International Journal of RF Technologies 4 (2012/2013) 107125

DOI 10.3233/RFT-120040
IOS Press

107

Reducing out of stock, shrinkage and overstock through

RFID in the fresh food supply chain: Evidence from an
Italian retail pilot
Massimo Bertolini , Gino Ferretti, Giuseppe Vignali and Andrea Volpi
Department of Industrial Engineering, University of Parma, Parma, Italy

Abstract. The paper shows how to leverage RFID technology in fresh fast moving consumer goods
(FMCG) industry, and, in particular, to optimally manage stock levels on shelves, shelves replenishment,
and shrinkage prevention for fresh perishable products.
We deployed a pilot project on a FMCG retail supply chain, encompassing a distribution centre and
two stores of a major Italian retailer. About 60 products have been RFID tagged at case level. We real time
tracked cases of products for 4 months, through the distribution chain all the way to the stores, where the
RFID deployment made it possible to punctually monitor shelves stock levels, backroom stock levels and
product shrinkage.
We demonstrate that the out of stock (OOS) problem is just one piece of a broader picture, that is shelves
stock optimization. The higher the stock level on the shelves, the lower the need for shelf replenishment,
and thus the likelihood of an OOS. However, the capital holding costs and the risk for product shrinkage
increase. The latter issue is particularly relevant for fresh perishable products. This pilot demonstrates that
a retailer could reduce OOS, shrinkage and capital holding costs all together, by means of efficient RFID
data management. Potential savings for fresh products account approx 1.7% of sale turnover.
This study is the first pilot project which assesses the impact of RFID technology on the supply chain
of fresh perishable products; a full roll-out of the project is being planned for the next future.
Keywords: RFID, out of stock, fresh perishable fast moving consumer goods, pilot study

1. Introduction
This paper presents the results of a pilot project carried out with the purpose of
demonstrating the potential of Radio Frequency Identification (RFID) to improve
On-Shelf Availability (OSA), which represents a key focus within the Fast Moving
Consumer Goods (FMCG) industry. More precisely, it provides a sizeable opportunity
for both retailers and manufacturers to better meet the needs of their consumers, at
the same time maximising sales and profit (Fernie and Sparks, 2004). Based on these
Corresponding author: Massimo Bertolini, Eng., Ph.D., Assistant Professor-Mechanical Industrial
Plants, Department of Industrial Engineering, University of Parma, Via G.P. Usberti 181/A, 43124 Parma,
Italy. Tel.: +39 0521 905861; Fax: +39 0521 905705; E-mail: massimo.bertolini@unipr.it.

1754-5730/12/13/$27.50 2012/2013 IOS Press and the authors. All rights reserved

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M. Bertolini et al. / Reducing out of stock, shrinkage and overstock

premises, the purposes of the present study are twofold. From a technological point
of view, the study aims to test the feasibility of backroom and shop-floor inventory
management systems based on RFID technology, and to integrate RFID and resident
processes, as well as EPCISs and legacy systems, in a real working environment. From
the managerial perspective, the research shows how RFID technology can be used to
enable real time goods monitoring and sharing of OSA data, reducing shrinkage and
optimizing store shelf inventory levels of fresh perishable products. Results presented
in this paper are real data, grounded on a pilot study involving a major FMCG player
of Northern Italy.
The remainder of the paper is organized as follows. In the next section, we report
the state of the art regarding OSA related issues, then we describe the context where
the research was carried out, i.e. the pilot study. The data collected from the in-field
measurement and subsequent elaborations are described in Section 4. In Section 5,
we present the main findings from the pilot study. Section 6 concludes by discussing
the managerial implications of the study and indicating future research steps.
2. Literature review
On-Shelf Availability is the measure of a product being available for sale to a
shopper, in the place he expects it and at the time he wants to buy it. It typically
characterised by three key dimensions (Mitchell, 2012):
i) Shelf Availability: it scores zero, in case the item is not on the shelf. There may
still be stock in the store, but it is hidden, in a different location or it is still in
the backroom.
ii) Store Availability: it scores zero when the product is not available anywhere in
the store. It may however be stocked in the distribution centre or en route to the
store.
iii) Warehouse Availability: it scores to zero when the product is not available to
order, as there is no stock in the Distribution Centre (DC).
The FMCG supply chain has been battling the OSA problem for long time. For
retailers and suppliers, the key for success is getting the right product in the right
quantity in the right place and at the right time, with the minimum cost. Despite this,
OSA, overstock and Out Of Stock (OOS) still remain persistently high in all retail
product categories, but they are especially critical when they affect products with short
shelf life (i.e. fresh foods, or all those products that have a due date). Accordingly,
recent research has shown that the OOS rate is around 8%, ranging to 4% of sale loss
for a typical retailer and up to 17% for promotional items (Bharadwaj et al., 2002;
Corsten and Gruen 2003; ECR Europe 2003; Bottani et al., 2009; Bertolini et al.,
2012).
Many authors argue that the adoption of Auto-ID technologies, such as Radio
Frequency Identification (RFID), and the use of Electronic Product Code (EPC) are

