Effectiveness and Efficiency of RFID in Supply Chain Management
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Course: | BUS606: Operations and Supply Chain Management |
Book: | Effectiveness and Efficiency of RFID in Supply Chain Management |
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Date: | Saturday, September 7, 2024, 7:24 PM |
Description
Read this article. Sixteen different types of supply chains are presented in Figure 2. Select one type from the High Complex / High Business Impact quadrant, what are some benefits and challenges associated with it?
Abstract
In this study, we examine the fundamental components of RFID technology in a comprehensive supply chain strategy that directly support the effectiveness and efficiency of supply chain management. We examine the appropriate business processes affected by the RFID technology, the required planning and examination for successful implementation, and many potential impacts on effectiveness and efficiency of supply chain management. We emphasize on business valúes and strategic advantages of RFID technology as well as the challenges and recommendations in adoption of the technology particularly when a company extends its supply chain to upstream suppliers and downstream customers, as their external integration needs to gain in capacity planning and in efficiency. Using four major supply chain processes, we highlight economic opportunities and challenges when planning and implementing RFID technology within an existing supply chain framework. We will focus on the capabilities of RFID in providing security, privacy, and integrity of supply chain processes while facilitating sharing information with upstream suppliers and downstream customers, developing alliances, establishing strategic alliances, and gaining competitive advantages.
Keywords: RFID, Process, Effectiveness, Efficiency, Supply chain management, Valúes, Strategy.
Source: Asghar Sabbaghi and Ganesh Vaidyanathan, https://scielo.conicyt.cl/scielo.php?script=sci_arttext&pid=S0718-18762008000100007
This work is licensed under a Creative Commons Attribution 4.0 License.
Introduction
The applications of Radio Frequency Identification (RFID) and Electronic Product Codes (EPC) in supply chain management have vast potential in improving effectiveness and efficiencies in solving supply chain problems. EPC is the concept of storing product identification on chips no larger than a grain of sand, then placing these chips on tags, which in turn are placed on objects so they can be uniquely identified. RFID technology can track inventory more accurately in real time resulting in reduced processing time and labor. There are many applications and possibilities for RFID/EPC as these objects in motion are traced throughout the supply chain. The complete visibility of accurate inventory data throughout the supply chain from manufacturer's shop floor to warehouses to retail stores brings opportunities for improvement and transformation in various processes of the supply chain. RFID technology can help a wide range of organizations and individuals such as hospitals and patients, retailers and customers, and manufacturers and distributors throughout the supply chain to realize significant productivity gains and efficiencies.
In this study we try to answer the following questions: (1) what processes in supply chain will be affected by RFID technology and where this technology has the potential of creating the most business values? (2) Given the integrated and inter dependencies of supply chain processes, what would be the capabilities of RFID in providing security, privacy, and integrity of processes while facilitating sharing information with customers and suppliers, developing strategic alliances and ultimately gaining competitive advantage? (3) What are the challenges and recommendations in adopting and implementing RFID technology in supply chain?
We examine the fundamental components of RFID technology as parts of a comprehensive supply chain strategy that directly support the effectiveness and efficiency of supply chain management. We will examine appropriate business processes in supply chain affected by RFID Technology and will identify processes where RFID plays a critical role in creating the most value. In particular, we highlight the many business values and strategic benefits of RFID technology as well as the many challenges and recommendations in adoption and implementation of the technology in the context of integrated and inter dependencies of supply chain processes.
