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OM in the News: Zara Turns to RFID for Inventory Control

September 19, 2014

zara“For more than a decade, radio frequency identification chips were touted as a game-changer for retailers,” writes The Wall Street Journal (Sept.17, 2014). But when they tried to apply the technology, merchants such as Wal-Mart and JC Penny discovered that what looked good on the drawing board didn’t always work so well in warehouses and stores. Now, apparel powerhouse Zara says it has learned from competitors and is rolling out RFID technology throughout its operations. The chips, about twice the size of a mobile-phone SIM card, help the world’s largest fashion retailer keep better track of its stock and replenish its clothing racks more quickly. “It gives us great visibility, knowing exactly where each garment is located,” says the CEO.

RFID chips can store information about whatever item they are attached to and, when prompted, emit that data via radio signals to a scanner. Zara is burying the chips inside its garments’ plastic security tags, an innovation that allows the chain to reuse them after the tags are removed at checkout. The Spanish retailer says it bought 500 million RFID chips ahead of the rollout, or 1 of every 6 that apparel makers are expected to use globally this year.

A major benefit is inventory-taking, a task that used to tie up a team of 40 employees for 5 hours in a Zara store. Now, 10 workers can sail through the job in half the time, waving scanning devices that detect radio signals from each rack of clothing. Before the chips were introduced, employees had to scan barcodes one at a time, and these storewide inventories were performed once every 6 months. Now Zara carries out the inventories every 6 weeks, getting a more accurate picture of what fashions are selling well and which are languishing. And each time a garment is sold, data from its chip prompts an instant order to the stockroom to send out an identical item. Previously, store employees restocked shelves a few times a day.Traditional retailers usually know where 60% of their inventory is at any time. With RFID technology, accuracy levels exceed 95%.

Classroom discussion questions:

1. What benefits accrue from RFID tags in this industry? What are the downsides?

2. Why did Wal-Mart slow its use of RFID?

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