Improving inventory management in the retail store: The effectiveness of RFID tagging across product categories

While there is a growing body of evidence that Radio Frequency Identification (RFID) tagging can be effective in improving inventory management in the retail store, retailers have little guidance on best practices for implementation. One important unresolved issue is whether tagging is equally effective across different product categories, and if there is a way to predict which categories are better candidates for deployment. We conduct a field experiment comparing the improvement in inventory record accuracy before and after implementing RFID-enabled adjustments to the inventory management system. We find evidence that the effectiveness of RFID tagging is not homogenous for all products. Reductions in the percentage of stockouts ranged from 21% to 36%, depending on category. Categories that are most likely to see a decrease in stockouts, thanks to RFID, have a greater turnover, greater sales volume, greater product variety, lower item cost, and greater inventory density. We draw inferences for retail supply chains which are considering how best to allocate their resources in the most effective manner.