Literature Review
RFID technology has been promising to enhance
support supply chain management efforts. The
future success of RFID and other mobile services will be strongly
affected by the ability of businesses to offer the right products and
services to consumers. RFID has the potential in other areas of
operations, such as manufacturing, after-sales service support, and
total product life cycle management. An RFID system can be used to
identify many types of objects, such as manufactured goods, animism, and
people. RFID technologies support a wide range of
applicationseverything from asset management and tracking to
manufactured products and related customer services to access controls
and automated payments. Each RFID system has different components and
customizations so that it can support a particular business process for
an enterprise. Depending on the application in an industry and the
enterprise within an industry, A RFID system can be very complex, and
its implementations may vary greatly. Conceptually, RFID system may be
composed of three subsystems as shown in Figure 1: (1) An RF
subsystem, which performs identification and related transactions using
wireless communication, (2) An enterprise subsystem, which contains
computers running specialized software that can store, process, and
analyze data acquired from RF subsystem transactions to make the data
useful to a supported business process, and (3) An inter-enterprise
subsystem, which connects enterprise subsystems when information needs
to be shared across organizational boundaries. Every RFID system
contains an RF subsystem, which is composed of tags and readers. In many
RFID systems, the RF subsystem is supported by an enterprise subsystem
that is composed of middleware, analytic systems, and networking
services. However, in a supply chain application, a tagged product is
tracked throughout its life cycle, from the manufacture to final
purchase, and sometimes even afterwards (e.g., to support targeted
product recalls or related service), and thus its RFID systems has to
share information across organizational boundaries. Thus, the RFID
systems supporting supply chain applications have also an
inter-enterprise subsystem.
![](https://learn.saylor.org/pluginfile.php/5619156/mod_book/chapter/50069/fig07-01.jpg?time=1645519238736)
The enterprise subsystem is the
computer system and software that utilizes information stored on RFID
tags. It is the glue that integrates an RFID system. Depending on the
industry context, but usually a front end component manages the readers
and the antennas and a middleware component routes this information to
servers that run the backbone database applications. For example, in a
manufacturing context, the enterprise software will need to be made
aware of RFID ai various levéis depending on how far downstream into
manufacturing and out into the supply chain RFID is implemented. The
middleware technologies are categorized into three levels: (1) software
applications which solve connectivity problems and monitoring in
specific vertical industries, (2) application managers that connect
disparate applications within an enterprise, and (3) device brokers that
connect applications to devices like shop-floor machines and RFID
readers. The Auto-ID Center ai MIT developed a software program
named 'Savant' to manage the enormous amount of data expected to be
generated by RFID readers. In a typical manufacturing scenario, for
example, readers will be picking up a continuous stream of tag data,
which might contain errors such as dupltcate reads and phantom-reads.
The Job of a savant is to filter and manage this data and forward only
clean data in order to avoid overwhelming enterprise applications.
Applications vary in how they interact with RFID. Some treat RFID reads
like keyed data or bar-code scans, and others work specifically with
RFID tags.
The application of RFID ranges from manufacturing and
distribution of physical goods such as automobiles and its various
components to minting bank notes, oil exploration, shipping and port
operations and pharmaceutical package processes, among others. RFID
is a form of automatic identification and data capture (AIDC) technology
that uses electric or magnetic fields at radio frequencies for
identification, authentication, location, or automatic data acquisition
and transmit, and support a wide range of applicationseverything from
asset management and tracking to access control and automated payment.
RFID systems have the capability of sharing information across
organizational boundaries, such as supply chain applications. Reno GmbH,
one of Europe's largest shoe companies, operating more than 700 stores
in 15 countries, plans to embed wireless RFID chips in shoes sold at
stores across the continent. Reno has been using RFID technology to
track product shipments from its factories to its stores for several
years but has not yet used the technology to track individual products
inside each store. These wafer-thin RFID chips are designed especially
for shoes from its Asian production facilities. By having the RFID tags
integrated into its shoes, Reno aims to curb theft for boxed products,
fhose on display, and the shoes customers try on inside the stores.