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powerful allies in improving OSA and thus reducing OOS problems (e.g., Rekik et al.,
2008).
In particular, Hardgrave et al. (2005, 2006) assessed the impact of OOS caused
by poor store process execution, such as shelf replenishment, in Wal-Mart Stores.
The 29-week study analysed out-of-stock merchandise at 12 pilot stores equipped
with RFID technology, and at 12 control stores not exploiting this technology. The
researchers found a 16% reduction in OOS in stores equipped with RFID technology;
additionally, the study showed that OOS items managed with EPCs were replenished
three times faster than similar items managed through standard bar code technology.
Equally important, Wal-Mart experienced a remarkable reduction in manual orders,
resulting in a reduction of excess inventory.
Bottani and Rizzi (2008) argue that an EPC-enabled RFID solution provides
enhanced visibility of items and supplies the required information to determine their
location once at a facility. This new visibility enables retailers to better manage their
demand data and replenish their stock more effectively; also, it helps suppliers to
verify when the items were received and moved out to the sales floor, with a direct
impact on the reduction of OOS at the store (Bottani et al., 2009).
Bertolini et al. (2012) underline that the adoption of RFID technologies to manage
the FMCG supply chain could be sustainable from an economical point of view for
both the retailer and the manufacturer. Knowing the exact value of OOS on business,
and especially knowing how much of OOS occurrence can be solved through the
adoption of Auto-ID technologies, allows a quantitative economic evaluation so tied
to a technology implementation of a RFID project in the FMCG sector. The global
savings for the manufacturer are estimated to approximately range from 0.7 to 4.5%
of the sales turnover; moreover, the results show that the highest savings for both
the retailer and the manufacturer can be achieved for fresh products (i.e. dairy, meats
and frozen foods departments). These results would be largely sufficient to justify the
return on investment for both players.
Typically, it is observed that a simple re-distribution of the existing stock could
lead to a 10 15% improvement in product availability. This does not imply that
higher stock is the solution; rather, it suggests that the stock needs to be in the right
place, which can be achieved with correct allocation and management. From a shelf
availability perspective, understanding what needs to be done in store by means of
shelf replenishment, how long this will take, and when it should be done to maximise
customer satisfaction is at the basis of successful retail operations (Papakiriakopoulos,
2005).
From the analysis of the literature, it can be argued that the impact of RFID adoption
at case-level on OOS reduction is threefold:

first, inventory levels at the backroom and at the store can be managed independently; therefore, the replenishment process can be fully automated. For
instance, when a product is near out of stock on the shop floor and some
inventory is available in the backroom, the shop operator will be assigned a

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replenishment task. A RFID handheld reader can be used to locate the stock
keeping unit (SKU) in the backroom and to track the replenished cases;

second, RFID technology reduces inventory inaccuracies (Aloysius, et al., 2008,
2011; Hardgrave, 2009), since it improves:
the quality of order preparation and shipping processes at the DC; and
receiving, order reconciliation and replenishment process at the retail store,
at the same time enabling a better management of shrinkage;

