RFID and Supply Chain Management: A Brief Outline Sunita Mall* and Sidharth Mishra** Enterprise-wide applications are appreciated by the companies nowadays. For better planning of resources and optimizing the process and profit, these implementations are very much beneficial. Moreover, it synchronizes the data and helps in an easy flow of information within the organization. However, capturing and tracking the actual data is a major concern which has encouraged the companies to focus on the effective supply chain management. Radio Frequency Identification (RFID) as an advanced technology can solve these problems very well. A firm s objective of achieving efficiency and responsiveness can be fulfilled by the use of RFID technology. RFID though helps in collaborating the trading partners in an effective way and makes the supply chain process of an organization more efficient and responsive. Moreover, RFID helps the organization to enhance its overall efficiency. However, it does not come without risks which could delay the adoption of this technology. This paper proposes a conceptual model of effective supply chain management using RFID. In addition, it also identifies the attributes that affect RFID adoption. Finally, the paper summarizes the challenges as well as the benefits that companies can get by adopting this technology. Introduction Nowadays companies are doing business at a global level. The first objective of the company is to satisfy its customer by delivering quality goods and services on time. The movement of the product/service starting from the manufacturer to the end-users is called the supply chain process. Ganeshan and Harrison (1995) defined supply chain as A network of facilities and distribution options that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. The supply chain process is executed through different stages called the levels of supply chain. Moreover, A supply chain consists of all the stages involved, directly or indirectly in fulfilling a customer s request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers and customers themselves (Chopra and Meindl, 2001). The efficiency of a supply chain and logistics play a great role in increasing the return of any business. However, the question is how to achieve an optimum level of operational efficiency in the supply chain. Currently, the interconnectivity among the various links in the supply chain and logistics is incomplete and inaccurate owing to the fact that each link in the chain is an individual entity. This leads to poor product visibility and * Assistant Professor, Department of Statistics, School of Science, Narsee Monjee Institute of Management Studies, Mumbai, Maharashtra, India. E-mail: malsunita@gmail.com ** Management Student, Institute of Management and Information Science, Bhubaneswar 751002, Odisha, India. E-mail: siddharth.imis@gmail.com RFID 2012 and IUP. Supply All Rights Chain Reserved. Management: A Brief Outline 1

transparency in stock in the supply chain. This is especially important when scalability issues come into picture. The answer to this problem is the implementation of Radio Frequency Identification (RFID) technology clubbed with information sharing systems. This combinatory technology will play a vital role in the future of global trade. With boundaries of trade constantly increasing and becoming more dispersed, it is important to have a tool that collaborates this type of complex supply chain. However, decision to implement any new technology is questionable since cost is involved. Most companies are hesitant to implement such technology because of they are not sure about the ROI from this implementation. Vertical segments, such as manufacturers, retailers and distributors, consider Supply Chain Management (SCM) crucial for their business, and the advent of RFID was found to enhance the efficiency of the SCM process. RFID technology is also very widely used by retailers as it helps in minimizing communication gaps between the suppliers and retailers by transforming the right informant ions at the right time. Growth of electronic retailing in the form of bar code scanning, Global System for Mobile communications (GSM), adoption of RFID and other electronic gadgets have expedited the marketing function of a majority of retail organizations. Moreover, it is possible to gain crucial information about customers and coordinate the operations through RFID. RFID makes the supply chain process effective and efficient. RFID manages the entire supply chain activities like procurement of materials, storing the material, management of inventory, manufacturing process, logistics and management of customer service. The paper first provides a review of literature, explains RFID as an advanced tool, focuses on the applications of RFID and depicts the importance of RFID in enhancing the supply chain performance. It then explains a conceptual model, defining the problems of an ineffective supply chain process and also reducing or completely removing these problems by using RFID technology and describes the challenges to RFID implementation, before closing with suggestions and conclusion. Literature Review Enough empirical evidence is documented for using supply chain management for effective distribution and allocation. However, literature on applications of RFID is thinly documented in the empirical studies. In fact, in the Indian context, only a little study has been conducted. In this paper, we focused on building a conceptual framework for the possible application of RFID so that a significant improvement in supply chain management is possible. As RFID is in its infant stage in India, many studies have not been conducted in this area. Several studies have focused on specific benefits, but a comprehensive study on most sought benefits has not been undertaken. This paper attempts to study the research gaps in the area of RFID. Brewer and Sloan (1999) considered RFID system as an intelligent tracking mechanism to support the logistics function. Jansen and Krabs (1999) further added that RFID controls returnable containers. A study conducted in the UK retailers 2 The IUP Journal of Supply Chain Management, Vol. IX, No. 3, 2012