In
Japan, the RFID chip has become a de fació standard in the last five
years, and credit cards containing RFID are used by millions of people
every day to make railway travel and e-money purchases. In 2004, the
RFID chip by Sony's FeliCa, started getting integrated in cell phones
and today owners of those cell phones can make credit card purchases in
stores. Tokyo's subway and private railway and bus operators are
launching a common travel card based on the FeliCa plafiorm. The Pasmo
system will be interoperable with East Japan Railway Co.'s (JR East's)
Suica card, allowing the 35 million people who live in the Tokyo
Metropolitan área the ability to travel on more than 100 railway lines
and hundreds of bus routes with a single card. The touch-and-go payments
it supports work over a distance of a few centimeters and take 0.1
seconds for each to complete. In addition to Japan, the technology
provides the base for the Octopus subway card in Hong Kong, which has
also morphed into an e-money payment system, and the ez-Link transport
card in Singapore. FeliCa is also used in Shenzhen's TransCard, India's
TravelCard and Bangkok's Metro Card but has yet to break significantly
into European or North American markets.
Schiff Nutrition
International, a midsize company based in Salt Lake City, maker of
vitamins and nutritional supplements, is in the process of a deployment
of the RFID technology in order to continue doing business with Wal-Mart. In 2003, Wal-Mart began setting deadlines for suppliers to start
using RFID tags on their shipments. While it was argued that the RFID
tags weren't resulting in the savings that Wal-Mart expected, many
suppliers were complaining about the cost of implementing the
technology. However, it is expected that the project will ultimately
help to build stronger supply chains that cut costs and improve
efficiencies.
The International Data Corporation (IDC) has
estimated that the RFID market for related consulting, implementation,
and managed services was expected to grow 47% in 2004 and reached $2
billion worldwide by 2008. It was also estimated that two-third of
enterprise organizations considering RFID applications in 2004 indicated
that they would rely on external resources in implementing RFID. The
Yankee group estimates that RFID technology will be a $4.2 billion
market by 2008. By some estimates, over 1.3 billion RFID tags were
produced in 2005, and that figure is estimated to soarto 33 billion in
2010, and by farthe biggest segment is accounted for supply chain.
However, for a successful deployment of RFID, it is importantto have a
set of widely accepted standards and regulations. According to McCathie
and Michael, the progression of barcode standards from proprietary
to globally accepted open standards had played a pivotal role in a world
wide acceptance of the technology. Therefore, in orderto be effective,
there has to be standards and regulations in the case of RFID as well.
For example, many companies, particularly small-medium enterprises, have
reported that RFID is extremely costly in their supply chain. The cost
of acquiring, installing, and maintaining an RFID system has been a
major and often determining factor in the deployment of RFID in the
commercial sector.
Methodology
In exploring the effectiveness and efficiency of
RFID applications, we consider the eight key processes that
make up the supply chain management process. These processes provide a
framework for various aspects of strategic and tactical issues present
in the management of the supply chain. These eight processes and their
functions are described as follows:
(a) Customer Relationship
Management: Provides structure to customer relationship and how such
relationships are developed, maintained, and managed. Identifies target
customer groups as part of the business mission and develops agreements
with key accounts. Performance reporte also measure profitability and
financial impact for key customers.
(b) Customer Service
Management: Provides customer information such as shipping dates,
product availability, and real-time information between customers and
the firm.
(c) Demand Management: Balances the customers'
requirements with the firm's supply capabilities. This would include
forecasting demand and managing the demand in production, procurement,
distribution, and in all other outputs of the company.
(d) Order
Fulfillment Management: Provides integration of the firm's
manufacturing, logistics and marketing plans. This would require the
management of partnerships maintained by the company to meet customer
requirements.
(e) Manufacturing Flow Management: Helps to
manufacture products and establishes the manufacturing flexibility
required to service target markets. Requires management of product flow
and maintaining the flexibility established.
(f) Supplier
Relationship Management: Defines how a company interacts with its
suppliers. Similar to customer relationship management, partnership
management is required to develop key relationship with core suppliers
potentially providing a competitive advantage.
(g) Product
Development and Commercialization: Provides the development of new
products by integrating customers and suppliers in reducing time to
market. Timely development of new products and services are keys to
firm's success.
(h) Returns Management: Provides a critical
component of sustained competitive advantage forthe firm. Allows firm to
monitor productivity improvements and identify valuable projects
related to products or services.
