inventory control – The OM Blog by Heizer, Render, & Munson

OM in the News: Chipotle Rolls Out RFID for Food Traceability

We note the increasing role of RFID (Radio Frequency ID) tags, which are smart bar codes that can automatically identify and track inventory, in our Process Strategy and Inventory chapters (Ch. 7, 12). This blog has addressed RFID in retailing, warehousing, the drug industry, hospitals, at Disney, and in luggage control at airports. (Type RFID in the search box on the right, below, to read about these applications).

Now, Chipotle Mexican Grill is translating the technology to the food industry. Chipotle has scaled up its use of RFID to trace ingredients from suppliers to restaurants in real-time, writes Supply Chain Dive (May 23, 2023).

The restaurant chain has asked all of its suppliers to tag products with RFID. Chipotle is doing final testing use of the technology on a regional basis, and plans to roll it out nationally in the coming months.

“There’s no restaurant company in the U.S. that has this visibility into inventory on the national level,” says the company’s VP-Supply Chains. “Not one.”

The use of RFID is part of Chipotle’s herculean effort over the past few years to better trace its ingredients following a headline-grabbing E. coli outbreak in 2015 that sickened over 1,000 customers and took a bite out of profits.

Using RFID gives Chipotle a real-time snapshot of its inventory across distribution centers and restaurants, but the technology also benefits the company’s suppliers. Vendors can use Chipotle’s RFID system to improve their own inventory management processes and cut down on repetitive tasks.

Poor inventory management can lead to more food waste, as was the case in 2018 when the FDA ordered the destruction of all romaine lettuce due to limited visibility into suppliers.

“It is imperative to know where your products come from and where they are at all times,” the firm’s VP added. “You have to have very, very good visibility of that supply chain and the value chain so that if something were to happen, you can address it right away.”

The cost to integrate the technology is also minimal since RFID readers already complement existing scanners in Chipotle restaurants.

Classroom discussion questions:

Reviewing past blog posts, summarize the use of RFID in three other industries.
Why is Chipotle implementing this system?

OM in the News: Retailers Make Big Bets on Tiny RFID Chips

A customer uses the RFID-based self checkout system at the Uniqlo store in New York

At all Uniqlo’s stores in the U.S. and Canada, shoppers can checkout simply by placing their goods in bins of automated stations. Unlike the self-checkout process at many stores, customers of the casual apparel retailer don’t need to scan individual items or look up prices on a screen—they can simply drop their items in a bin and pay.

This next-generation process is powered by radio frequency identification readers inside the checkout machines, which automatically read hidden RFID chips embedded in price tags. Uniqlo (Asia’s top clothing retailer) embeds these chips into their price tags—allowing it to track individual items from its factories to warehouses and inside stores. That data is critical for Uniqlo in improving the accuracy of inventory in stores, adjusting production based on demand, and getting more visibility into its supply chain, reports The Wall Street Journal (April 8, 2023).

Newer and cheaper RFID chips, reader hardware, and software are enabling retailers to implement the technology at lower cost and with more precision. The cost of RFID tags has fallen from 60 cents a tag a few decades ago to 4 cents a tag, and reader hardware has improved in range and accuracy.

An article of clothing in the self-checkout system.

RFID has resulted in significant reduction in out-of-stock items on the Uniqlo sales floor, and has contributed to improving customer satisfaction. While the most common use for RFID is improving inventory management (a topic we address on page 496 in Chapter 12), the use of RFID at self-checkout machines is gaining traction as more apparel retailers explore ways to apply the technology once their merchandise has been tagged. Most apparel brands plan to implement RFID this year or next.

The unique benefit of an RFID-based checkout system is that it is faster and more accurate than barcode-based self-checkout machines. Many retailers still rely on printed bar codes, which require manual scanning and are more limited in the data they carry. Since Uniqlo rolled out the machines, customers have reduced their wait time at checkout by 50%. Computer vision (see page 291 in Chapter 7), a form of artificial intelligence that analyzes images, is still too expensive for widespread use for self-checkout and inventory management.

Classroom discussion questions:

How does RFID work? What are its strengths and limitations?
Why is RFID implementation speeding up at retailers?

OM in the News: Inventory “Shrinkage” on the Rise

Retailers regularly conduct a physical count of their inventory and compare it to what is recorded on their books. The difference is known as shrinkage, a broad term that encompasses not just internal and external theft but also process failures that could lead to inventory being lost or recorded inaccurately.

