RFId-enabled Lateral Trans-shipments in the Fashion &

Apparel Supply Chain

Riccardo Mogre, Alessandro Perego and Angela Tumino

Department of Management, Economics and Industrial Engineering, Politecnico di Milano

Piazza Leonardo da Vinci 32, 20133 Milan, Italy

Abstract. There is a growing attention towards the application of Radio

Frequency Identification (RFId) technology in the Fashion & Apparel supply

chain. This paper describes a Lateral Trans-shipment replenishment policy

enabled by item-level RFId tagging. In fact, in order to adopt a Lateral Trans-

shipment policy, a firm should have an accurate visibility of both the inventory

level in its warehouses and in each store. Such visibility can be provided by

RFId technology. An analytical model has been developed to evaluate the

convenience of applying a Lateral Trans-shipment policy, and the main

managerial implications are discussed.

1 Introduction

There is a growing interest in the application of Radio Frequency Identification

(RFId) technology in the Fashion & Apparel industry, proved by the various projects

launched worldwide (e.g. [1]). Both managers and academics foresee that RFId can

lead to great benefits in terms of reduction of thefts and counterfeiting, increment of

on-shelf availability, and thus a better service level (e.g. [2]). In fact, RFId enables the

monitoring of WIP (Work In Progress) and finished products along the supply chain,

thus allowing a better control of the process [3]. Moreover, this better visibility

enables new replenishment policies like Lateral Trans-shipment, i.e. the shipment of

goods between two retail stores, which are believed to lead to a reduction in stock-

outs, inventories and transportation costs [4].

The relationship between RFId technologies and new replenishment policies

aimed at improving the performance in the points of sale is little studied in the

literature, with a few notable exceptions (e.g. [5]). This paper aims to present an

analytical model to assess the benefits of RFId-enabled Lateral Trans-shipment

policies in the Fashion & Apparel industry.

The paper is structured as follows. Section 2 presents the problem context,

underlining the effects of Trans-shipment policies and the RFId technological

scenario required to perform such policies. Section 3 provides the description of the

analytical model and Section 4 presents the results of its application to a prominent

Italian company. The last section presents a discussion and some concluding remarks.

Mogre R., Perego A. and Tumino A. (2009).

RFId-enabled Lateral Trans-shipments in the Fashion & Apparel Supply Chain.

In Proceedings of the 3rd International Workshop on RFID Technology - Concepts, Applications, Challenges , pages 117-124

DOI: 10.5220/0002201001170124

 SciTePress

2 Context

2.1 Lateral Trans-shipment in the Fashion & Apparel Supply Chain

In the Fashion & Apparel Supply Chain the points of sale are usually replenished

from local distribution centers or warehouses. The products are shipped with a “Less

than Truck Load” transportation, i.e. small trucks or lorries visit many stores in a

round trip. Nevertheless, when the distance between the warehouse and the points of

sale is not that small, if a store runs out of an article, it can take a very long time

before that product is replenished from the warehouse. If consumers cannot find a

product on the shelf, the company owning the stores suffers a lost sale.

The Lateral Trans-shipment policy can be used to avoid product shortages or to

reduce the effects of shortages, i.e. the time during which the product is not available.

Lateral Trans-shipment means a “horizontal” shipment between two nodes at the

same level of a supply chain, in our case two stores [4], [6]. This means that the store

which runs out of an article can be supplied by another store (owned by the same

company) which still has enough quantity of the same article. More specifically,

Lateral Trans-shipments can be divided into Emergency Lateral Trans-shipments

(ELT) and Pre-emptive Lateral Trans-shipments (PLT). ELT is the reaction to a

stock-out occurring in a store, and consists of providing the store with the required

articles from another store that has ample stock [7]. PLT instead reduces stock-out

risk by redistributing the stock between the stores before customer demand is realized

[4], [6].

Lateral Trans-shipment policies could be very useful for firms operating in the

Fashion & Apparel industry since:

• The configuration of the Fashion & Apparel supply chain includes many stores

located very near to each other (e.g. in the city center) with a central warehouse

usually located far from them;

• The demand characterizing the products of this industry is hardly predictable

(fashion effect);

• The stores usually keep small amounts of stock due to the scarce availability of

space, again as they are usually located in the city center.

