The Diamond Industry

The diamond industry is another who must put a premium on inventory management, primarily for two reasons.  First there is the obvious point about the value of each item.  A lost case of shampoo would be more easily overlooked than a lost diamond.  Second, is the concern of many people about blood diamonds.  Retailers have the ability to differentiate themselves from the competition by offering diamonds that have a certifiable chain of custody back to a mine that is not in a conflict region.  One method of accomplishing this is described in the article Conflict Diamonds – Blood Diamonds.

The goals of the Kimberley Process are to document and track all rough diamonds entering a participating country, with shippers placing stones in tamper-proof shipping crates and providing enough detailed information about their origins to prove they did not originate in a conflict zone.

http://jewelry.about.com/cs/diamondmining/a/diamonds.htm

Diamonds are often offered with laser inscription or ID from many retailers, but apart from identifying a stolen diamond, these play little to no role in inventory management or the certification of origin at this time.

Leading Industries

One industry for whom advanced Inventory Management Systems is a requirement rather than a hope is the pharmaceutical industry.  Regulation of pharmaceutical goods requires a higher level of product traceability than most others; therefore they have been among the first to invest heavily in the latest technologies in IMS, such as RFID.  This is especially important in this industry, according to NGP (http://www.ngpharma.com/article/The-Latest-RFID-Solutions-to-Protect-the-Supply-Chain/) because of the prevalence of counterfeit drugs and drug thefts. 

One technology promoted in the attached article combines RFID and anti-theft (UHF antenna) on one label.  This is would help reduce shrink (theft and loss) and certainly has potential opportunities far beyond this industry.  It also highlights how innovations arising from one industry’s Inventory Management Systems can offer routes of change for others to consider.

Telxon Technology

Walmart, as the largest company and retailer in the world, is my central focus at this point when analyzing the technology used for inventory management.  Again, with 7,000 stores world wide and inventory from over 60,000 American suppliers, the old phrase makes sense, if your IMS can make it here, it can make it anywhere.

Since 1992, the central piece of this IMS within Walmart stores has been the Telxon.  This wireless barcode scanner is carried my many associates in the front and back of store and allows access (and editing) to a wealth of item data.  From the article Fly on the Wal, Charles Platt describes the interaction of associates and Telxon in this way:

“The Telxon, pronounced “Telzon,” a hand-held bar-code scanner with a wireless connection to the store’s computer. When pointed at any product, the Telxon would reveal astonishing amounts of information: the quantity that should be on the shelf, the availability from the nearest warehouse, the retail price, and (most amazing of all) the markup.
All of us were given access to this information, because - in theory, at least - anyone in the store could order a couple extra pallets of anything, and could discount it heavily as a Volume Producing Item (known as a VPI), competing with other departments to rack up the most profitable sales each month. Floor clerks even had portable equipment to print their own price stickers. This was how Wal-Mart detected demand and responded to it: by distributing decision-making power to grass-roots level. It was as simple yet as radical as that.”

http://www.nypost.com/p/news/opinion/opedcolumnists/item_K8hD47GcZBkh1v3SjNYldI;jsessionid=8AFCC4131F0B0090C7D8828398A220B7

Giving “grass-roots level” authority to associates to change price and affect ordering would seem a risky business proposition but, the success of Walmart shows it can be successful if managed properly.  From an inventory management perspective, what must have been an enormous investment in the early 1990’s in Telxon technology certainly appears to have paid off, and could be used as a reference by other businesses when considering RFID options.

Barcode Scanner Technology

As stated previously, barcodes have been the backbone of many supply chains and retail processes for many years.  Because of this, one challenge with barcodes is that there are many different formats (1D and 2D) and many standard varieties.  Having the ability in a retail setting to scan every barcode type from every vendor is essential.  There are a wide variety of barcode scanners (or readers) ranging from $100 for a basic 1D to over $400 for many 2D capable barcodes.  Traditionally accuracy and speed of read have kept 1D barcode technology relevant, but 2D scanner technology is quickly approaching these abilities.