Shoppers now face items locked in glass cabinets in NYC and other cities

Target just announced that it expected the shrinkage problem to reduce gross margins for the year by over $600 million. TJX and Macy’s also reported higher shrink rates. The shift in shoppers returning to stores after a surge in online buying during the pandemic is partly responsible, writes The Wall Street Journal (March 13, 2023). More theft happens in stores, as opposed to warehouses that fulfill online orders. But a never-seen-before jump in organized retail crime in certain U.S. cities is also a factor.

External theft, which includes organized retail crime in addition to regular shoplifting, has become a bigger piece of the pie. Organized retail crime, involving rings that steal from stores in bulk and then peddle the goods online, cost retailers $720,000 for every $1 billion in sales. Seven years ago, theft by employees was the largest category of loss by retailers. Now, it’s external theft.

Retailers are combating the problem by adding security guards and cameras to stores, locking up goods and making use of facial recognition software to help identify repeat offenders. Macy’s is using radio frequency identification (RFID) tags to better track inventory, adding more security personnel to stores and securing high-end brands with locked cables and sensors.

Retailers and shoppers say there is a fine line between deterring criminals and annoying honest customers. “Retailers are locking up everything from shaving cream to soap,” said one customer. “These should be things that are quick and easy to grab and go. But now I’ve got to find an employee to unlock them for me.” Some retailers agree they may have gone too far in their theft-prevention measures. Macy’s used to keep German shepherds in its Manhattan flagship for security sweeps, but discontinued the practice in 2015. NYC police now ask shoppers to take off their face masks before entering stores, a measure intended to help them better identify criminals. The plea came after four men stole $1.1 million of goods from a jewelry store.

Classroom discussion questions:

What tools does Chapter 12 suggest stores use to control shrinkage?
What is causing the theft increase?

OM in the News: “Too Much Supply, Not Enough Demand.”

“It’s classic supply and demand,” says Macey’s CEO in The Wall Street Journal (June 6, 2022). “Too much supply, not enough demand.”

American Eagle Outfitters is trying to clear out excess inventory

Shoppers have shifted their spending from the casual clothes and home items that had been in demand during the height of the pandemic, catching retailers off guard and leaving them with excess goods that need to be marked down.

The scenario playing out at Gap, Macy’s and other chains is a reversal from the past two years, when soaring consumer demand and supply-chain delays created a scarcity of goods that allowed retailers to scale back discounts. Macy’s has too many casual clothes, activewear, home textiles and tableware, as shoppers are instead buying dressier clothes to wear to the office or socially. The shift was quick and dramatic.

Inflation is prompting consumers to spend fewer dollars for discretionary items like apparel and home goods, just as the supply chain is loosening and merchandise is becoming more plentiful. “There was a lot of misforecasting in terms of how fast that shift would go back the other way,” said a Citi analyst.

Walmart’s inventories rose 33% as it misjudged that shift. The increase also reflected the higher cost of goods due to inflation, along with a sudden improvement of moving goods through U.S. ports after the company had decided to buy products aggressively amid supply-chain snarls and out-of-stocks in past quarters.

The problem is acute among apparel retailers. Gap, American Eagle, and Urban Outfitters said they were sitting on too much inventory and would have to increase discounts to clear out the excess. Gap has 34% more inventory than last year. At American Eagle, inventory jumped 46%, and at Urban Outfitters it was up 32%. Some of the bloat is due to inventory that arrived late as a result of factory closures and other supply-chain delays.

Rather than try to sell through all the excess goods at lower prices right away, some retailers are packing away items for sale at a later date. The strategy had been used for years by discounters like T.J. Maxx. Now, it is going mainstream.

Classroom discussion questions:

What are the OM issues retailers are facing here?
What has caused the overstocking?

OM in the News: Tyson’s Computer Vision Technology Improves Inventory Accuracy

Tyson is rolling out a computer-vision-enabled inventory tracking system at facilities where it packs chicken into trays for grocery stores, writes Supply Chain Dive (Feb. 11, 2020) The system can read SKU information and weight, replacing what Tyson described as communication by hand gestures followed by manual inventory entry. By the end of the year, Tyson’s automated inventory tracking technology will combine computer vision, machine-learning and edge computing to expand its speed and processing capability.

Automated inventory tracking using computer vision led to a double-digit increase in inventory accuracy in the 3 facilities currently using the technology. The company plans to expand the program to all 10 of its poultry plants.

Though cold, wet storage environments make implementing new technologies difficult, the payoff of real-time accurate inventory information is already evident for Tyson. The company recently opened the Tyson Manufacturing Automation Center, where it works with manufacturers and suppliers to develop new technologies and trains employees to use it. The company has spent $215 million on new technologies in the last 5 years.

