Reducing out of stock, shrinkage and overstock through RFID in the fresh food supply chain: Evidence from an Italian retail pilot

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 andtwo stores of a major Italian retailer. About 60 products have been RFID tagged at case level. We real timetracked cases of products for 4 months, through the distribution chain all the way to the stores, where theRFID deployment made it possible to punctually monitor shelves stock levels, backroom stock levels andproduct shrinkage.We demonstrate that the out of stock (OOS) problem is just one piece of a broader picture, that is shelvesstock 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 shrinkageincrease. The latter issue is particularly relevant for fresh perishable products. This pilot demonstrates thata retailer could reduce OOS, shrinkage and capital holding costs all together, by means of efficient RFIDdata 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 chainof 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