Sainsbury s outlet discussed the potentials of RFID and found that short shelf life products can be monitored more efficiently, and thus RFID has helped in improving the supply chain efficiency (Karkkainen, 2003). A study conducted by Dong-Her et al. (2008) on factors affecting RFID s adoption in Taiwan revealed that companies adopt RFID to increase efficiency in terms of operations, manufacturing and supply chain. On a similar ground, Rekik et al. (2008) added further by stating that the errors in inventory management can be reduced by adopting RFID. Further, Lin and Wadhaw (2008) reported that RFID helps in reducing the supply chain costs. Attaran (2007) found that RFID technology improves supply chain communication and collaborates the whole system. It helps in managing SCM on real-time basis. A study conducted by Vijayaraman and Osyk (2006) revealed that many retailers were not considering RFID implementation. However, there had been no discussion on factors such as driving RFID implementation across various industries. Karkkainen and Holmstrom (2002) stressed that firms were currently focusing on the use of RFID within the supply chain. From the above literature review, it can be understood that adequate studies have not been conducted in the area of RFID. Numerous sources state that attaining a short-term ROI from RFID is difficult and that implementation needs to focus on longer-term, multi-year payback periods to achieve ROI objectives (Brandel, 2003; Roberti, 2004; Witt, 2004; Supply and Demand Chain Executive, 2004; and Maurno, 2005). According to Maurno (2005), 95% of suppliers to Wal-Mart did not expect ROI in less than two years and that many did not think they will see ROI in four or five years (if ever). The study revealed that RFID presents a differing value proposition depending on the position within the supply chain, e.g., Wal-Mart, as a retailer, sees strategic value and significant long-term ROI in full RFID implementation for avoiding loss of sales from out-of-stocks. However, some of its suppliers think of RFID as an additional cost of doing business without a more detailed examination of the potential long-term benefits to their own inventory management. According to Quagliariello (2004), RFID in its early stages will typically add costs to the supply chain. Even Gillette, one of the first to adopt RFID technology, noted a break even with the use of tags in one of their facilities, despite the fact that the RFID tag price they got from their $500 mn tag purchase from Allien was considerably lower than the usual minimum price of 20 cents. However, vendors still expect to see ROI when these trade partners start to share information about their own supply chains (Zaragoza, 2005). RFID: An Advanced Technology Details about the advanced technology, RFID and its components, and how it operates are described. In addition, the privacy and security as well as the applications of RFID are also focussed here. RFID uses radio waves to transmit the identity (in the form of a unique serial number) of an object wirelessly. RFID data can be accessed through clothing, human body and nonmetallic materials. RFID and Supply Chain Management: A Brief Outline 3

A basic RFID system consists of three components (Figure 1): An antenna or coil; A transceiver (with decoder); and A transponder (RF tag) electronically programmed with unique information. The radio signals that are transmitted through the antenna activate the tag and enable to read and write the data. The reader sends the radio waves based on its power output to a distant place from one inch to hundred feet or more. RFID tag, while entering the electromagnetic zone, identifies the reader s activation signal. Then the data encoded in Figure 1: An RFID System Tag/ Transponder Reader/ Antenna (Interrogator) Computer and Software/ Infrastructure the tag s integrated circuit is decoded by the reader and sent to the host computer for further processing. The transmitted data may indicate information about the location, price, date of purchase, color of the product, etc. An RFID tag has a microchip attached to a radio antenna which can read two kilobytes of data. A reader usually has one or more antenna that helps in retrieving the data stored in a tag. Electronic Product Code Electronic Product Code (EPC) is one of the major concerns in the use of RFID. EPC is a successor to the bar codes. The objective of EPC is to have a track of the goods using RFID technology. EPC is a set of numbers and letters. It has a header and three sets of partitions. The first partition identifies the manufacturer, the second partition identifies the product and the third one is the serial number which is unique to the items produced. The EPC is fixed with an RFID tag. At the time of scanning the tag, it transmits back its unique EPC code. RFID Privacy and Security The problems of RFID system can be categorized under two heads: (1) Technical problem; and (2) Privacy problem. 4 The IUP Journal of Supply Chain Management, Vol. IX, No. 3, 2012

