Magazine Article | July 13, 2007

RFID Helps Reduce Fraudulent Claims

Source: Field Technologies Magazine
Integrated Solutions, April 2007

Sears Holdings Corp. ships all unsold, damaged, and returned merchandise from its stores in the southeastern United States to a returns center in suburban Atlanta. There, the merchandise is sorted, assessed, and disposed of in any of three ways: returned to the manufacturer, sold in small quantities at auction, or sold in large quantities to more than 3,000 salvage dealers. More than 3,400 pallets and 800,000 items are processed each month. The Atlanta returns center is one of three operated for Sears by 3PL (third party logistics) provider GENCO.

For years, pallets of outbound merchandise were bar coded. The bar codes often were hard to read accurately — sometimes they were not scanned at all, as experienced workers simply visually checked the shipments. The result was an increase in inaccurate shipments and erroneous loading onto trucks, which led to customer complaints and claims. Salvage dealers often claimed they did not receive merchandise as ordered, and it was difficult — sometimes impossible — to determine if the fault was the center's or the dealer's. Worse, a false claim could slip through because it was too expensive and time-consuming to verify.

Seeking to lower costs, improve efficiency, and discourage fraudulent claims, GENCO implemented a pilot program in which it placed RFID (radio frequency identification) tags on all outbound shipments to salvage dealers. Each forklift was equipped with an RFID reader and screen so that operators were immediately alerted if they were loading pallets on the wrong truck.

The new system reduced warehouse workers' errors without adding payroll cost, reduced the time it took to research claims because it provided a verifiable time and date stamp for each shipment, and established a disincentive for fraudulent claims through electronic tracking. An independent study by graduate students at Carnegie Mellon University's Tepper School of Business found that the system reduced claims by salvage dealers by 54%. GENCO has since expanded its RFID deployment to all outbound operations at the Atlanta returns center.