currently being put on the back burner due to the impending need to mobilize the store. I, for one, am certainly looking forward to next year’s study to see how it all progresses.

So, we want to know: Has your business experienced major discrepancies in inventory accuracy? If so, are you addressing it? How? Join our LinkedIn group, Retail tekSPERTS and weigh in! We’re always online, so if you’d rather just stay up-to-date on the latest developments in retail/hospitality technology, you can always follow us on Twitter @tekservePOS or connect with us on Facebook.