If you need the ability to edit the system data of the products (to change quantity on a shelf for example), and the cost increases dramatically to as much as $4,000 per scanner.

When you consider of the number of scanners that are necessary in a large retail establishment, this can become a significant investment.  Scanners must be in place at all checkout stations, shelves must be scanned by associates for missing items, and backroom storage must be scanned to keep inventory accurate.  Technological advances must have a direct and significant affect on the success of the business for changes to be adopted.  This is a major reason why 1D technology, first used commercially in 1966, is still common today. (http://inventors.about.com/library/inventors/blbar_code.htm)

http://www.nationalbarcode.com/barcode-scanners.html



It will be interesting to see if the natural progression of this technology from 1 Dimention, to 2 Dimentions, will continue to 3D.  As 3D technology is becoming common in TV's, camera's, and even on greeting cards, the possibility of even greater data storage in 3D could be a natural next step.

A Brief on Barcodes

In this discussion I would like to take a quick step back from RFID to acknowledge that there are still many other technologies used to control inventory within a supply chain.  The most common is the one dimensional (1-D) barcode, but there are 2-D barcodes as well. 

Essentially, the goal of any automated data collection (ADC) system is to provide required information as inexpensively as possible.  For most tracking purposes, a 1-D barcode holds sufficient information to manage an item through a supply chain (manufacturer to retailer).  This information usually only includes the item label allowing the user access to its information in a database.  This is by far still the most common type of ADC.

A 2-D barcode can hold significantly more information including multiple languages and pictures.  You may have seen these used by UPS on orders you have received.  The benefit that both barcodes have over RFID is that they are inexpensive and require only ink to print onto a box or packaging; at this time 1-D is still significantly less expensive than 2-D (including scanner technology which will be discussed later).

For more information, see the links below.

http://www.inventoryops.com/ADC.htm

http://www.syscantech.com/en/SyscanCode/Syscan_2dcode.asp

RFID for inventory accuracy

As I mentioned in my last post, “shrinkage” such as theft and loss within retail environment have historically been a cost of doing business.  Traditional barcode technology requires a high amount of user knowledge and input (store associates using scanners) and therefore many opportunities for error.  Barcodes are also standard for any item, so individual items cannot be tracked.  Therefore, a barcode can allow you to say that there were 10 of item X on the shelf and now there are 9, rather than RFID which allows you to say which of those 10 was missing.  In addition to this, there is often so much variability between what shows as available stock in a store system and the items that can physically be found within a store, it is hard to quantify even what impact shrinkage has on large businesses.

In an effort to control inventory on the sales floor, some retailers have begun tightening control over high value products such as razors and apparel.  Gillette, for example has RFID tags in the packaging of their individual razors to increase security.  Other large corporations have limited RFID use to case and pallet levels to track items throughout a supply chain.  One limiting factor on how widespread this technology is currently used is the high cost per tag.  However, as the cost of this technology decreases, I think there is an opportunity to utilize this at item level on many more products to increase inventory accuracy from product manufacturer through sale in a retailer.  The key attribute that RFID technology has for meeting this goal is automation.  Many areas which currently input inaccuracies within the supply chain could be automated, reducing the opportunity for discrepancy.  An accurate inventory is the backbone of determining how much shrinkage exists within an business, and RFID technology can go a long way to accomplish this.

For differing opinions about the opportunities for, or threats from, RFID see the links below.

http://howto.techworld.com/mobile-wireless/1090/case-study-gillette-shaves-costs-with-rfid/

http://www.smh.com.au/articles/2003/12/19/1071337156806.html

Supply Chain Management and IMS

The explanation below of a well developed supply chain management system highlights the importance of equally sophisticated measures for ensuring an accurate inventory.