finally, if inventory visibility is extended upstream the supply chain, potential
out of stocks can be foreseen and managed directly by the manufacturer, thus
avoiding or reducing them.
RFID enables real-time visibility and better coordination between marketing and
manufacturing activities (Taylor et al., 2003; Handfield and Zahay, 2004), as well as
increased inter-firm collaboration/vertical integration, that represent a major driver
for nurturing innovation capabilities (Bigliardi et al., 2011). On a more operational
level, RFID has potential to significantly improve the supply chain efficiency, in
terms of increased processes automation, labour efficiency, and improved accuracy
of logistics activities (Agarwal, 2001; Frazier et al., 2005). It is important to note that
the improvements resulting from automated product identification may only be the
tip of the overall RFID benefits, which also includes new business opportunities and
strategies (Krotov, 2008; Bertolini et al., 2010).
3. Context: The RFID Logistics Pilot2 project
The RFID Logistics Pilot2 (RLP2 ) project was carried out as the second step of a
research path started at RFID Lab - University of Parma in 2007, when RFID Lab
researchers began working on a supply chain project aimed at assessing the feasibility
of automatic data capturing in the supply chain by means of RFID technology. That
pilot, carried out during the spring and summer of 2008, involved the tracking of
12,000 cases and 800 pallets of sliced ham, sandwiches and other fresh food as the
goods moved from production to the retail sales floor. The major results of that project
can be summarized in a 68% drop in the amount of time spent to check shipments
from a manufacturers warehouse to a retailers DC, where goods were checked during
receiving process saving 80% of time (Bertolini et al., 2009). As a consequence of that
project, RFID Lab carried out intense research activities aimed at assessing the causes
of OOS and thus the potentials of Auto-ID technologies to reduce OOS occurrence
(Bertolini et al., 2010, 2012). These latter results, however, needed to be verified by
means of an in-field pilot.
FMCG companies that shared the results of the previous research activities thus
agreed to setup a pilot project aimed at testing how the RFID technology could be
utilized to improve OSA. Hence, the first logistics pilot project has been followed by
the RLP2 in 2010. The project was shared and developed by a consortium of eight
Italian companies and supervised by the University of Parmas RFID Lab. The board

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consists of retailers Auchan, Coop Italia and Conad, as well as goods manufacturers Danone, Lavazza, Nestl`e (Buitoni and Purina brands), Parmacotto and Parmalat.
Although all the players, including competitive companies, participated actively to
the design phase of the project, brought their contribution, observed the processes and
shared the results, only one player (i.e., Auchan) had an active role in the deployment
phase, by testing the technology at its DC and stores.
The development of the research project took place in three steps:

in the first one, AS-IS analysis, researchers and companies members mapped
the logistics processes that could be impacted by the implementation of RFID
technology;

the second phase, TO-BE reengineering, was aimed at developing a new scenario, which encompassed case-level RFID UHF tagging;

in the third phase, researchers developed ad hoc models and metrics for measuring the OOS reduction and deriving meaningful results.
During the experimental campaign, which took place from April to July 2011,
cartons filled with products were tracked into and out of an Auchans DC, and at
the dock doors of two of its stores. At the store, during the replenishment process,
goods were removed from the cardboard cases and placed onto the shelves. Empty
tagged cardboard cartons were read eventually in the stores trash compactor, thereby
indicating that the products previously packed within must be located on shelves on
the shop floor.
The RFID deployment of the project encompassed fixed RFID UHF readers
installed at the dock doors of Auchans DC in Calcinate (Bergamo, Italy), as well
as in the receiving area at two Auchan stores, in Curno (Bergamo, Italy) and Roncadelle (Brescia, Italy). At the Auchans DC, during the course of the pilot project
the operators tagged approximately 30,000 cases of goods by means of EPC Gen 2
RFID labels. Such cases included about 60 different products such as fresh pasta and
sauces, cheeses, hams and other perishable goods.
4. Tracking points and data collection
During the RLP2 project, the following processes were impacted by the implementation of RFID technology, as shown in Fig. 1:
1. DC processes:
a. slap & ship;
b. shipping;
2. retail store processes:
a. product receiving;
b. replenishment from the backroom by means of trash process;
c. inventory counts;
d. check-out.

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Fig. 1. The RLP2 supply chain and related RFID tracking points.

