Inventory Shrinkage and Corrective RFID and Management Strategies

Inventory Shrinkage and Corrective RFID and Management Strategies

Alan D. Smith (Robert Morris University, USA)
DOI: 10.4018/978-1-4666-9787-4.ch129
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There have been numerous investigations to investigate the benefits of radio frequency identification (RFID), especially in retail and operational situations. A number of more traditional studies have focused on the effects that RFID has on supply chain performance, in particular inventory management and its control to prevent losses from theft. This contribution inspects some of this literature and empirically tests perceptions of inventory management on its effectiveness, especially in regardless to inventory shrinkage controls. In general, a plethora of literature has been written on the general overview of automatic identification and data capture technologies (AIDC), especially RFID-based solutions, and how such technologies can be applied within supply chains, the benefits that it brings to firms, managerial guidelines around using it, and how to implement them (Devaraj, Fan, & Kohli, 2002; Dutta, Lee, & Whang, 2007; Zang & Fan, 2007). There have been recent writings made on its effects in the area of finance, inventory, and manufacturing (Aldaihani & Darwish, 2013; Azadeh, Gholizadeh, & Jeihoonian, 2013; Bhamu, Khandelwal, & Sangwan, 2013; Fumi, Scarabotti, & Schiraldi, 2013; Ketikidis, Hayes, Lazuras, Gunasekaran, & Koh, 2013; Mateen & More, 2013; Park & Min, 2013). In particular, Visich, Li, Khumawala, Basheer, and Reyes (2009) focused on the review and classification of existing quantitative empirical evidence that has was gathered for RFID on supply chain performance. The evidence was separated out into two sections, which included processes and effects. The processes were further broken out into operational and managerial, while the effects were broken out into automation-related, informational, and transformational. Operational processes, as it relates to the RFID applications generally include labor cost reductions, improved reliability and efficiency, and reduced throughput and inventory costs. Management processes typically include administrative decisions, process control, reporting, and routine. Automation-related effects are related to the value that comes from making a process more efficient. Informational effects are those that are due to the ability of the technology to gather, store, process, and distribute information. Transformational effects are those that create innovation or transformation through technology.

Visich, et al. (2009) only focused on metrics that were based on actual results that were reported from a pilot study or through actual implementation (i.e. empirically tested). To make the study more focused, they omitted cases where multiple metrics were employed. These omitted metrics included estimated benefits or benefits that were masked to protect confidentiality, results from unidentified companies (unless the results were significant), results that were difficult to separate due to phased implementations of information management systems and RFID, and aggregated evidence from multi-year implementations across all of a company’s facilities. By inspecting the data via a process-oriented framework (i.e. immediate and on-going operational benefits from enterprise resource planning implementations), they found that the empirical evidence reflected that the major effects from implementing RFID within supply chain management were automation-related effects. These effects were on operational processes via inventory control and efficiency improvements. This is followed by informational effects on managerial processes via improved decision quality, production control, and effectiveness of retails sales. The evidence for informational and transformational effects on operational processes was very limited. Similarly, the evidence showed that there were no automation-related or transformational effects for managerial processes. The empirical evidence showed that the major effects of RFID on supply chain performance are automation-related effects on operational processes and informational effects on managerial processes.

Key Terms in this Chapter

Automatic Identification and Data Capture Technologies (AIDC): Types of AIDC-related technologies to leave the human element out of the data collection and storage functions of information derived from manufacturing, integrated through the manufacturing process, types of authentication concerns and/or e-security strategies, and relationship links to customer profiles. Typical types of AIDC include, bar-coding, RFID, magnetic strips, touch memory, and smart cards.

Supply Chain Management/Performance: In basic terms, supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. The configuration and management of supply chain operations is a key way companies obtain and maintain a competitive advantage. The typical manufacturing supply chain begins with raw material suppliers, or inputs. The next link in the chain is the manufacturing, or transformation step; followed the distribution, or localization step. Finally, the finished product or service is purchased by customers as outputs. Service and Manufacturing managers need to know the impact of supply on their organization’s purchasing and logistics processes. However, supply chain performance and its metrics are difficult to develop and actually measure.

Barcoding Technology: A long-term and very reliable type of AIDC technology, it is known for its very accurate and economical approaches to identity products and machine readable information from a variety of manufactured goods and services. Most barcodes use a type of standardized bars and spacing coding or symbology that is certified by an international standards body (GS1 System). This system provides for the universal global acceptance of many types of barcodes designed for a variety of shipping and identification applications. Example barcode formats that are in common use today include EAN/UPC, GS1 DataBar, GS1-128, ITF-14, GS1 DataMatrix, GS1 QR Code and Composite Components.

RFID-Embedded Technologies: RFID technologies are types of automatic data capture techniques that use a combination of active and passive senders and receivers to collect and store codified information for further uses. The implementation of such technologies should lead to improved managerial and/or supply chain performance. On the surface, there appears to be few drawbacks to implementing such technology into a production process, assuming it enhances performance and improves output of the product. The main issues surrounding the RFID applications are whether the initial costs and labor required to utilize this technology are worth it, and will result in a positive outcome of revenues.

Inventory Management Problems and Its Solutions: There are a number inventory management that occurs that are not due to shrinkage. Most of these problems tar based on inaccuracies that are based on poor management and record-keeping activities. Typically too much inventory can erode working capital and profits. It is important that management spends attention to supply projections, using past demand are a basis to improve upon and adjusting for identifying and quantifying less obvious patterns. Inaccurate inventory tracking can be addressed through proper use of EDI, bar-code scanning, and RFID-based solutions to reduce data entry errors. Priories of inventory needs to be established by management using an ABC analysis and proper data analysis tools Back-up and safety stock plans through contingency planning scenarios to remove uncertainties in inventory are extremely helpful tools.

Inventory Shrinkage: The term inventory shrinkage is a very generic term that is commonly used to describe almost any unintentional loss of inventory. It is usually detected by performing an actual physical count to verify that the amount of items on hand are less than manufactured or ordered stock. There are several common sources of inventory depending on retail and/or manufacturing viewpoints. From a retailer’s viewpoint, inventory shrinkage might be due a direct cause of poor recordkeeping, customer/vendor shoplifting, employee theft, damage, obsolescence, and/or misplaced items. From a manufacturing viewpoint, inventory shrinkage may be due to loss of raw materials during a production process (i.e. goods in process, finished goods, and related inventories of raw materials). In many instances, shrinkage may be due to natural as well as illegal causes, such as spoilage or waste. Many sources must be classified as either normal or abnormal and must be dealt with accordingly.

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