Precise, real-time inventory visibility can increase the frequency with which Tyson fulfills grocery customer orders on time and in full in the best of times. But inventory management is particularly key in times of uncertainty, and Tyson is dealing with plenty. The disruptive forces of shifting global trade policy, a fire at an important Tyson facility, and African swine fever, which all distorted usual supply and demand patterns, made a relevant forecast next to impossible.

Major meat companies are leaning toward similar monitoring technologies and automation, whether through production or processing. Cargill is starting to use computer vision to track animal health in dairy operations. But a more consumer-directed application inspired Tyson’s work. Similar technology enables Amazon’s cashier-less stores, which led executives to explore applying it in poultry plants.

Classroom discussion questions:

Describe what a vision system is (See Chapter 7 of your Heizer/Render/Munson text).
How will this help Tyson control inventory?

OM in the News: Retail’s Inventory Woes

New survey findings, reported by Supply & Demand Chain Executive (Feb. 28, 2019), uncover the chronic inventory problems affecting the $1.3 trillion retail industry. The vast majority (87%) of corporate retail professionals report inaccurate inventories are to blame for more lost revenue than theft (13%), and the breadth of the problem is apparent: nearly all (99%) survey respondents admit to some kind of constant inventory problem.

Despite major spending on inventory management, catastrophic problems remain.
73% state inaccurate inventory forecasting is a constant issue, meaning retailers end up with too much or too little supply to meet demand
66% say price inaccuracy is a consistent issue, which can lead to unbalanced P&L reports
65% report an inability to track inventory through the supply chain, resulting in potential sales lost

Wasted time is wasted profits.
67% of retailers feel that analyzing inventory on store shelves is not an effective use of employees’ time
Data shows that instead of spending time on sales-driven customer service and upselling, the majority of employee time is spent filling out-of-stock holes on shelves (56%) and pulling items forward on shelves (55%)

Automation is the answer.
76% of retailers say the introduction of robots in stores would improve employee productivity
74% said inventory accuracy would improve as a result, while increased profits would be another direct result of introducing in-store robots
A majority (62%) of retailers feel that employees would embrace robots

An interesting class exercise would be to ask students who have worked in retail what their own experiences have been.

Classroom discussion questions:

What are the causes of such inventory “inaccuracies”?
What suggestions does Chapter 12 offer regarding inventory accuracy?

OM in the News: Kroger Thrives on OM Innovation

Kroger was able to decrease average check-out wait times from 4 minutes to 30 seconds with no additional labor.

Back in 1883 when Barney Kroger invested his life savings of $372 to start his first store, the second purchase he made was a horse and carriage so he could deliver goods to his customers. One could make the argument that Barney knew the importance of delivery before Domino’s, Amazon or Blue Apron ever existed. OM innovation has long been a tradition at Kroger, writes ORMS Today (Dec., 2017). In the early part of the 20th century, Kroger was the first grocery store to introduce self-shopping and the first to surround its stores with parking lots. It became the first company to test electronic scanners in the 1970s, and in the 1990s, one of the first with self-checkouts. Now, with 2,800 stores, Kroger serves 9 million customers a day. Here are just 2 of its latest OM advances:

Kroger developed the industry’s first real-time solution for queueing to answer the question, “What if we could open another lane the moment queueing conditions required it?” Simulation models led to a system of sensors above each entrance and register that measures the number of customers walking into stores, as well as the number of customers standing in line at each lane. Combined with a real-time POS feed, Kroger is able to make predictions on the number of customers arriving at the front end by day of week and time of day. The system tells managers on a big screen hanging above the registers how many lanes are open, how many lanes should be open now, and how many should be open in 30 minutes, in order to proactively meet the rush of customers about to arrive.

Its inventory control model, Pharmacy Inventory Optimization, helps set Min/Max re-order points for the ordering system, reducing annual out-of-stocks by 1.7 million prescriptions, labor ordering costs by $10 million, and annual inventory costs by $120 million, while increasing sales by $80 million. It was a finalist for the INFORMS Franz Edelman award.

Classroom discussion questions:

How has OM helped Kroger become an innovator?
Where else can OM tools be used to increase productivity in a supermarket?

Video Tip: Walmart Robots Stroll Down the Aisles Taking Inventory

A robot made by Bossa Nova Robotics checks inventory in a Wal-Mart aisle.

