Shrinkage Solution with RFID: Definition, Process, and Applications

In the fast-paced retail and logistics era, inventory shrinkage is a major challenge, squeezing margins and compromising inventory accuracy. Losses can arise from theft, administrative errors, and even damaged goods. UHF RFID technology offers item-level visibility and process automation, helping to more accurately detect, prevent, and analyze shrinkage.

Understanding Shrinkage

Shrinkage is the negative difference between actual stock and actual stock due to factors such as internal theft, external theft, recording errors, misshipments, and damage. In the context of RFID, shrinkage is addressed by uniquely identifying each item using tags. UHF RFID This allows for automatic monitoring of goods movement from receipt, storage, sale, and exit. Unlike barcode labels, which require line of sight, RFID can be read en masse without visual contact, making stock audits and exit control more efficient.

RFID Function

RFID has a variety of functions, from preventing item loss to minimizing recording errors. Here are some of the functions of UHF RFID to reduce shrinkage.

1. Real-Time Detection of Goods Coming in and Out

RFID enables automatic reading when items pass through critical points such as receiving areas, warehouses, back rooms, and exits. This data helps identify items leaving without a valid transaction, thus reducing shrinkage.

2. Fast and Accurate Stock Audit

With handheld UHF RFID, teams can conduct regular stock counts in minutes. Accuracy is increased because each item has a unique EPC, quickly identifying stock anomalies that could lead to shrinkage.

3. Visibilitas Rantai Pasok End-to-End

The same tag can be tracked from the factory to the distribution center to the store. This digital trail helps trace the source of shrinkage, such as loss in transit or misplacement.

4. Cause Analysis and Early Warning

Middleware analyzes item movement patterns and matches them with POS data. Discrepancies trigger alerts, such as items passing through a gate without a transaction or entering a restricted area during certain hours.

5. Integration with POS, CCTV, and EAS

RFID data can be linked to POS transactions and CCTV footage for investigations. This system can also complement or replace traditional EAS with specific item identification.

RFID components

The following are the main components of a UHF RFID system commonly used for shrinkage control.

1. Tag UHF RFID

UHF RFID labels or inlays contain unique EPCs for item-level identification. These can be adhesive labels for fashion, hang tags for assets, or specialized form factors for metals and liquids.

2. Reader UHF RFID

Reader Fixed devices located at portals, cashiers, or exits, as well as handheld readers for stock audits. Readers send data to middleware for processing into business events.

3. Antenna

Antenna a portal, a ceiling, or a shelf transmits radio waves and captures the tag's response. The placement and radiation pattern are calibrated to accurately locate the reading area and minimize cross-reading.

4. Middleware and Applications

Edge or server software that performs filtering, event processing, business rules, and integration with POS, WMS, or ERP. Provides shrinkage dashboards and notifications.

5. Infrastructure and Accessories

Includes network, power, mounting, enclosure gate, RFID printer-encoder for source tagging and reprinting processes, as well as work safety devices in the installation area.

How it works

Broadly speaking, the shrinkage control process using UHF RFID begins with tagging each item and encoding the EPC associated with the SKU data. Upon receipt, a reader reads the tag to verify quantity and document compliance. Within the store or warehouse, periodic readings with handhelds or area antennas provide visibility of actual position and quantity.

When items move through sensitive areas such as exits or backdoors, the portal antenna automatically reads the tags. Middleware compares the event with POS transaction data or expense documents. If an item exits without a valid transaction, the system triggers an alarm, sends a notification, or locks the gate according to policy. Historical data is analyzed to identify shrinkage patterns and root causes.

Advantages

This technology offers various advantages in increasing operational efficiency.

1. Identify Specific Item Levels

Unlike EAS, which only detects the presence of tags, RFID identifies which items are moving so investigations are faster and more accurate.

2. Mass Reading Without Line of Sight

Hundreds of items can be read simultaneously without having to be pointed at a scanner. This speeds up stock audits and exit control.

3. Long and Flexible Reading Distance

UHF RFID has an adequate reading range for portals, ceiling readers, or handhelds, so the system design can be adjusted to the layout.

4. Strong Data Integration

RFID data can be directly connected to POS, WMS, ERP, and even CCTV, enabling context-rich and actionable shrinkage analytics.

Disadvantages

Even though it has many advantages, there are several things that need to be considered in its implementation.

1. Initial Tag and Infrastructure Costs

Each item requires a UHF RFID tag and investment in readers, antennas, and middleware. A realistic ROI calculation is required.

2. Sensitivity to the Environment

Metallic materials and liquids can affect read performance. Special tag selection and site survey testing are required.

3. System Design and Calibration

Antenna placement, power tuning, and determining the reading zone are crucial to prevent false positives or missed reads in the portal area.

4. Process Change and Change Management

RFID implementation requires new process disciplines such as source tagging and exception handling. Training and standard operating procedures (SOPs) must be developed.

Applications in Various Industries

This technology is now used in various sectors because of its flexibility and efficiency.

1. Retail Fashion

RFID helps with item-level visibility, fitting room control, and exit portals to reduce theft while increasing size and color availability.

2. Supermarkets and FMCG

Speed ​​up receiving, perform back shelf cycle counts, and detect the movement of high-value items in staff entry and exit areas.

3. Logistics and Distribution Center

Monitoring the movement of cartons and valuable items, verifying loading and unloading, and preventing shrinkage during transit.

4. Manufacturing

Tracking of WIP and finished goods, control of storage areas, and verification of the release of goods from the production area to the warehouse.

5. Healthcare

Tracking of high-value drugs and medical devices, access control of pharmacy rooms, and fast and accurate stock audits.

6. Library

Reduce book loss through RFID gates, speed up collection inventory, and simplify the borrowing and return process.

Conclusion

Shrinkage reduces profitability and disrupts inventory availability. With UHF RFID, companies gain item-level visibility, accurate exit control, and historical data for root-cause analytics, making loss prevention programs more effective.

In the industrial world, the success of an RFID project to address shrinkage is determined by the design of the read zone, the selection of tags appropriate to the material, integration with POS or WMS, and the management of changes in daily operations. The combination of appropriate technical design and process discipline will yield sustainable benefits.

As an end-to-end RFID solutions provider, TUDI ready to help you design an efficient and integrated RFID system. The TUDI team provides UHF readers, gateway antennas, handhelds, middleware, and POS and ERP integration services. Consult your needs with the TUDI team of experts to find the best solution for your business.

Read Also: Stocktaking with RFID: Definition, Function, Process, and Implementation