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Based on the above calculations, an inventory level can be fixed for a SKU. For a large store, it is better to have this inventory both at the backroom and at DC for feeding multiple stores.

Is Demand Uncertainty the Real Problem?

Retailers think out of stock is mainly because of demand uncertainties, but Prof. Ananth Raman’s study on Inventory level inaccuracy says that demand uncertainty is only 13% of the problem; the real problem lies in the inefficient in-store operations.

Measurements like Point-of-Sale (POS) data is contaminated by execution. Therefore, there is a need for real time operational control on in-store processes. Its time to find a virtual observer who can give an independent measure of processes and can bring visibility to the supply chain.

Radio Frequency Identification Device (RFID) is an Automatic Identification and Data Capture (AIDC) technology that allows for non-contact reading to track and monitor physical objects. There is a tremendous interest in the application of RFID to the Manufacturing / Retail Supply Chain, which has gained momentum primarily on the strength of the technological advances that are bringing down the costs of tags and readers. A key benefit of RFID technology is automatic identification of individual objects coupled with automatic data capture. Automatic electronic identity contributes significantly to enhance supply chain visibility, and the automation brings in data capture and has a direct bearing on operational efficiency in labor intensive Retail Logistics.

RFID will transform the way retailers receive, distribute, execute and merchandise goods to customers. Retailers today are embracing RFID as an enabling technology that will provide them value beyond the traditional Supply Chain. Out-of-Stocks are a common problem in specialty retail. By itself, POS technology cannot infer whether product is in the store - and it certainly cannot capture whether the product is in the backroom, on the sales floor or in the fitting room. In addition, a large assortment of styles, sizes and colors can make it hard to visually inspect out-of-stocks on the shelf.

By tracking the items as they move from the backroom onto the sales floor and through key points on the sales floor (in and out of fitting rooms, from department to department, and through the POS area), the RFID system can help provide real-time inventory visibility of the sales floor and deliver proactive alerts for replenishments. This information helps reduce stock-outs and optimize labor resources via more efficient workforce management. The idea is to quickly react to promotion demand and automatically update the initial forecast that drives the ordering system.

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* Contributed by: -
Sauraraj Nath & Vikrant P. Bawane,
Post Graduate Programme in Agribusiness Management (PGPABM) II,
National Institute of Agricultural Extension Management (MANAGE), Hyderabad.