The processes mentioned above were mapped before the RFID implementation in
the AS-IS scenario analysis, and reengineered applying RFID technology in TO-BE
scenario, in order to assess the improvements achieved thanks to this technology. The
TO-BE scenario was engineered and deployed encompassing different RFID read
points, called tracking points to reflect their ability to punctually trace the who,
where, when, why, and how of every item moving downstream in the supply
chain. The whole deployment is based on EPC global standards, as well as on RFID
case-level tagging, with tag inserted in a product label. Cases were tagged using
EPC SGTINs, and information records were captured in EPC Information Services
(EPCIS) according to EPC global standards.
The Auchans DC in Calcinate receives dry and fresh goods from the manufacturers;
fresh goods are cross docked directly from the DC to the retailershypermarkets within
the region, while dry products are stored on shelves in the DC until they are picked
to fulfil orders from stores.
The first tracking point is located at the DC, where individual cases are tagged
during the slap & ship process. Thanks to a software integration with the Auchan
legacy systems, when the warehouse operators process the tested products which
have been ordered by the two stores participating to the pilot project, a RFID label
tag is printed using a mobile RFID printer and applied to the cases. The tag is a paper
label embedding a EPC Gen2 passive UHF RFID inlay. This process thus creates a
unique association between the products SKU number, the EPC serial and the product
characteristics available on the Auchan ERP (i.e. product type, production lot, and
expiry date). All the caseslying on the same pallet are then associated together to
the same virtual SSCC code, in a father-son relationship. Hence, during this process,
two EPCIS events took place concurrently: the first one is objectadd event, and the
second one is aggregation event, which links each EPC case to the respective virtual
SSCC code pallet.
The second RFID tracking point is connected to the shipping process. Shipments
usually leave the DC during the evening, with retailers receiving those products early
the next morning. The warehouse operator uses a couple of RFID portals equipping
two dock doors for fresh products. Expected cases are checked while being loaded

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113

in the truck, enabling a proof of delivery for pallets shipped by the DC. The shipping
process generates a transaction event in the DCs EPCIS, and data is then forwarded
to the Auchans EPCIS-based software that made such information available to the
pilot participants, thereby indicating that the product had left the DC.
After shipping, products arrive at the retail store, where the third RFID read took
place during receiving of goods. In order to provide the store with the detailed list of
items to be received in a delivery, a Discovery Services (DS) has been developed to
resolve the IP address of the EPCIS where shipment data can be downloaded. The
DS is hosted on a server sited in the RFID Lab of the University of Parma. Thanks to
this application, the RFID door portal is able to retrieve the complete list of expected
delivery upon the read of the first tag of the pallet. In the store EPCIS, the receiving
process generates on the one hand an object-observe event and on the other one a
quantity event on the backroom of the store.
Then, some of the products are moved to the sales floor for replenishment beginning
at around 5 am. The remaining goods are stored in the backroom until they are used to
restock the sales floor. During the replenishment, once the products are unpacked from
the cardboard cases and placed on the shelves, the empty boxes are destroyed in a trash
compactor. Here, a further interrogator captures their IDs and updates once again the
inventory of shop floor records to show that the products are now on the shelves and
consequently decrease the inventory level in the backroom. During the replenishment
(trash) process, the stores EPCIS automatically generates an object-observe event.
The last tracking point gathering information on product availability are check-out
and shrinkage processes, although these are not strictly RFID-enabled tracking points.
More precisely, data coming from the Auchans own point-of-sale and shrinkagemanagement software is integrated with the RFID system as well. Every 15 minutes,
data is shared and the EPCIS software updates the products status, determining which
items have been sold and which have been discarded because of shrinkage (either due
to product spoilage or expiry). The inventory of the shop floor shelves is updated
accordingly.
The Auchans WMS/ERP software is consequently updated to indicate which products are no longer on the shelf, because of in out of stock condition (OOS), and which
are at risk of becoming out of stock, i.e. in near out of stock condition (NOOS). During
the pilot, such information is clearly visible on a big display located in the backroom;
accordingly, the Auchans staff can manage the shelf stock, replenish products, as
well as reorder OOS products.
The last tracking point is related to inventory counts. Regular inventory counts
of the items tracked were performed in the store backroom, using a handheld reader.
Backroom inventory count is performed using RFID technology, since the products are
still in cases, while barcode technology is used in the store to scan individually items
EAN codes. After every RFID inventory count, the store EPCIS captures an object
event, updating the last known location of an item, i.e. either store floor or backroom.
Moreover, an aggregated quantity event is generated to update the inventory level.

