Discuss the use of Information Technologies/system for efficient and effective management of inventory. Provide a real-world case that used information technologies/systems successful for their inventory management. Introduction In June 2003, the world’s leading retailer – Wal-Mart first announced its plan to implement RFID technology in its supply chain by January 2005; this caught many of the suppliers unawares. Though the plans envisaged compliance from the top 100 suppliers, around 129 suppliers jumped into the tussle, afraid of being left behind in the race.
RFID technology was invented in 1969 and patented in 1973; after thirty long years Wal-Mart has demanded its implementation. Expectations are high; unfortunately RFID technology is still in its infant stage. Wal-Mart is banking on this technology to manage inventory more efficiently, reduce numbers of data entry errors, and lower human labour costs in a distribution center. A New Business Strategy Wal-Mart has the intention to use the implemented RFID’s data to keep track when stock is running low on shelves or when items have been stolen. The other advantages expected are:
Information Technology (IT) is any computer-Based tool that people use to work with information and support the information and information-processing needs of an organization. Information technology can be an important enabler of business success and innovation. ((Haag et al, 2008, p. 8). There are many type of Information Technologies/System in the market or currently in use which Wal-Mart could chose from before deciding on the RFID implementation. By uunderstanding the various Information Technologies/System will help the company to identify a suitable and well fitted system that enable the efficiency of the retailer’s efficient and effective management of inventory system.
a) Electronic data interchange (EDI) EDI is the structured transmission of data between organizations by electronics means. The benefits of using this technology in the warehouse help to save cost by reducing the use of paper and paper processing activities. By using electronics means to transfer data and information will result in reducing error from data entry and eliminate repetition. This quick transfer of information and reduce errors allow the management of the inventory to be more efficient and thus result in having a lower cost, higher productivity and reduced order cycle time.
The disadvantages of using EDI are that there are too many standards and these standards are always changing. To effectively take advantage of this technology, the automation system in the company must be integrated. The system must have the same standard and format to be able to communicate with external parties (Suppliers and Customers). The cost of setting up a fully integrated EDI system may be costly and the limitation on business opportunity may be a setback for the EDI technology.
b) Bar-code system A barcode is parallel lines and spacing (widths) which show data of certain products. These barcodes are machine readable. The two basic advantages of using barcode reader compared to manual data entry are speed and accuracy. A simple data entry error cause by manual entry will translate into additional costs for a business which ranges from the cost of rekeying the data to shipping the wrong product to the wrong customer. The cost of implementing bar-coding system is inexpensive. The saving from the advantages should be able to justify the implementation. The disadvantage of that data must be unreadable in a crumbled of torn barcode label.
c) POS system Point-Of-Sale system is most common used technology for all retailing markets and is probably one of the greatest innovations for controlling inventory. A basic POS system records all transactions from every cash register into a relational database, produces reports of sales figures by day, week, month or year, as well as keeps track of the movement of inventories in the store. The POS system is able to generate specific reports in tables and charts to monitor the historical sales activity for every product that has been sold. This way, companies will know which products are in demand or extremely profitable, how much they should order per cycle and what minimum quantity of inventory should be kept to maintain holding costs.
d) RFID (Radio Frequency Identification Device) RFID is the use of an object (usually a tag) incorporated into a product for the purpose of identification and tracking using radio waves. A retailer hyper mart or warehouse that uses the RFID technology can improve the productivity and control of the day to day operations. The self-recording and tracking of items from receiving, inspection, storing, picking and delivering improve the efficiency of the operation, thus provide immediate real-time, accurate data to the Inventory.
Radio Frequency Identification Device (RFID) is one of the most common technologies used in the distribution channels of supply chain. It serves a similar purpose as bar-coding but it is more superior in terms of convenience and information retrieval. For example, the RFID device does not need to be positioned precisely relative to the scanner to retrieve the identifying information and can be read at much greater distances compared to barcodes.
With RFID replacing manual barcode scanning and stock counting, the stress of human error are hugely reduced, the percentages of over or understating goods sent or received would be minimized and carrying costs will be low. Managers need not keep piles of paper reports concerning stock and verify them by manual checks. The retailer and suppliers will be able to keep a good supply of fast-selling products as they will know the selling pace of each item and their relative stock levels. Furthermore RFID can contain more information compared to barcodes. There is no way to affix additional written details on a printed barcode whereas in RFID, the reader can communicate and alter as much of the information as the tag design will allow.
Nowadays, a retailer’s replenishment decisions are based on inventory information kept in a computer system (known as system inventory), which is assumed to be accurate. In actuality, the system inventory and the actual inventory count (i.e. physical inventory) are seldom synchronized due to various reasons such as shrinkage or stock loss, transaction error, inaccessible inventory, and incorrect product identification. The error between the system inventory and the physical inventory accumulates over time and is not corrected. Without RFID, the inventory reduction due to shrinkage is not known to the system, and the retailer’s replenishment decision is made based on the inaccurate inventory information.
With RFID deployment, shrinkage occurs as before but the system inventory data now reflect correctly what is physically in stock. The inventory is tracked more accurately and in real time, and better replenishment decisions can be made. This brings an opportunity of reducing store inventory and improving customer service. The firm will be able to significantly reduce average inventory while keeping the customer service level at the highest. (as measured by the back order quantity).
3) Benefit related to Shelf Inventory Replenishment Shelf inventory management is critical to a retail business. This includes checking for expiration dates of perishable products which can further complicate this task. With RFID technology, shelf inventory can be tracked automatically in real time. As a result, shelves can theoretically be replenished continuously. The total shelf replenishment cost could be reasonable if one batches the replenishment quantities across products and makes a replenishment trip once an hour,
4) Benefit related to Inventory Visibility The problem of out-of-stock at retailer store is often caused by lack of a real-time replenishment signal and the inability to track individual products through the supply chain. The advantage of RFID arises from its ability to provide complete visibility of inventory throughout the entire supply chain, so that individual products can be tracked automatically in real time, providing accurate and timely information to ensure delivery of the right product, to the right location, and at the right time. More importantly, suppliers and retailers can use such inventory information and information about the velocity of product movement to adjust to rapidly changing consumer demands and preferences.
5) Benefit related to Shelf Inventory Replenishment Another potential benefit of RFID is the reduction or elimination of time delay in recording and processing the inventory data at various points in the supply chain. With RFID, the inventory data are not only more accurate but also in real time as movement of goods takes place, resulting in potential improvements in the quality of supply chain decisions.