Evaluation of “Measuring the impact of RFID on out of stock at Wal-Mart”

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Evaluation of “Measuring the impact of RFID on out of stock at Wal-Mart”


1.        Background of the study


The journal paper focus on measurement of the improvement by adopting RFID (radio frequency identification)“on the issue of “out of stocks” at Wal-Mart Stores.  The RFID is a new auto-identification technology replacing the currently widely used bar-codes in the retail supply chain. By reviewing the analysis of the causes of the “out of stocks” and consumer responses, which concludes that 22 percent of the out of stock cases is contributed by shelf replenishment and 42 percent of impact of the “out of stock” will be absorbed by the retailers in term of consumers’ reaction of “does not purchase” (11 percent) and “buy at another stores” (31 percent). The most fundamental hypothesis of the study to be tested is that, by adopting a RFID technology, how much the improvement on stock at Wal-Mart would be to the stores as the authors assumes that the new technology would help eliminate the shelf replenishment caused  out of stock. Below we will first review and look in to the useful information and limitations made by the research.

2.        Review of the research


2.1    Useful information and conclusions


2.1.1            Reduction of “out of stocks” benefits customers, suppliers and retailers

As pointed out by the authors, reducing the out of stocks to a smaller amount will substantially benefit the customers, suppliers and retailers. In term of retailers, revenues come from selling of products, empty of shelves directly links to the drop of sale revenue. To the customers, turning to a substitute product or brand or a new shop all equals to a loss of value perceived by the customers in term of dissatisfaction or over consumptions of time in the shopping. And to the suppliers, stop of selling though in a temporary basis also leads to loss of revenue and profit.

2.1.2            Improvement under different methods

By examining the average weekly out of stock, the research finds out that there is a significant difference between the non RFID shops and the full RFID shops, and because this improvement does not take into account of the improvement without the RFID the  the authors introduce a control group of shops. As the figure indicates, after the adjustment by the control group of shops in which the number declines slightly (5 percent), the pure contribution of the RFID is concluded to be around 21 percent which is also significant. Similar findings could be found by weekly trends, elimination of the tagged and non-tagged differences and by stores by weekly results.

 Figure 2

Figure 1 The average weekly out of stock in non RFID, partial RFID and full RFID groups of stores


2.1.3            Value calculations


By concluding that there is actually a contribution of 21 percent in term of the reduction of the “out of stock” and according the findings by previous researches that the average rate of out of stock is around 8% (22% is contributed by shelf replenishment) and also the reactions by the consumers as stated in the figure below, the research manages to quantify some very useful and meaningful information: RFID can potentially increase retailers’ sales by about 0.7% (3.4%x21%) and by about 0.6% for suppliers (2.6%x21%).

Figure 2
Figure 2 Reactions by the customers in out of stock scenarios


2.2    Limitation


One of the limitations of the research identified by the authors is the Hawthorne effect which refers to a form of reactivity whereby subjects improve or modify an aspect of their behavior being experimentally measured simply in response to the fact that they know they are being studied. But the authors managed justify that the impact of the Hawthorne effect is minimal.


3.        Critical thinking


There are several discrepancies needs to be noticed that reduce the usefulness of the conclusions made by research. The first discrepancy is the different coverage of results. While the results of the consumer responses survey and cause of out of stocks is based on the findings of a research targeting on the US retailer industry, this study is only done within the Wal-Mart stores; the second discrepancy is the time of researches, many assumptions are based on the finding of Corsten and Gruen (2003) but the research was done in 2008 indicating that the previous findings could be invalid or less valid with time passes by.


4.        Recommendations


Based on the critical discussions we have above, two major Recommendations are given: on one hand, the author should redo the analysis of the US average rate of out of stock contributed by shelf replenishment problem using the most recent data in the retail industry; secondly, in order to have a widely applicable quantitative conclusion, this research should be done in more major retailers rather than Wal-Mart alone to better represent the industrial trends and eliminate the individual company difference. 


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