Accounting Best Practices, Fifth Edition

16–28. Track Inventory with Radio Frequency Identification (RFID)

A major problem with any manually operated inventory system is the vast number of transactions required to track receipts into the warehouse, moves between bins, issuances to the shop floor, returns from the floor, scrap, and so on. Every time someone creates a transaction, there is a chance of incorrect data being entered, resulting in a cumulative variance that can be quite large by the time a stock item has wended its way through all possible transactions. Incorrect inventory information leads to a host of other problems, such as stockouts, incorrect purchasing quantities, and a seriously inaccurate cost of goods sold.

One way to avoid these transactional errors is to use the new RFID technology. Though only recently formulated,^[2] the technology has already been adopted by Wal-Mart, which should ensure a rapid rollout in at least the retail part of the economy. The basic RFID concept has been around for years—attach a tiny transmitter to each product, which then sends a unique encoded product identification number to a reader device. The cost of these transmitter tags has dropped to about 10 cents, which begins to make it a cost-effective alternative for some applications. Growing use of the technology will likely reduce the cost further.

^[2] The RFID standards can be found at www.epcglobalinc.org.

When a tagged inventory item passes near a reader device, the reader emits a signal, which powers up the tag, allowing ...