Out of these eight processes, we
have chosen and identified four processes that include demand
management, order fulfillment, manufacturing flow management, and return
management where RFID plays a critical role and creates the most value.
Keen and Mackintosh introduce "process freedom" as those processes
with the ability to add value along the entire supply Chain by enabling
the mobility of critical elements. These critical elements are business
activities, people, information, documents, and communications that are
needed for a more effective business process design. Angels argues
that RFIDs hold the potential to provide significant "freedom" that will liberate considerable human labor from certain workflows, as well as
facilitate the possibility of making information visible to all
participants throughout the value chain.
We will emphasize on
business values and strategic advantages of RFID technology as well as
the challenges and recommendations in adoption and implementation of the
technology particularly when a company extends its supply chain to
upstream suppliers and downstream customers, as their external
integration needs to gain in capacity planning and in efficiency.
RFID Technology in enterprise systems
In the 1990s, IBM created
company wide organizations for procurement, logistics, fulfillment and
manufacturing. In 2002, IBM brought all of those units together under a
new Integrated Supply Chain division. The division was credited
with helping to cut costs and improve responsiveness within a year. The
company had to balance two ways of measuring supply-chain performance:
(1) effectiveness: flexibility and responsiveness, and (2) efficiency:
lowering costs as much as possible. It was reported in the same paper that the supply-chain optimization effort forced IBM to seek
opportunities to balance effectiveness versus efficiency in all four
dimensions: (a) data collected at various points in the supply chain,
(b) the business processes involved in the supply chain, (c) the
information systems involved and (d) the organizations involved in
carrying out the various business practices.
In order to measure
effectiveness and efficiency, firms need to have a clear picture of the
key supply chain processes and a measure of performance in each one of
the processes. Companies in many industries, such as fast-moving
consumer goods industry, manufactures, consumer electronics, apparel
industries, are in their infancy stages in the implementation of new
technologies that use EPC and RFID. This technology will extend the
abilities of firms to capture accurate information on the location and
status of physical objects across the supply chain. The pace of
implementation in Wal-Mart has been slower than the giant retailer had
predicted due to insufficient infrastructure of supply chain for RFID
and the cost of implementing the technology. To better understand supply
chain management and RFID technology as well as the opportunities and
the challenges, we will discuss supply chain infrastructure,
particularly as it relates to the enterprise and inter-enterprise
subsystems of RFID systems.
RFID in enterprise systems
The
focus of supply chain technologies has primarily been on providing
operational and transactional efficiencies in the area of sourcing,
manufacturing, and distribution activities within a firm and across its
supply chain. According to the Supply-Chain Council, "The supply-chain
encompasses every effort involved in producing and delivering a final
product or service, from the supplier's supplier to the customer's
customer. Supply-chain management includes managing supply and demand,
sourcing raw materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer.
Keen
and Mackintosh argue that RFID technologies are part of the
"universal infrastructure" that will support mobile commerce. They
introduced "process freedom", the ability to add value along the entire
supply chain, to relate logistical operations and business relationships
by enabling the mobility of critical elements that included business
activities, people, information, documents, and communications. In this
context, the technology holds the potential for providing significant
"freedoms" that will reduce considerable human labor from certain
workflows as well as for facilitating the possibility of making
information readily available to all participants throughout the value
chain. However, due to its wide scope, supply-chain management must
address complex inter dependencies and accordingly be open to re engineer
its appropriate processes. Moreover, these processes should create an
"extended enterprise" that reaches far beyond the factory door. In
effect, material and service suppliers, channel supply partners that
include wholesalers, distributors, retailers, and customers, supply
chain management consultants, software product suppliers and system
developers, become key players in the supply chain process. For a supply
chain participant, core competencies and capabilities must enable them
to create value in the form of lower cost, improved quality, more
flexibility, higher speed, and better information/intelligence about the
processes and market forces. In particular, using the concept of
business intelligence to data from supply chain management systems,
supply chain technologies may be applied to provide strategic
information for decision making purposes. In this manner, data collected
across the supply chain may be analyzed to provide information for
evaluation of the supply chain performance and its reconfiguration, as
well as conducting what-if scenarios to measure the effectiveness and
efficiency of supply chain.