Robots aren’t just for sale in the toy aisle, they’re gliding down them. “Bossa Nova Robotics is sending its shelf-scanning robots out to 50 Walmart stores in a real-world use of technology to help one of the planet’s largest retailers keep its aisles stocked and ready for customers,” writes the Pittsburgh Post-Gazette (Nov. 9, 2017).

The Bossa Nova uses sensors similar to those on self-driving cars to navigate — taking photos of shelves, as well as recording data about products’ prices, locations and if they’re out of stock. The 2 foot tall white robot simply scans, passes information to the cloud, communicates that data to Walmart’s back-end system and relays that knowledge to store associates.

With e-commerce sales growing exponentially each year, brick-and-mortar chains need to operate near-perfectly to retain customers. A lost sale in a physical retail store has always been an inefficiency, but now the stakes are higher. “The information the robot is capturing is whether there’s an out-of-stock, because that is the biggest frustration of shoppers,” said a Bossa Nova exec. “If they don’t have it, you’re going home without it — or maybe you go to a different store.”

The Bossa Nova Robot employs a number of sensors, including light detection and ranging (lidar) technology, a critical element in self-driving cars. Gliding slowly down a store aisle — at about 0.4 meters per second, or a rather lax walking pace — the robot scans its environment with depth sensors to avoid collisions with shelves, or more importantly, people. As soon as a customer gets close, the robot moves out of the way and shuts off its high beams.

Embedded in the article is a short (1.5 minute video) you may wish to show in class when discussing inventory management in Chapter 12.

OM in the News: Using Drones to Take Inventory at Walmart

drone work in classic warehouse 3d image — Drone working in a Walmart warehouse

Soon, the labyrinthine aisles at Walmart’s distribution centers — stocked high with canned beans, toys and many other products — could also have a low humming sound. The country’s largest retailer, reports Supply & Demand Chain Executive (June 6, 2016), is testing the use of flying drones to handle inventory at its large warehouses, which supply the thousands of Walmart stores throughout the nation. In 6-9 months, the machines may be used in its distribution centers.

At a recent demonstration, a drone moved up and down an aisle packed nearly to the ceiling with boxes, taking 30 images per second. Walmart’s VP of Emerging Sciences and Technology explained that the machines could help catalog in as little as a day what now takes employees about a month. Walmart workers now manually scan pallets of goods with hand-held scanning devices. The drone’s methodical, vertical movements would essentially mimic the path of a person in a forklift who might be inspecting labels and inventory. While a Walmart employee may handle the drone, the technology could mean fewer workers would be needed to take stock or replace missing items.

Walmart is under intense pressure to grow amid an onslaught of low-cost competition, particularly from Amazon. It has committed to spending $2.7 billion on labor and technology to improve its on-line business. Walmart operates 190 distribution centers in the U.S., and each one services 100-150 stores. Millions of items can move through the centers each week and onto a fleet that includes 6,500 trucks and 8,000 drivers to move merchandise throughout the U.S.

Classroom discussion questions:

Why are the drones a potentially important OM tool?
What is Amazon doing to automate its warehouses?

OM in the News: Bar-Code Scanners Pick Up Speed

‘Brick on a stick’ scanner guns are being revamped. Shown, a new scanner from Zebra.

Scanner guns—the bar-code readers used in warehouses world-wide—are getting a makeover, as retailers scramble to boost productivity amid a surge in online orders, reports The Wall Street Journal (Jan. 8, 2016). From “rings” that workers wear on their hands to modified smartphones, companies are testing alternatives to the “brick on a stick” scanners that have been the industry standard for decades. The goal: shave a few precious seconds off the time it takes for workers to select, pack and ship items. Warehouse workers use scanners thousands of times a day. Retailers rely on the devices to keep track of hundreds of thousands of goods stored in, and moving around, massive distribution centers.

Retailers and others that sell online, as well as logistics companies, are hungry for new ways to improve efficiency to counter the added labor and transportation costs associated with filling online orders. Competition from e-commerce giant Amazon.com on both price and speed has forced them look for any possible way to cut costs and shorten delivery times, experts say. The most sophisticated of these companies already analyze the movements of their employees down to minute details. Global sales of mobile scanning devices used in warehouses reached about $850 million in 2015, up 33% since 2013.

Warehouse workers can suffer from carpal tunnel syndrome and other injuries from repetitive movement. The transportation and warehousing industry has the highest rate of occupational injuries and illnesses among private sector industries.

Classroom discussion questions:

Why are scanners so important in operations?
The Zebra device shown in the photo can improve picking rates by 10-20%. How would that impact an Amazon warehouse?