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New Technologies and Inventory Management

6 Mar

 Introduction

Inventory management encompasses activities involved in maintaining the optimum number or amount of each inventory item. The objective of inventory management is to provide uninterrupted production, sales, and/or customer-service levels at the minimum cost (Inventory Management, n.d.).

Two capabilities that have emerged and are being used to manage inventories are Radio Frequency Identification (RFID) and Electronic Product Code (EPC). EPC is a unique string of numbers and letters that identify a specific item in the supply chain or inventory supply. The EPC can be associated with either identifying a manufacturer or identifying a product type and can hold up to 96 pieces of information (McKnight, 2007).  RFID tags being used today for inventory management are capable of storing an EPC. They are small wireless devices that are attached to a product or asset for identification purposes (Kamaladevi, 2010). The infrastructure of RFID consists of  three major components: (Madhani, 2011)

  1. An RFID tag which is comprised of a microchip that holds the product’s identifying information and an antenna
  2. A reader which has the capability of reading hundreds of tags simultaneously and in real time
  3. A data collection application which can include the products identity code, color, type, and size

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Figure 1: RFID System with EPC Network

Source: http://www.scribd.com/arpitrocks/d/31832930-RFID-Based-Security-Systems

The article “Why New Technologies Are Reinventing Inventory Management” (Bliss & Markelevich, 2011) outlines the use of both EPC and RFID together as a means of making inventory management a more efficient process in several different areas. The two areas I will be focusing on include (1) product authentication and (2) authorized product removal.

  1. Product Authentication

When a company is dealing with high-value products it is very important to keep counterfeit copies from entering the inventory supply. Failure to prevent this from happening can cost a company significantly in their brand image and quality control processes. Counterfeiting can be prevented by “assigning a unique EPC, represented with an RFID tag, to each shipped item” (Bliss & Markelevich, 2011, p. 51). “Generally, multiple similar units are authenticated simultaneously, for example when a shipment arrives to a retail store” (Lehtonen, Staake, Michahelles, Fleisch, 2006, p. 2).

So when the store receives its shipment, of presumably high-value inventory, the employees in charge of receiving can confirm the items are authentic by reading the RFID tag and checking to affirm that the EPC in the tag is also in the database of products that the manufacturer maintains. If the newly arrived inventory’s EPC is not in the manufacturer’s database, or there is no EPC on the products, then the merchandise is counterfeit and the appropriate measures can be taken to correct the incident before the merchandise makes its way to the consumer.

Bliss and Markelevich (2011) use Pfizer as an example of using these technologies. Because Pfizer sells pharmaceuticals which are expensive, high-demand products, attempts at counterfeiting are common in the industry. To combat this, the company uses RFID and EPC to verify authenticity of their product by running a query comparing the EPCs on the bottles of product to the Pfizer database. If there is any discrepancy then a counterfeit has been detected and an alert is sent out to all relevant parties so action can be taken to correct it.

  1. Authorized Product Removal

Items in a store can be removed without proper authorization through mistakes made when a sales transaction is not properly completed or when some other necessary procedure is not followed before the item is taken off premises. It can also occur when someone steals the item, whether it be a customer or employee. In either of these examples, the result is a loss of asset without compensation that the company must absorb.

Through the use of RFID and EPC, assets can be better protected from this happening. “As an item approaches the exit [of the store or building], an RFID reader detects the EPC associated with an item. Comparing the EPC to a database of items determines whether the item is authorized for removal.” (Bliss & Markelevich, 2011, p. 52). Similar to product authentication, RFID and EPC are most beneficial when used to protect high-value items because they are more susceptible to loss than lesser-value items.

When compared to the common retail loss-prevention system currently being utilized called Electronic Article Surveillance (EAS), RFID and EPC have some significant benefits. “EAS sounds an alarm when a loss is foiled but doesn’t create a record of the items involved.” (Bliss & Markelevich, 2011, p. 52). In comparison, when losses are thwarted with the use of RFID and EPC there is a specific record of the time and item involved in the incident allowing for more specific record keeping. As well, there is far less labor involved because unlike EAS, there is no manual labor needed to remove security devices from the products at the point of sale.

Bliss and Markelevich (2011) use METRO, a diversified European retailer similar to Walmart, as an example of using RFID and EPC to safeguard against product loss. METRO is attaching RFID tags to individual products throughout their entire supply chain. Readers have been installed in their manufacturing facilities and retail locations and provide very accurate inventory management records concerning losses.

Conclusion

The costs associated with implementing this new technology system are discouraging many businesses from utilizing them. An RFID tag on average costs about $0.07 each and reader systems can cost upwards of several thousand dollars for each location (Bliss & Markelevich, 2011). As well, there is no guarantee that counterfeiters will not find a way to bypass the EPC identifier and continue counterfeiting products. However, as this technology develops further, inventory management “will advance to previously unimagined levels of precision and timelines in supply, distribution and operations. [This] precision will bring a wide range of benefits spanning logistics, quality, brand protection, customer service, and safeguarding of assets” (Bliss & Markelevich, 2011, p. 53). And according to Stevenson and Hojati (2011), it is expected that RFID tags will replace the older identification methods in the very near future.

Exam Question

What two benefits are there to using RFID and EPC over Electronic Article Surveillance for safeguarding assets against loss?

 

 

Work Cited

Bliss, M., & Markelevich, A. (2011). Why New Technologies Are Reinventing Inventory Management. Strategic Finance, 93(5), 49-53. Retrieved from http://web.ebscohost.com/bsi/detail?vid=9&hid=126&sid=789a358e-178f-4c76-a517-fd0c1ab6de0a%40sessionmgr110&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=buh&AN=67179208

Inventory Management. (n.d). In BusinessDictionary.com. Retrieved from http://www.businessdictionary.com/definition/inventory-management.html

Kamaladevi B. (2010). RFID – The Best Technology in Supply Chain Management. Advances in Management, (3) 2, 45-46. Retrieved from http://content.ebscohost.com.ezproxy.kwantlen.ca:2080/pdf23_24/pdf/2010/84O0/01Feb10/49137426.pdf?T=P&P=AN&K=49137426&S=R&D=buh&EbscoContent=dGJyMMvl7ESeprM4y9fwOLCmr0qep7ZSs6q4SrWWxWXS&ContentCustomer=dGJyMPGts0myrrFPuePfgeyx44Dt6fIA

Lehtonen, M., Staake, T., Michahelles, F., & Fleisch, E. (2006). From Identification to Authentication – A Review of RFID Product Authentication Techniques. Institute of Technology Management, University of St.Gallen, 1-4. Retrieved from http://www.im.ethz.ch/publications/RFIDsec06.pdf

McKnight, W. (2007). The Four Pillars of RFID. DM Review, 17 (10), 18-20. Retrieved from http://content.ebscohost.com.ezproxy.kwantlen.ca:2080/pdf19_22/pdf/2007/5GU/01Oct07/27655301.pdf?T=P&P=AN&K=27655301&S=R&D=buh&EbscoContent=dGJyMNLr40SeprQ4y9fwOLCmr0qeprBSr6e4S7SWxWXS&ContentCustomer=dGJyMPGts0myrrFPuePfgeyx44Dt6fIA

Stevenson, W. J., & Hojati, M. (2011). Inventory Management. In Operations Management (pp. 411-412). Canada: McGraw-Hill Ryerson.