The impact of false-negative reads on the performance of RFID-based shelf inventory control policies

Effective retail in-store logistics are paramount to provide high product availability at minimal operating costs. Despite various efforts by retailers to lower out-of-stock rates on retail shelves, product availability remains insufficient thereby significantly degrading a store's performance. Currently, retailers consider the introduction of Radio Frequency Identification (RFID) to improve the efficiency of replenishment processes in stores. However, the possibilities of RFID are ultimately limited by the physical characteristics of RF communications. Tag detuning and the absorption of radio waves by the tag's environment may lead to so-called ‘false-negative' reads, i.e., RFID tags in range being undetected by the reader device. Retailers ignoring the impact of false-negatives on the performance of RFID-based inventory control systems run the risk of overestimating the benefits to be expected from RFID. We develop an inventory control policy based on shelf stock information generated by RFID, which specifically accounts for inaccuracies associated with false-negative reads. The mathematical model is optimized for operating costs and compared to a basic periodic review strategy in a numerical study. The results indicate that the impact of false-negatives on cost remains modest for medium to high read rates. However, the system performance is sensitive to a number of exogenous parameters that must be considered when evaluating the practical use of RFID.