Identification shrinkage in inventory management: an RFID-based solution

The identity of a product in a retail store setting is commonly represented by attached tag(s) and/or labels. This identification mechanism works reasonably well in practice. However, there are situations where such identification information may be intentionally or unintentionally separated from the associated item. While it is possible, in principle, to restore an item’s identification information based on its location, characteristics, among others, such attempts are not always successful. We consider a few scenarios where an item’s identification information is lost or switched with that from another item (ticket-switching) through intentional or unintentional means. We propose an RFID-enabled tracking/tracing system to address this with a knowledge-based self-adaptive mechanism. We consider three different scenarios to illustrate and estimate the underling value of such a system. Our results indicate that identification shrinkage could result in large losses that are associated with inventory cost due to both additional holding cost and inflated demand. We show how this can be addressed by utilizing an RFID-based tracking/tracing system. With limited resources and the presence of ticket-switching problem, our analyses indicate a counter-intuitive result that inventory managers should prioritize ‘cheap’ items.