Technical problems are summarized as follows: RFID is implemented in different ways by different manufacturers. Some RFID devices always stick to their network and thus create problems for the company. Reading may be affected by frequent battery down problem. There may be a chance of reader collision when the signals from two or more readers overlap. Similarly, sometimes tag collision occurs as many tags are present in a small area. Privacy problems are summarized as follows: RFID tag cannot identify the difference between the readers. RFID tags can be read without anybody s knowledge. A high-gain antenna can be used to read tags from a long distance. Applications of RFID RFID helps in identifying, locating, controlling and monitoring the people, process and product. RFID plays a very important role in supply chain management as it is solely responsible for processing the entire supply chain information on the electronic databases. The major applications are: Asset Tracking: RFID system is very much useful for asset tracking in case they are lost, stolen or not properly utilized. Manufacturing: RFID system is very widely appreciated and used by the manufacturing companies. Supply Chain Management: Previously, RFID system was only confined to the user company and its supply chain process. However, nowadays the companies want to develop the system so that it can be used to track the process of their supply chain partners. Retailing: Customers always expect right quality, right price and on-time delivery. If there is a stock out, the customers usually get diverted to the competitors. To avoid this difficulty, a company/retailer has to strengthen and enhance its supply chain capability so that it can satisfy its potential customers in time. For this reason, nowadays most of the retailers like Wal-Mart, Tesco, Metro, etc. prefer RFID for their supply chain management. Security and Access Control: RFID is one of the best technologies to control access to the specific areas. Nowadays, vendors have introduced a high-gain antenna which can be used to read tags from long distances. RFID and Supply Chain Performance RFID has a high contribution towards the supply chain performance. It manages the supply chain process effectively and helps the company grow. RFID and Supply Chain Management: A Brief Outline 5

Supply chain process can be defined as a chain consisting of manufacturer, supplier, warehouses, transporters, distributors, retailers and customers (Figure 2). However, this Figure 2: Supply Chain Process Author pls. confirm the figure title Supplier Manufacturer Distributor Retailer End Customer chain may be different for different companies. To have a more effective and efficient supply chain management, there should be a proper flow of information among the different levels of supply chain. The end users or customers buy the products from the retailers, whereas retailers procure it from the above level, say, distributors, and this process continues. If there is a gap somewhere in the chain, it affects the entire supply chain management and finally the company and its profits. Supply chain management can be defined as managing the activities to be conducted for transforming the product/service from one level of supply chain process to another. Proper planning and coordination are required to reach the customers and to make them happy. One of the major issues is that proper level of inventory is to be maintained at different levels of the supply chain. Issues related to inventory, like excess inventory, stock outs, loss of sales, wastage of material, theft, safety, etc., may affect the effectiveness of the supply chain process. In the supply chain process, there could be a number of suppliers, distributors, warehouses, transporters and retailers. It shows how complex the supply chain process is and how difficult it is to manage it. When the products/services move from the manufacturer to the end users, its value and cost are being added at each level of the supply chain process. An effective and efficient supply chain can only be possible if there is a proper flow of information at each level of the supply chain process and adequate inventory maintained. Each level should have a track of its actual and expected stock and sales. Nowadays the customers have become very demanding and trendy. They expect a lot from the product and service they purchase. So, the manufacturers, distributors, suppliers and retailers have to maximize their efficiency to meet the customer demand on time. RFID is a technology that solves the problem of meeting the customer demand effectively. RFID is used to automate the procurement of the material and products of the distribution centers and stores and thus helps in reducing time, money and complexity. By putting an RFID tag on a product, the users can track the product s movement from the manufacturer to the customers. 6 The IUP Journal of Supply Chain Management, Vol. IX, No. 3, 2012

A Conceptual Model on SCM Effective SCM has capabilities of producing planning solutions and help in taking strategic level decisions. A supply chain is a flow of materials, money and information. A gap in this flow usually affects the process. Such a supply chain process is considered to be an ineffective one, which leads to a lot of problems like stock outs, lost sales, etc. A conceptual model on the causes and consequences of such an ineffective supply chain management is defined in Figure 3. Figure 3: Conceptual Model of an Ineffective Supply Chain Management Author pls. confirm the figure title Ineffective SCM Improper Data Capturing Inefficient Process Lower Traceability of Items in SCM Unintegrated System Difficulties Stock Outs Billing Delays Excess Buffer Inventory Lost Sales Slow Production Delayed Shipments An Application of Conceptual Model for Ineffective Supply Chain Management and Its Difficulties It is very clear from the model that improper supply chain not only decreases the efficiency, but also affects the profitability of a firm. However, these problems can be sorted out by using RFID which is explained in the next developed model. RFID and Supply Chain Management: A Brief Outline 7