Currently, firms operating in the Fashion & Apparel industry do not have an

accurate visibility of the inventories, especially those available in the stores. This

inaccuracy is due to thefts and shrinkage (e.g. shipping errors) occurring in the supply

chain between the Central Warehouse and the points of sale. Moreover, thefts and

errors can also occur inside the points of sale. The lack of visibility is an obstacle to

the implementation of Lateral Trans-shipment, as this policy requires knowledge of

the exact level of inventory in each store. The inaccuracy could be eliminated by

scanning all the articles at their arrival to the point of sale, thus updating the inventory

status. Nevertheless this operation would take too much time if performed with

traditional bar-code technology. In fact, it would require to open each case, remove

the plastic bag that covers each article, find the bar-code and scan it. RFId technology,

thanks to the possibility of identifying the articles without a direct line of sight, can

provide an extremely efficient and effective way of performing this activity.

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2.2 RFId Scenario

RFId technology allows the tracking of every single article along the Fashion &

Apparel supply chain. A unique identifier (EPC, Electronic Product Code) can be

written in the tag applied to each article, and the specific product features, along with

supply chain information (e.g. the countries where the product is designed or

produced), can be associated to each identifier in the firm’s Information System.

Using RFId scanners, the operators can identify all the goods without opening the

cases, by simply waving the scanner near each case. When the operators read the tags,

the new location (i.e. the store) is recorded in the Information Systems. The

technological feasibility of this solution has been proved by the tests carried out by

the Italian GS1 EPC Lab, which has shown good read rates [8]. More specifically,

three reading configurations have been tested to better simulate different application

scenarios: clothes contained in a box moved on a conveyor, hanging clothes moved

on a roll-container, and multiple boxes of clothes moved on a roll container.

Two tagging solutions can be adopted.

1. Apply a re-usable tag that can be removed by the operators when the product is

sold and then sent back to the plant to be put on other products. These tags should

be designed in order to prevent the damage of the articles (cf. Figure 1a). They

might have also anti-theft functionalities. As a drawback, they are quite expensive

and unwieldy.

2. Apply a disposable tag whose removal from the article is not required when sold.

This tag can be integrated in the article label, thus supporting anti-counterfeiting

and, potentially, anti-theft functionalities. This tag is less expensive than the

former and, because of its small dimension, there is no risk to damage the articles

(cf. Figure 1b).

(a) (b)

Fig. 1. The RFId tags (courtesy of the Italian GS1 EPC Lab).

2.3 Reference Replenishment Policies

When a stock-out occurs in a store (called Receiver Store), without the adoption of

RFId technology, the store manager can decide to:

1. “do nothing” (DN), i.e. the store manager decides to bear the cost of stock-out

without changing the replenishment policy. The basic assumption is that if the

customer does not find the article in the store, the sale is lost unless the article

becomes available in a few days (which is not possible without changing the

replenishment policy);

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2. adopt a “Central Warehouse - Express Courier” or CWEC policy, i.e. the use of

Express Courier services for an emergency shipment from the Central Warehouse.

The basic assumption, as described later (cf. Section 3), is that the customer

accepts to come back to the point of sale to buy the article if it is made available at

the store in a few days.

When the RFId scenario described in Section 2.2 is adopted, a third option is

available:

3. adopt an “Emergency Lateral Trans-shipment” or ELT policy, i.e. an urgent

shipment from another retail store (called Supplier Store) of the same company.

Again, the basic assumption is that the customer is willing to wait a few days in

order to buy the article. When a stock-out occurs in a point of sale, the store

manager contacts an Express Courier to transport the needed product from the

Supplier Store to the Receiver Store. This policy can be applied only if the firm

has a complete, accurate visibility of stock in all the points of sale, which is the

case if item-level RFId tagging is adopted.

3 Model

The proposed model aims to evaluate the benefits related to the adoption of a Lateral

Trans-shipment policy which is enabled by RFId technology. In order to do this, the

model compares the payoffs of the three replenishment policies described in Section

2.3 (DN, CWEC, ELT). These payoffs have been evaluated by considering a base-line

situation in which the article is available at the store and can be sold.

The model has been developed under the following assumptions.

• The model supports the management of a stock-out that has already occurred,

while it does not take into consideration policies which can be adopted to prevent

future stock-outs.

• When a stock-out occurs in a store, there is at least one product available in the

Central Warehouse and one product available in an other store.

• When a stock-out occurs, the customer is willing to wait a few days in order to

buy it. This “fast delivery” is enabled only by the CWEC and ELT policies, while

the replenishment time in the “do nothing” scenario is too long. More specifically,

when a CWEC or an ELT policy is adopted, the customer is supposed to book the

missing article and buy it when it becomes available at the store.