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Table 1
Summary of the reengineered logistics processes

Process

Position

Objective

Slap & Ship

DC

Shipping
Receiving

DC
Store Receiving dock doors in the
backroom
Store Fixed readers in the
backroom trash compactors
Store shop floor Not RFID process

SGTIN case-level tagging and SSCC

aggregation
Tracking shipments
Backroom stock update

Trash
Check-out &
demarque

Backroom and shop floor inventory update

Shop floor inventory update

Table 2
Example of case tracking on EPCIS
Event time

ID actor

Event

Action

Biz step

24-JUNE-2011 16:05
24-JUNE-2011 16:05
24-JUNE-2011 21:32
25-JUNE-2011 05:15
25-JUNE-2011 05:15
25-JUNE-2011 09:25

Auchan DC
Auchan DC
Auchan DC
Auchan shop
Auchan shop
Auchan shop

Object
Aggregation
Object
Object
Quantity
Object

Add
Add
Observe
Observe

Slapship
Slapship
Shipping
Receiving
Receiving
Trash

Delete

The Table 1 summarizes the RFID reengineered supply chain processes and Table 2
reports an example of the EPCIS records for a case which has been read through the
tracking points described above, except check-out (not RFID enabled) and inventory.
The tracking points described are used to gather data related to the RFID reengineered processes. In addition, four Business Intelligence Modules (BIMs), named Out
of Stock, Track & Trace, Inventory, Check-out & Demarque, have been developed
to query the EPCIS data warehouse and derive value-added information for research
purposes and process management, as well as relevant statistics and graphs.
The network infrastructure, shown in Fig. 2, is built in order to create an Internet
of things aimed at sharing RFID data with each supply chain player. Auchan hosts a
main server in Milanofiori (Milan) server farm and satellite servers in Roncadelle and
Curno stores and Calcinate DC; all of them are connected to the same local intranet.
As reported in Fig. 3, the main server hosts the EPCIS repository, that stores
the RFID data, and interfaces for query and capture data, while the satellite servers
host a middleware named RSA (RFID System Administrator ) that implements the
business processes and manages devices, processes and data capturing. The capturing
application of RSA gathers RFID data from physical RFID devices, by means of web
services (i.e. from RFID printers) or by means of dedicated adapters and middleware
layer (i.e. from handheld devices and fixed RFID readers). Only the main server

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115

Fig. 2. The RLP2 EPCglobal network infrastructure.

accesses the Internet, showing data to authorized clients, while satellite servers can
share data only with the main server. In the RFID Lab, a dedicated server hosts
the Object Name Service (ONS) and the Discovery Services (DS), deployed to get
data from Auchans EPCIS, and the BIMs. The local database is fed with data from
Auchans EPCIS by means of standard EPCIS queries; data is processed and analysed
in order to produce quantitative KPIs reported in the business intelligence dashboard.
5. Project results
The impact of RFID technology on the store can be manifold; in particular, on the
basis of the findings from the RLP2 project, four main pillars shown in Fig. 4 can be
identified which support RFID adoption in the fresh perishable products category.
As a global result, it is possible to notice that the overall RFID values is +1.75% in
sales turnover of product category, plus an increased product freshness up to +18%.
In the next section we punctually quantify each of the above mentioned contributions.
5.1. RFID impact on OOS
The impact of RFID technology on the OOS has been quantitatively determined
by analysing aggregate data reported in the BIMs. For each product the value of each
OOS occurrence has been computed by multiplying the average sales per hour by the
time the product has been in OOS.
The stock level of a product in the shop floor is real time available thanks to the
integration of the RFID system with the Auchans ERP/WMS, which, as mentioned,

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Fig. 3. The RLP2 software architecture.

Fig. 4. The main pillars of RFID adoption pointed out by RLP2 project.

are updated every 15 minutes with check-out and shrinkage data. An example of the
shop floor stock level and OOS detection for a given product is charted in Fig. 5.
In order to evaluate the impact of RFID technologies on OOS it is necessary to
identify the cause of each OOS occurrence, as well as to estimate the saving RFID

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Fig. 5. Daily stock level for a specific product.

Table 3
Different kind of OOS causes
Conditions

OOS causes

IF Shop floor inventory = 0 AND Backroom

inventory = 0 AND Many days of OOS
AND product out of reorder list

THEN

IF Shop floor inventory = 0 AND Backroom

inventory = 0
IF Shop floor inventory = 0 AND Backroom
inventory >0

THEN

Strategic OOS supply chain issues, product

delisting, stores personnel deliberately
decide not to put that products on shelves
(i.e. promote sales of an alternative
size/format)
Reorder errors/Inventory inaccuracy