Value of RFID in enterprise systems
What
has been developed and presented as a supply chain within distinct
companies has varied widely. In essence, no two companies' supply chains
look alike. There are many supply chain models, and these models only
effectively deliver on their promise when aligned with the way in which
the company wants to go to market. Furthermore, most companies don't
merely have one chain. They have many, and several of them are actually
networks. As shown in the figure 2, on the basis of business impact and
complexity, Cavinato distinguishes sixteen types of supply chains.
With respect to complexity, supply chains can range from a very basic
form to a very sophisticated complex chain and based on business impact,
they range from a very traditional to a supply chain with competitive
advantage. As one move toward more sophistication and business impact,
at the high end, the emphasis is placed on the model of supply chain with
information networks, and on data access that can be converted into
information, knowledge, and intelligence. RFID technology can support to
develop such an integrated model of supply and demand chain or an
integrated value chain in which one use the technology to drive revenues
and innovation and create value-not just to reduce cost, but to gain
competitive advantage.
![](https://learn.saylor.org/pluginfile.php/5619156/mod_book/chapter/50071/fig07-02.jpg?time=1716316585125)
The major purpose of deploying RFID is
identification, authentication, location, or automatic data acquisition
(ADA). Authentication applications usually assume the tag-holder to be a
person who has smart cards for simple and automatic payments of small
amounts such as highway tolls and cafeteria bills rather than an object;
whereas most supply chain applications assume that the tag-holder is an
object. One of the major thrust of the supply chain applications is
ADA. In most ADA applications, objects such as products, cases, and
pallets are tracked automatically and the captured data is used to
derive enterprise applications such as supply chain management systems,
customer relationship management systems, and enterprise resource
planning systems. Applications that require identification or ADA, such
as RFID tags embedded in athletes' shoes to keep accurate timings at
major athletics events, belong to the domain of ubiquitous computing.
This concept envisages a world where RFID tags are attached to a
multitude of items that automatically communicate and coordinate with
other networked intelligent devices to accomplish tasks that now require
human intervention. The effectiveness and the functionality of
these applications will be largely dependent on the type of tag itself.
While some tags offer longer read ranges, others can hold more data or
are easier to manufacture hence less costly.
As the prices of
technology decline and the applications become more economical, RFID
becomes very valuable from a productivity point of view. One can see
broader efficiency and operational improvements over traditional
processes, methods, and technologies. Ford uses a real-time logistics
system for visibility through triangulation. Similar to e-commerce, RFID
is evolving in application and its impact on effectiveness. Initially,
e-commerce was just automating existing processes and work flows. One
could send a purchase order by the Internet or pay an invoice or
communicate through e-mail, and thus substituting an existing technology
for a new one. However, the biggest value in e-commerce is when a
company develops collaboration with its suppliers. Microsoft found value
in e-commerce when they used the Internet to collaborate to design the
Xbox. RFID is following the same kind of evolution path. Currently, RFID
may be viewed mostly for efficient tracking. However, the most valuable
impact of RFID will be realized from new applications that use the
technology's intelligence. As Neubauer, et al note, if businesses
view RFID simply as a replacement for barcodes and do not change or
redesign their business processes based on RFID's capabilities, the
return on investment will be sub optimal. RFID can create a border less
supply chain when cargoes are equipped with tags showing the contents,
so that customs clearance can be done almost automatically. RFID can
also provide supply chain security when RFID tags are used to
electronically seal containers and monitor movements of the containers,
so that any tampering can be tracked. Finally another important benefit
of RFID is to facilitate sharing information with customers and
suppliers, developing alliances, innovating with suppliers, and
establishing strategic alliances. In other words, RFID can facilitate to
develop an integrated supply and demand chain or an integrated value
chain in which one uses the technology to drive revenues and innovation
and create value-notorious reduce cost, and to gain strategic advantage.