• When a Central Warehouse Express Courier (CWEC) or an Emergency Lateral

Trans-shipment (ELT) policy is adopted, the cost to process the additional

shipment order is considered to be negligible.

• The model refers to a scenario in which only one article at a time runs out of

stock, while it does not consider the situation in which many articles are

simultaneously out of stock.

The model is based on the following parameters.

1. Price (PR), i.e. the price of a single article.

2. Gross Margin (%GM), i.e. the difference between the price and the production

cost of a single article, expressed in percentage of the price. The value of %GM

has been assessed through a real case and is 42.2%.

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3. Consumption probability (PROB), i.e. the probability that a product is bought in a

store. PROB depends on various factors, the most important being the current

level of stock in the store and the remaining time before the end of the season.

These factors are not explicitly considered in the model, but they should be

considered to assess the proper PROB value.

4. Expected Markdown (%EM), i.e. the percentage of expected reduction of the price

of an article. The %EM should be higher when the product is expected to be sold

near the end of the season or in the end-of-season sale. The expected value of

%EM has been assessed through a real case and is 7.8%. This value already takes

into account the probability of selling a product with different discount prices and

the discount prices themselves.

5. Transport Cost (TC), i.e. the cost of transporting the goods from one destination to

another. The model considers only the extra-costs to transport the missing goods

to the store urgently. This cost is usually high, as the transport is performed with

an Express Courier. We refer to TC

ELT

in case of Lateral Trans-shipment from a

nearby store and TC

CWEC

in case of Central Warehouse Express Courier case. The

value of TC

ELT

is € 10; the value of TC

CWEC

is € 15 if the Central Warehouse is

located in the same country of the store and it is € 69 if the Central Warehouse is

not located in the same country of the store.

It is now possible to compute the payoff for each identified policy. As stated

before, the payoffs have been assessed by considering the differential costs and

benefits with respect to the situation in which the article is available in the store. If the

store manager decides to “do nothing” (DN), he tells the customer that the product is

not available in the store. Obviously, the payoff of this policy is always negative, as

the firm bears the stock-out cost without any additional income. The stock-out cost

can be simply expressed as a lost margin (%GM*PR), as shown in Formula 1.

= – %GM*PR (1)

If the store manager decides to apply a Central Warehouse Express Courier

(CWEC) policy, he will allow the customer to book the product, that will be shipped

as soon as possible from the Central Warehouse through an Express Courier. Then,

the payoff of the CWEC policy considers only the transportation cost through an

Express Courier service from the central warehouse to the Receiver Store (TC

CWEC

since the article is indeed sold to the customer (cf. Formula 2).

CWEC

= – TC

CWEC

(2)

If RFId technology is in place, the store manager might also decide to apply the

Emergency Lateral Trans-shipment (ELT) policy. In this case the store manager will

allow the customer to book the product, which will be shipped as soon as possible

from a Supplier Store through an Express Courier. Then, the payoff of the ELT policy

is the transportation cost through an Express Courier service from a nearby store

ELT

. Moreover, it is necessary to consider that the same article, if not shipped to the

Receiver Store, could be sold in the Supplier Store in the future with a probability

PROB. For this reason, the expected value of stock-out cost in the Supplier Store

should be considered (PROB*%GM*PR), reduced by the entity of the Expected

Markdown.

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ELT

= – TC

ELT

– PROB*%GM*PR*(1-%EM) (3)

4 Results

This section presents the results obtained by the application of the model to a

reference multi-store fashion company (Table 1).

Table 1. Payoffs for the different policies.

Article price PR

(€)

PROB

Payoffs (€)

CWEC

ELT

Same country Nearby country

- 12.66

- 15.00

- 56.34

-10.00

0.25 -12.92

0.5 - 15.84

0.75 - 18.76

1 - 21.68

- 25.32

- 10.00

0.25 - 15.84

0.5 - 21.68

0.75 - 27.52

1 - 33.36

120

- 50.64

- 10.00

0.25 - 21.68

0.5 - 33.36

0.75 - 45.04

1 - 56.72

In particular, the three replenishment policies have been compared for three levels

of article prices: “Low price” (€30), “Average price” (€60) and “High price” (€120).

Moreover, since the results depend on the probability that a product is sold, five

different values of PROB have been considered.

Obviously, all the payoffs are negative, since the base-line scenario is the absence

of stock-outs and the considered options are ways to mitigate the effect of a stock-out.

