Peltz Shoes finds RFID for inventory not worth the cost

Describing radio frequency identification labels as a "learning tool," Peltz Shoes has stopped using the technology, primarily because of high costs related to the passive tags, and changed to a barcode system.

The independent Florida shoe retailer began using RFID tags in 2009, according to a company statement. They were used to label the retailer's entire product selection in stores and the warehouse.

In addition to its radio frequency identification function, the tags were also used to provide detailed label information on the shoe boxes to provide brand, style, color, size and price. At the time, VP and CEO Gary Peltz said the growing RFID technology could increase efficiency in tracking and inventory management that would ultimately contribute to accurate inventory counts.

"Managing inventory across four physical locations (the retailer now has six) inclusive of over 46,000 sq. ft. of floor space can be a challenging task," he said in a statement issued in 2010. "By leveraging technology, we know exactly what we have in stock, where it is physically placed, and can automatically reorder product to promptly fulfill our customer's orders. Our vision has never been to be the biggest, but to be the best."

The intention was to provide customers with the correct quantity on hand within the back-office system and the e-commerce site, he said.

Peltz used a small wheeled cart to instantly capture inventory levels. Auto-replenishment software was integrated to the RFID management system, which ensured that the best selling shoe styles and popular hard-to-find shoe sizes were always in stock, and that low volume products were systematically phased out. After 12 months using RFID, the retailer reported a savings of 1,500 man hours, and improved customer service, especially for customers with hard-to-find shoe sizes.

Since that time, Peltz determined that the use of RFID tags resulted in high labor cost to apply the tags, high label costs and inaccurate inventory levels. Contributing to the problem was an RFID printer that would print inactivated tags that were not detected until inventory cycle counts were initiated. Additionally, if an employee put the wrong label on a box by mistake, the inventory would not be counted correctly. Both of these issues resulted in another cost: unexpected labor to remove the tags from the boxes, and then relabel and re-inventory.

An advantage of the RFID technology is the speed that the scanners picked up the RFID tags; however, it also missed labels often. The scanners were 99 percent accurate, but that 1 percent inaccuracy caused a big increase in labor. For example, in scanning 300,000 pairs of shoes, 1 percent, or 3,000 pairs, would have to be manually verified for accuracy. The time and effort involved in correcting these inaccuracies did not warrant the extra costs when compared to the low expense and accuracy of hand-scanning the entire inventory.

The biggest factor in Peltz's decision to discontinue RFID was the high cost. In implementing the RFID program, there were substantial costs associated with the printers, labels, thermal ribbon and scanning equipment.

The cost of 11 cents per label for the tags became the main reason for cancelling the RFID program. Every box needed to have a label to prevent inventory inaccuracies, which meant all of the retail stores, plus the warehouse, had to have an RFID label printer and supplies to keep up with the inventory. Peltz found that, while trying to keep up with its continuously growing inventory of over 300,000 units, this became very expensive and time consuming.

So this year, Peltz concluded that it would better serve employees and customers by discontinuing RFID, and changing to barcode scanning for inventory control. This has resulted in better inventory counts, lower inventory reconciliation levels and proper inventory counts for customers as they make their purchases.

However, if manufacturers applied RFID labels at the factory inside of the products, it would be more beneficial to the retailer. This would increase inventory accuracy from the factory, and provide the added benefits of preventing miss-mates and theft. "RFID is a great tool, but for all of the inaccuracies and associated high costs, it will not be a viable solution until a significant manufacturing change at the wholesale level occurs," Peltz said in a statement.

For more:
-See this Peltz Shoes 2015 press release
-See this Peltz Shoes 2010 press release

Related stories:
RFID resurgence boosts inventory accuracy
RFID enables retailers to control inventory of complex categories
Target to roll out RFID price tags this year
RFID use reaching 'tipping point'
Is RFID our best bad idea for in-store fulfillment?

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