Six Steps to Calculate ROI for New RFID Solutions

RFID solutions should provide retailers with a measurable increase in sales and savings.

what is rfid solutions

With appropriate RFID solutions, store associates can easily restock merchandise on the sales floor, replenish out-of-stock items, improve inventory accuracy at the point of sale, and process returns efficiently to make them available for resale. The technology helps retailers ensure merchandise availability in store, as it provides clear visibility on available stock available for consumers. With an RFID solution, brick-and-mortar shoppers can find the garment they came in to buy in the size and color they are looking for.

To grow the business and win market share, brick-and-mortar retailers invest in online platforms, while online retailers are considering brick-and-mortar stores. Regardless of the platform, RFID technology is becoming a “must-have” for omni-channel retail strategies. Generation Y and Millenial shoppers (also known as the “I want what I want when I want it” generations) want it now. Whether through “click and collect,” when shoppers to go to a store to pick up an item purchased online, or with a delivery promised in less than 24 hours, the challenge for retailers is having an accurate, real-time inventory at all times. RFID is what enables retailers to ensure the right merchandise is available at the right place and at the right time.

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Yet starting an RFID project can be delayed by CEOs and CFOs, who will only invest in the retail technology if they see a proven ROI for their business. A powerful ROI calculator should enable retailers to enter their average number of units on the sales floor and in the back room. It should also take into account average unit cost, inventory turns and retail margins. By establishing the number of hours that store employees members spend receiving goods, conducting cycle counts and replenishing product inventory, the calculator should estimate the potential reduction in labor costs based on real retailers’ figures and compare with savings and sales uplift achieved in pilots and deployments by companies around the world.

The key is in getting an accurate ROI before starting the pilot phase. For that, retailers can work with a proven consultancy method based on these six steps:

1. Collect Consolidated Internal Data
RFID is a transversal project requiring the involvement of sales, purchasing, store operations, supply chain and finance leaders at the planning stage. Make sure you understand replenishment, fulfillment and processes from all angles and that you collect all enterprise resource planning (ERP) data related to sales, deliveries, inventories and out-of-stocks. You cannot determine your ROI on industry assumptions. You need real numbers from your business.

2. Audit Your Stores
Merchandise availability and out-of-stocks are closely linked with store operations and processes. Don’t assume that every store follows the same processes to handle deliveries, check inventories, restock merchandise from the back room to the sales floor, fulfill online orders and handle returns. Different stores have formats, layouts, operations and geographic locations that affect in-store processes. Understanding these variations in processes will provide you with an overview of the number of hours spent and “lost” on handling deliveries inefficiently, on protecting merchandise against theft, and on replenishment, sales and returns. This will help you build the business case for RFID solutions.

3. Interview Store Employees
Your store employees handle merchandise every day. They are on the front line of your organization and understand operational challenges better than anyone else. They are directly in touch with consumers. They are used to handling merchandise from delivery to the point of sale and point of exit, and they understand the challenges at every step. They are the ones who must tell shoppers that they don’t have the desired garment in stock just now, so they will be key to moving the process forward.

4. Understand Resources for Each Store
Starting an RFID project is about understanding exactly what you need to improve with regards to out-of-stocks and managing inventories efficiently, fulfill customers orders to eventually increase sales. For that, you need to map out the processes, technical tools and human resources that you have in place today. This also means understanding how many employees are involved in managing deliveries, inventories and replenishment, so you can estimate the hours spent on ensuring merchandise availability and the overall impact this has on your bottom line. It is about analyzing the time allocated to attend shoppers versus “unproductive” time on tasks that do not bring value and how your cost structure can be impacted.

5. Understand the Real Cost of Your Out-of-Stock
Having an accurate forecast of the ROI for an RFID solution program starts with knowing exactly how much you are losing today. Nobody likes to recognize their own weaknesses, but the more honest you are from the start, the better the results. With the data you have collected in the first four steps, you will be able to determine exactly how much you are losing from out-of-stocks, inefficient order fulfillment, and returns before you start using RFID solutions. This also includes inaccurate inventory, time spent by employees trying to untangle an out-of-stock situation or missing order, and lost sales when a garment is not available for the shopper who was ready to buy.

6. Choose the Right RFID Hardware, Software and Consumables
Based on the improved inventory accuracy and on-shelf availability that can be achieved with RFID, you will be able to define exactly what you need with regards to hardware, software and consumables. Once you have a clear idea of the human resources in store, you will know exactly how many RFID handheld and fixed readers you will require for each store, or if an “eye in the sky” solution is more appropriate. You may decide that inventories would better be managed by an external company because your stores’ employees do not have enough time to handle certain tasks. At the end of the day, when you have chosen to invest in the technology, you want your RFID solution to provide you with a measurable increase in sales and savings.

This article was originally published in 2015 and was updated July 17, 2017.

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