THEN

Missed replenishment

can generate. To identify the cause, according to Bertolini et al. (2012), we have
investigated the boundary conditions of inventories when shop floor inventory scores
zero. These boundary conditions define the OOS causes as reported in Table 3.
Table 4 reports an example of daily value of the OOS occurrences for different
products, coupled with the corresponding OOS causes. Looking at the first row of
the table, one can see that product 1 was detected in OOS on June 25, 2011, for two
hour. The OOS duration is an average value, which has been computed thanks to the
synchronization of RFID data and check out data, that takes place every hour. The
OOS cause is determined according to the boundary conditions proposed in Table 3.
Overall, as regards the causes of OOS, it can be observed in Table 4 that some of
them could be efficiently reduced by the adoption of RFID technology, while other

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Table 4
Daily OOS value for different products

Product

OOS from

OOS to

Product 1
Product 2
Product 2
Product 2
Product 2
Product 3
Product 3
Product 4
Product 5
Product 6
Product 7
Product 7
Product 7
Product 8
Product 9
Product 10
Product 11
Product 11
Product 11
Product 12
Product 13

25/06/2011
17/05/2011
20/05/2011
25/06/2011
29/06/2011
09/06/2011
12/07/2011
30/06/2011
04/06/2011
04/07/2011
10/05/2011
30/05/2011
23/06/2011
14/06/2011
03/06/2011
18/07/2011
14/06/2011
11/07/2011
13/07/2011
11/06/2011
07/07/2011

25/06/2011
17/05/2011
20/05/2011
25/06/2011
29/06/2011
09/06/2011
12/07/2011
30/06/2011
05/06/2011
05/07/2011
25/05/2011
30/05/2011
23/06/2011
15/06/2011
03/06/2011
18/07/2011
15/06/2011
12/07/2011
13/07/2011
20/06/2011
09/07/2011

Duration
[hours]

OOS value

2
3
3
6
8
6
10
6
6
17
203
6
7
23
4
4
18
16
5
109
39

D 2.34
D 8.47

D 8.43
D 1.41
D 6.54
D 9.42
D 46.57
D 24.11
D 3.33
D 0.77
D 5.36
D 22.43
D 14.91
D 9.22

OOS cause
Missed replenishment
Reorder errors/Inventory inaccuracy
Missed replenishment
Missed replenishment
Missed replenishment
Reorder errors/Inventory inaccuracy
Reorder errors/Inventory inaccuracy
Missed replenishment
Missed replenishment
Missed replenishment
Strategic OOS
Missed replenishment
Missed replenishment
Reorder errors/Inventory inaccuracy
Reorder errors/Inventory inaccuracy
Missed replenishment
Reorder errors/Inventory inaccuracy
Reorder errors/Inventory inaccuracy
Reorder errors/Inventory inaccuracy
Strategic OOS
Reorder errors/Inventory inaccuracy

Table 5
Normalized average daily OOS value
OOS cause
Strategic OOS
Reorder errors/Inventory inaccuracy
Missed replenishment

Can RFID impact on OOS?

Normalized value of OOS

No
Yes
Yes

0.17
0.14
0.14

ones have no potentials to be affected by such technology. This is, for instance, the
case for a product which is OOS and it is intentionally not reordered, to promote a
similar product (strategic stock-out).
The cumulative value of the OOS for the whole project has been computed by
adding up the values of the daily OOS of each product and relating such value to the
sales turnover with respect of each OOS cause. The obtained values are reported in
Table 5.
The reader can appreciate unusual low values of OOS. Typical figures of OOS, as
reported in literature, account approx. for 8% of store turnover. The reason for this
outcome is at least threefold. First, the two stores chosen for the test are among the
Auchans best performer hypermarkets, with very low OOS values, compared to other
stores of the retail chain. Second, products chosen for the test have medium or low

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Fig. 6. Daily stock levels for two different products.