The results depicted in Table 1 show that:

• The payoffs of the DN policy depend on the price of the article (the higher the

price, the higher the stock-out cost) and are not affected by the probability PROB.

• The payoffs of the CWEC policy depend only on the location of the central

warehouse. If the Central Warehouse is located in a nearby country, the

transportation costs are significantly higher.

• The lower the probability PROB, the higher (i.e. the less negative) the payoffs of

the ELT policy, because the firm succeeds in exploiting the highest margin from

products that have already been shipped to the stores and that can have little

likelihood of being sold in the future.

Analyzing the results, there is strong evidence that the Emergency Lateral Trans-

shipment enabled by RFId technology is highly recommended in a large number of

cases. In order to support the decision, Fig. 2 compares the policies that can be

adopted with or without the RFId technology on the basis of the location of the central

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warehouse, the price of the article and the e the probability PROB of selling the article

in the Supplier Store by the end of the season.

No RFId

Nearby country

PR=€30

Best policy: DN

Payoff (€): -12.66

Best policy: DN

Payoff (€): -25.32

PR=€60

Best policy: DN

Payoff (€): -50.64

PR=€120

Best policy: DN

Payoff (€): -12.66

PR=€30

Best policy: CWEC

Payoff (€): -15.00

PR=€60

Best policy: CWEC

Payoff (€): +15.00

PR=€120

Same country

RFId

Nearby country

Same country

PR=€30

Best policy: ELT

Payoff (€): -12.66 -10.00

Best policy: DN

Payoff (€): -12.66

PR=€60

Best policy: ELT

Payoff (€): -15.00 ÷ -10.00

Best policy: CWEC

Payoff (€):-15.00

Best policy: ELT

Payoff (€): -15.00 ÷ -10.00

Best policy: CWEC

Payoff (€): -15.00

PR=€120

PROB

∀

PROB

∀

PROB

∀

PROB

∀

PROB

∀

PROB

∀

PR=€30

Best policy: ELT

Payoff (€): -12.66 -10.00

Best policy: DN

Payoff (€): -12.66

PR=€60

Best policy: ELT

Payoff (€): -25.32 ÷ -10.00

Best policy: DN

Payoff (€):-25.32

Best policy: ELT

Payoff (€): -50.64 ÷ -10.00

Best policy: DN

Payoff (€): -50.64

PR=€120

Fig. 2. Comparison of the different policies.

It can be observed that the payoffs obtained in the RFId scenario are always equal

or higher than those obtained without RFId. This is due to the fact that RFId can

enable a new policy (ELT) which proves to be convenient in most of the considered

situations. Analyzing the results more in detail it can be observed that:

• When RFId technology is not implemented, the firm can decide to “do nothing”

(DN) or to send the article from the Central Warehouse with an Express Courier

(CWEC). A CWEC policy should be preferred when the additional transportation

costs are covered by the additional margin, i.e. when the Central Warehouse is

located in the same country or for high value products, and for “average” or “high

value” products.

• In the RFId scenario, the firm can decide to “do nothing” (DN) or to adopt two

alternative policies, i.e. CWEC or ELT. Figure 3 shows that when the Central

Warehouse is located in a nearby country ELT becomes more convenient for high

value products and for products which have little likelihood of being sold in

future. In the other situations, the DN policy should be preferred due to the high

transportation cost related to the CWEC policy. When the Central Warehouse is

located in the same country and the article has a low probability to be sold ELT

proves to be the best policy. In the other scenarios, DN should be preferred for

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low value articles, while the adoption of CWEC policy is recommended for

“average” or “high value” products.

5 Concluding Remarks

RFId technologies can enable an Emergency Lateral Trans-shipment (ELT) policy in

the Fashion & Apparel Supply Chain. ELT is convenient when there is a low

probability to sell the products at full price in the Supplier Store, therefore every

potential sale should be exploited and when the Central Warehouse is far from the

stores, e.g. it is located in another country, and an express shipment from the

warehouse to the store would be extremely expensive.

Further studies should also investigate the Preventive Lateral Trans-shipment

policy and relax some of the model assumptions, for instance considering a

distribution network with more than two points of sale and/or a cost to process the

additional shipment order different from zero. Further studies should also be devoted

to the assessment of the benefits and the Return of Investment (ROI) ensuing from the

adoption of item level RFId tagging in Fashion-Retail supply chain. This application,

by improving visibility, can enable companies to apply a large set of different policies

in terms of collaboration and replenishment, and not exclusively the Lateral Trans-

shipment based ones.

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