In today’s omnichannel environment, retailers must have fast, flexible, and accurate retail inventory management systems to convert and retain customers [7,15]. Customers have unprecedented ease and access to an abundance of choices regarding where to shop and what to buy, and traditional brick & mortar and e-commerce channels are deeply connected through an increase in buy-online and ship-from-store or pick-up-in-store programs . These options are driving competition in retail supply chains, which must constantly evolve to be faster and more precise . With alternatives just a click away, the stakes are higher and inventory availability is crucial to winning customer transactions. Levi’s cites inaccurate inventories as its, and the wider industry’s, “Achilles Heel,” with internal research revealing that ‘out-of-stock’ and ‘couldn’t find my item’ were the top barriers to purchase” . If the right products are not available on the shelf the immediate sale is lost, and future customer journeys and overall brand perceptions are jeopardized .
To address this concern, Levi’s has partnered with Intel’s Responsive Retail Platform, to leverage its RFID tags, ceiling sensors, and cloud-based analytics software in a network of its stores with the goal of digitizing its supply chain through “real-time, all-the-time inventory insights” [8,10,9]. Radio frequency identification technology (RFID), promises the fast tracking of anything – tools, boxes, cars, etc. – and holds the promise of a massively more efficient supply chain through near 100% inventory visibility . It automates inventory tracking at an item level “from the warehouse to the store floor — replacing the process of employees scanning products manually” . While early adopters like Wal-Mart famously struggled to make the technology pay off, the investment required today is dramatically lower with the cost of RFID tags falling from $1 in 2003 to ~10 cents today, and several major retailers, including Macy’s, Bloomingdales, and Target are expanding its use [4,1].
RFID presents an opportunity for tangible operations gains throughout the full supply chain that will quickly flow through to substantial financial gains via increased sales volume and profitability . When key performance management inputs (in Levi’s case real time stock information at the unit/store level) are digitally connected directly to parameters in the supply chain planning systems, the speed and precision of the supply chain can be optimized through both short-term changes, such as automatic activation of replenishment orders, as well as longer-term pipeline planning and product development optimizations . The optimizations made possible by faster, more accurate digital inventory tracking will dramatically increase sales volume through reduced out-of-stocks and the elimination of discounting on overstocked merchandise . The use of RFID further drives incremental sales volume through enhanced customer service by increasing the time available for staff to interact directly with customers . RFID tracking will also dramatically reduce inventory costs by allowing Levi’s to carry much lower levels of inventory and safety stock . Digitalization is causing an increase in customer expectations for further individualization and customization of products. RFID inventory tracking will allow Levi’s to rapidly incorporate granular customer feedback into its planning processes to evolve its SKU portfolio and forecasts to better meet their demands .
In the short-term, Levi’s is primarily focused on its own in-store use case, and is looking to validate the proof-of-concept test from its flagship store in a broader network of stores. However, to realize the full magnitude of operational gains, Levi’s should quickly scale its RFID implementation upward and outwards . While this will require significant operations changes and additional employee training across the organization, Levi’s goal should be to have every single item tagged within 2 years. Macy’s, which stocks the Levi’s brand, is leading the way in rapid implementation of RFID. Bill Connell, SVP of transportation, store operations and process improvement at Macy’s revealed that Macy’s is already halfway to its goal of RFID tagging 100% of its products across its full fleet of fulfillment centers and stores by the end of 2018, and has already seen “a big impact” on sales and profitability . In the medium-term, once every item is tagged, Levi’s must leverage the granular inventory information in two ways. First, it must ensure that it is being leveraged as an input at every stage of its internal supply chain. Second, in the longer term, it should work with its external partners to validate ways to move this technology further up the supply chain and across all participants.
Looking ahead, the question remains: as more and more retailers move beyond the pilot phase with this technology, how can retailers, brand owners, and other supply chain participants share this granular data to better serve customers – and what competitive risks does that pose?
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- RFID World. “Retail Talks in RFID – Levi, LuluLemon and Target.” October 26, 2017. https://www.rfidworld.ca/levi-strauss-co-teams-up-with-intel-to-test-rfid-in-stores/2429. Accessed November 2017.
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