An Application of the Conceptual Model for Effective Supply Chain Management Using RFID RFID as an advanced tool keeps track of the actual and expected data and helps in taking a right decision at the right time. RFID system helps in reducing inventory, reducing product cycle time, improving the quality of the product and services, making proper utilization of resources, improving service and also helping in proper information sharing within the industry and among the different suppliers (Figure 4). Figure 4: Conceptual Model for Effective Supply Chain Management Using RFID Author pls. confirm the figure title RFID Reduced Inventory Reduced Cycle Time Improve Quality Improve Resource Utilization Improve Service Improve Information Sharing Total Profitability RFID Implementation Challenges RFID technology helps the firms in increasing their efficiency and performance. Being a new technology, it is rarely used by the firms. The major challenges facing RFID implementation can be defined as: Technology Incompatibilities: Inability of a single reader to read tags from multiple frequencies. Commitment: The significant challenge to implementation of RFID is the commitment of management or user to adopt new technology and also to use it in the best way. Without executive sponsorship, implementation will not be likely to succeed. 8 The IUP Journal of Supply Chain Management, Vol. IX, No. 3, 2012

Cost: Tags, infrastructure and implementation costs are still high. Availability of Resources: There is a shortage of resources due to the lack of sufficiently trained and skilled personnel, which is complicated by the aforementioned rapidly evolving standards and technologies. Security: For certain implementations, illicit tracking of RFID tags presents problems. Standardization Watch: RFID standards are yet to mature. Different companies follow different standards for coordinating with their suppliers and manufacturers which is very difficult. Early adopters of RFID must choose those elements of the RFID standards that have practical value. Government Regulations: As per the government regulations, the implementations are very complicated. A firm s ultimate objective is to get profit in terms of revenue and customer satisfaction. Thus, a firm needs to take care of these challenges to get the optimized benefits from RFID. Conclusion The importance of RFID for supply chain problem solving is highlighted. RFID is an essential tool for the smooth operation of all the sectors. RFID technology is being very widely used because of its vast utility. There is hardly any industry, be it manufacturing, retailing, sales and distribution, logistics, etc., where we do not find the use of RFID. It can improve the supply chain process of a company by reducing the time to reach the customer s end, proper inventory management, proper follow up of information, etc. RFID gives identification to each of the pallet, container and product to be produced, supplied and sold. Thus it makes the supply chain process very smooth and error-free. It helps the industry to reach the end users with the right quality, right price and at the right time. It brings maximum profit in terms of revenue and customer satisfaction. In a global market where change is continuous, companies require tools that allow them to respond quickly to new opportunities. However, further research can focus more on the discussed topic. Bibliography 1. Attaran M (2007), RFID: An Enabler of Supply Chain Operations, Supply Chain Management: An International Journal, Vol. 12, No. 4, pp. 249-257. 2. Brandel M (2003), Smart Tags, High Costs, Computer World, December 15, available at http://www.computerworld.com/softwaretopics/erp/story/ 0,10801,88130,00.html RFID and Supply Chain Management: A Brief Outline 9

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17. Roberti M (2004), The Role of Independent Testing, RFID Journal, available at http://www.rfidjournal.com/article/articleview/1134/1/2/ 18. Supply and Demand Chain Executive Editorial Staff (2004), Near-Term ROI Lacking for EPC RFID, Study Finds, Supply and Demand Chain Executive, November 2, available at http://www.sdcexec.com 19. Tony G, Rajamani D and Chelliah S (2010), The Impact of RFID on Supply Chain Performance, The School of Management, University of Texas at Dallas, Richardson, Texas. 20. Vijayaraman B S and Osyk B A (2006), An Empirical Study of RFID Implementation in the Warehousing Industry, The International Journal of Logistics Management, Vol. 17, No. 1, pp. 6-20. 21. Witt C E (2004), How to Make ROI Real, December, available at http:// www.mhmonline.com 22. Zaragoza S (2005), Tandy Using RFID on Wal-Mart Shipments, Dallas Business Journal, February 11, available at http://www.bizjournals.com Reference # 34J-2012-09-xx-01 RFID and Supply Chain Management: A Brief Outline 11