sales velocity. For such products, as Hardgrave et al. (2006) show, shelf replenishment
issues are minor. Third, we could exploit dedicated store personnel during the project.
This was an advantage, because the store managers managed to keep the system
properly tuned and fully working. On the contrary, results obtained under such setting
might be somehow biased. As a matter of fact, store personnel precisely knew what
we were looking at (i.e., OOS measurement) and what products we were monitoring;
therefore, for these products, unusually high attention might have been paid to shelf
replenishment. This is demonstrated by the replenishment operations performed out
of usual time windows (i.e., at early morning, 2:00 PM, or 8:00 PM).
As shown in Table 5, we found that RFID technology can improve the product
availability when the OOS is caused by reorder errors, inventory inaccuracy or missed
replenishment; as a matter of fact, the real time visibility of products is an efficient
leverage for accurate stock and order management. The RFID impact on OOS is
measured as the increase in products availability due to the mentioned causes, and
accounts for approx. +0.28% increase in sales turnover. Conversely, strategic OOS is
caused by products which intentionally are no longer in the reorder list of the retail
store; under that circumstance, the RFID technology cannot contribute to reduce OOS
occurrence.
5.2. RFID impact on shelf inventory management
The analysis of the shelf cycles and safety stock management for different products
is detailed in this sub-section. The pilot project pointed out that the stock level of some
products is managed very efficiently (as shown in Fig. 6 product A), while it is less
efficient for other products (as reported in Fig. 6 product B).
The reorder process efficiency can be assessed for both the cycle stocks and the
safety stocks.
In particular, the cycle stock in Fig. 6 product A seems to be appropriate because
the order quantities are proportional to sales and lead time, and the average inventory
rotation index is 2.09 days of product sales. Safety stocks are optimised too, because

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Fig. 7. Determination of potential stock reduction.

they are frequently used, and turn out to be proportional to the sales standard deviation
and lead time; the safety stocks rotation index is 1.51 days. Conversely, product B
is not managed with the same efficiency. First, it can be appreciated from Fig. 6 that
the cycle stock is inappropriate: in fact, order quantities are not proportional to sales
and lead time, and the average inventory rotation index is excessively high (approx.
21.04 days of sales) compared to the product shelf life of 40 days. The safety stocks
are oversized, since they are constant and not proportional to the standard deviation
of demand and lead time; the safety stock rotation index for the same product is 17.41
days.
The RFID impact on shelf inventory optimization can be quantitatively assessed
considering a conservative scenario, where only the safety stock level is optimized,
while cycle stocks are kept unchanged. In the proposed conservative scenario, the
safety stocks of each product at the shop floor have been quantitatively reduced by a
constant factor, computed as the average of the minimum peaks of inventory levels
(for detail refer to Fig. 7). For every product, the average stock level corresponding
to the lowest peaks is computed and the corresponding cost is calculated multiplying
the value of the item by the average minimum stock level. This is a capital invested

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121

Table 6
Different kind of shrinkage causes
Conditions

Shrinkage causes

IF Physical inventory = WMS inventory

AND Shop floor inventory >0 AND
Demarque on shop floor
IF Physical inventory = WMS inventory
AND Backroom inventory >0 AND
Demarque on backroom
IF Physical inventory =
/ WMS inventory
AND Demarque

THEN

Reorder errors (strict expiration date,

damage)

THEN

Replenishment policy errors (strict

expiration date, damage)

THEN

Other causes (shoplifting, employee theft,

paperwork errors, supplier fraud, damage)

Table 7
Normalized average daily shrinkage value
Shrinkage cause

Can RFID impact on shrinkage? Normalized value of shrinkage

Reorder errors
Replenishment policy errors
Other causes

Yes
Yes
No

0.60
0.54
0.61

in unnecessary stocks; multiplying the value by the weighted average capital cost
(WACC) of the company, and referring the result to the product sales turnover, we
obtain the saving that can be achieved by RFID adoption. The savings for all products
are consequently added up, resulting in +0.33% of the category sales turnover overall.
5.3. RFID impact on shrinkage
The shrinkage of products is a decrease in inventory due to shoplifting, employee
theft, paperwork errors, supplier fraud, damage and strict expiration date (The Global
Retail Theft Barometer, 2010). While the physical inventory is affected by the abovementioned causes, the inventory level on the Auchans WMS is manually adjusted
according to the effective stock, which is usually lower (this process is internally
named demarque). Shrinkage is inevitable; hence, the causes of shrinkage were investigated, grouping them into three categories, as reported in Table 6. In this regard, the
in-field research pointed out that some of those categories can be removed by means of
RFID implementation; hence, in order to evaluate the corresponding shrinkage reduction, it is necessary to identify the cause of the observed shrinkage and to estimate its
value. To identify the shrinkage cause, we have investigated the boundary conditions
of the products and the inventory (i.e. expiry date, physical and WMS inventories of
backroom and shop floor, receiving and last replenishment dates) during the execution
of the demarque process. These boundary conditions define the shrinkage causes as
reported in Table 6.