Much of the popularity of supply chain management in business community is attributed to the success of Walmart's supply chain system - an example of collaboration between a large supplier/manufacturer (Procter & Gamble) and distributor/retailer (Walmart). Before these two companies started In 1980s, the two giants built a software system that linked P&G up to Wal-Mart's distribution centers. At Walmart's distribution center, when the inventory level of P&G's products reaches re-order point, the system automatically alert P&G to ship more products. In some cases, the collaboration between P&G and Calmat goes all the way to the individual Wal-Mart store. P&G was able to pass the saving from inventory management and order processing to Walmart and eventually to Walmart's consumers at "low, everyday prices".

http://www.sysoptima.com/scm/supply_chain_collaboration.php

Accurate Point of Sale (POS) data and correct inventory information at both individual stores and distribution centers is essential for complex supply chain management systems like this to be successful.  If every product delivered to each store was subsequently scanned as POS at the checkout, this process could be seamless.  Unfortunately, factors such as damaged product unfit for sale and theft are realities within retail markets.  I will discuss technology for manual manipulation of inventory data in a subsequent blog.

Inventory Management Systems and E-commerce

A common practice for consumers these days is to begin their research for a product online.  Sites like buy.com and google.com allow consumers to easily compare prices between items and choose a retailer from whom they will make their purchase.  However, price is certainly not the only factor influencing a decision.  In many instances, a shopper wants the product immediately and is not willing to wait for delivery of an online purchase.  Many retailers, including Walmart, offer the option to see if some items are in stock in a selected store.

This coordination between e-commerce and an inventory management system is really impressive when you think of what it must take to get you that information.  While it is not 100% accurate (no IMS system is), making inventory information available down to single product – individual store level is an amazing use of this technology.

Inventory Accuracy, Transportation, and Walmart

Historically the delivery of most products to Walmart would entail a supplier delivering to a Walmart Distribution Center (DC) and Walmart responsible for shipping from their DC to each store. Earlier this year Walmart announced that it would take over distribution of products to its DC’s from thousands of retailers. Major benefits of this change have been stated as cost savings to Walmart by keeping their trucks busy and reduced disruption caused by late deliveries.

However, I read an article (http://www.storefrontbacktalk.com/supply-chain/wal-mart-takes-back-its-supply-chain-it-back-in-the-spotlight/) that indicates there is an underlying factor that may be nearly as valuable. When picking up pallets of product at the supplier, the driver will scan RFID information before product is loaded into the truck. This will allow data stored on each RFID to be visible to the business hours or days earlier than it would traditionally have been seen when unloading each truck upon arrival at their DC. This means a missing pallet (or other product issue) can be identified and corrections made to business plans much sooner. This increased visibility into the supply chain can improve inventory accuracy and help improve service while reducing costs.

Retail Link

A key component of Walmart’s IMS system is Retail Link. This is an internet based data management software that all product suppliers are required to participate in and helps these vendors to manage their own products within Walmart’s stores. Retail Link allows Walmart to share many key pieces of data, including inventory, in stock, and sales information with their vendors to help both businesses benefit by delivering better service to the consumer.

Visit them at: http://www.retailright.ca/retaillink.htm

Inventory Management Systems

Walmart

In discussing the topic of Inventory Management Systems, it seems that starting with the largest business in the world would be a natural introduction. The challenges of managing a business the size of Walmart are indeed vast. They source supplies from over 70 countries and at any one time hold approximately $32 billion in inventory (Crosby, 2007). Ensuring that the right amount of the right product is on the shelf at the time of a consumers purchase is essential, and extremely complicated. Mistakes made here, resulting in empty shelves, could easily lead a consumer to switch to a competitor, such as Target. In my next few blogs, I will review some of the technology currently utilized by Walmart to meet this goal including Retail Link, EDI, RFID, Transportation Link, and Backhaul Betty.



Crosby, Tim. "How Inventory Management Systems Work" 23 July 2007. HowStuffWorks.com. 04 November 2010.

INTRO

Throughout the next 7 weeks I will review the Inventory Management Systems as the primary topic of my blog.  Inventory Management Systems (IMS) are crucial in the retail world for ensuring that the correct products are available and on shelf when a customer wants to buy them. 

I am currently on a project which is seeing the results of the IMS systems that several large businesses utilize between creating and selling products, and I hope this serves as a good opportunity to learn and share more about these technologies.