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Table 8
Inventories: A short blanket
 Shelf display

 Shelf display

 Out of stock
 Demarque
 Invested capitals
 Product freshness

 Out of stock
 Demarque
 Invested capitals
 Product freshness

Fig. 8. Fresh product shelf-life schema.

The cumulative value of the shrinkage for the whole project has been computed by
adding up the daily demarque value of each product and normalizing such value to
the sales turnover. For the considered different causes of shrinkage, its average values
are reported in Table 7.
It can be seen from Table 7 that RFID technology can improve the availability of
products when shrinkage is caused by reorder or management errors; in fact, the real
time visibility of goods and related data can be exploited to set up more efficient
replenishment and order management processes. Accordingly, the overall increase in
products availability achievable thanks to RFID adoption accounts for approx +1.14%.
Other causes of shrinkage we observed are shoplifting, theft, and damage; however,
RFID technology cannot contribute to reduce them.
5.4. RFID impact on fresh product freshness
A qualitative result achieved by the project is related to the fact that product
freshness could be increased through RFID deployment. In fact, as a result of the
optimization of the safety stock levels on the shop floor, a decrease in the rotation
index of the products on the shelves was observed, which enhances the freshness of
the products available to the final customer.
In the Italian fresh perishable fast moving products industry, manufacturers keeps
1/3 of product shelf life while guarantees to the retailer the remaining 2/3. For pilot
products the average shelf life guaranteed at the retailers DC inbound dock doors

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123

results in 44.6 days. Further 2.9 days are spent for DC receiving, cross docking, and
shipping, plus store receiving and replenishment. The AS IS shelf stock has a rotation
index of 7.6 days of sales. As a result, the average shelf life available to customer is
34.1 days as stated in Fig. 8.
The optimisation of the shelves stock level, on the basis of the criteria mentioned
in Section 4.2, allows reducing the average rotation index of products on the shop
floor to approx. 1.6 days, thanks to the stock reduction for every product by a constant
factor (i.e., average of the local minima). The resulting average shelf life available to
customer is thus increased to 40.1 days, gaining +18%.
6. Conclusions
In this paper, we have presented the numerous benefits that can be achieved through
RFID case-level tagging deployment in the supply chain of fresh perishable products.
Quantitative results provided were obtained by means of real data, grounded on the
RLP2 pilot study. The major benefits gained through RFID deployment, referred to
the sales turnover, can be summarized as follows: (i) OOS reduction can reach 0.28%;
(ii) efficient shelf inventory management scores 0.33% and, (iii) shrinkage reduction
scores 1.14%. Therefore, as a global result, the overall RFID values a +1.75% increase
in sales turnover. From a qualitative point of view, we have also observed a relevant
improvement in product freshness (+18%).
Qualitatively, it is well known from the literature that increasing the shelf stock
level helps preventing the OOS occurrence; conversely, the side effects are related
to higher shrinkage and invested capitals, while product freshness is worsened. On
the other hand, reducing the shelf stock level increases the probability of OOS occurrence, as well as the need of replenishment operations, although shrinkage and capital
investment are more efficient, as shown in Table 8. Conversely, by exploiting RFID
technology, OOS can be reduced through timely and punctual shelf replenishment
when a NOOS situation is observed. Moreover, shelf stock levels can be optimized
thanks to full visibility of shelf inventory levels, resulting in a reduced capital holding costs. Last, but not least, higher inventory accuracy and proper management of
product shelf life during shelf replenishment provides room for further significant
savings.
From a theoretical perspective, this study contributes to the existing knowledge by
demonstrating and quantifying the economic benefits of RFID case-level implementation in the fresh perishable fast moving products supply chain, enabling quantitative
costs/benefits analyses. The originality of the paper can thus be found in the quantitative validation of theoretical assumptions thanks to the results of an in-field pilot
in FMCG supply chain. Moreover, to our knowledge, this is the first study where the
RFID impact has been assessed not only on OOS reduction, but also on shrinkage
and capital holding costs optimization.
Limitations of this study could be found both in the number and type of stores
involved in the pilot, which are among the Auchans best performing hypermarkets,

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as well as in the products chosen for the pilot, which are limited to a specific category
with a low sale velocity. To this extent, we are planning to extend the research through
a further pilot study, which will include stores where OOS occurrence should be
significantly higher, as well as products with higher sales velocity.

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