RFID standards in enterprise systems
One
of the critical elements of RFID application in supply chain is
Standardization for encoding information on RFID tags similar to the
current bar codes on Universal Product Code (UPC) system. When one
company ships goods to another company, these standards will help
simplify the electronic transactions that occur between the
organizations' ERP (enterprise resource planning) systems. The standards
will determine how middle ware handles data scanned by an RFID reader as
goods enter a warehouse and will pass the data to an enterprise
application. The current version of the EPC Tag Data Standard specifies
the data format for encoding and reading data from RFID tags. The data
stored in these tags dictates information about a product in UPC terms,
including company and product identifiers. Both EPC global and
International Standards Organization (ISO) have adopted RFID in their
standards.
The most prominent industry standards for RFID are the
EPC global specifications and standards for supply chain. EPC global Inc.
manages standardization for encoding information on RFID tags. This is
the same institution that manages UPC information in bar codes, sets the
standards for how basic product information is encoded in the RFID
chips. EPC global Inc is a nonprofit organization that was initiated in
2003 by the MIT Auto-ID Center in cooperation with other research
universities to establish and support the EPC network as the global
standard for the automatic and accurate identification of any item in
supply chain. EPC global will establish the standards on how information
is passed from RFID readers to various applications, as well as from
application to application, in the supply chain. ISO also has RFID
standards. ISO is a network of the national standards institutes of 157
countries, on the basis of one member per country, with a Central
Secretariat in Geneva, Switzerland, that coordinates the system. ISO
occupies a special position between the public and private sectors. This
is because, on the one hand, many of its member institutes are part of
the governmental structure of their countries, or are mandated by their
government. On the other hand, other members have their roots uniquely
in the private sector, having been set up by national partnerships of
industry associations. The ISO18000 series covers both Active and
Passive RFID technologies. The data content of RFID is covered in ISO
15418, 15434, 15459, 24721, 15961, and 15962. The conformance and
performance standards are covered in ISO 18046 and ISO 18047 series for
both active and passive RFID technologies.
Data synchronization in RFID
Data
synchronization is another important element of supply chain to be
addressed by RFID. Companies require detailed information about their
products and supply chain, and the ability to share that information
with their trading partners in order to facilitate various business
transactions and the movement of goods and services. Two distinct
information networks have been developed: the Global Data
Synchronization Network (GDSN) and the EPC global Network. The GDSN
ensures the quality of static information about commercial entities and
product/service groups among partners for collaborative trading. The
EPC global Network provides access to dynamic information about the
movement of individual items as they pass through the supply chain. The
EPC global Network and the GDSN each provide significant benefits in
their own right. Moreover, for companies striving to achieve a fully
collaborative business model, the combination of the EPC global Network
and the GDSN can provide a comprehensive, integrated approach to
electronic collaboration and, as a result, can be complementary in the
effort to optimize global trading relationships.
Supply Chain Management Processes and RFID applications
RFID
may be used in demand management, order fulfillment, manufacturing flow
management, and return management. In this section, we discuss these
four supply chain management processes in detail.
Demand management and RFID
One
of the main difficulties in demand planning is a lack of reliable data
and adopting RFID would produce accurate information related to the
inventory of finished goods, work-in-progress, and in-transit stages
with reliable due dates. Data obtained from RFID can eliminate
inaccuracies in data due to human error or absence of data. Consumer
demand for lower price and higher quality are the driving forces for
companies to make their supply chain more effective and efficient.
Timely data ai the item-level and in aggregate about the market demand
for any product/service would help to develop more successful strategies
in production, marketing and distribution. The forecast provides the
input for matching demand with supply in the form of aggregate planning.
This aggregate planning can be enhanced by accurate data using RFID
thereby avoiding costly buffer stocks while demand planning.
Order Fulfillment and RFID
Order
fulfillment is a key process in meeting customer requirements and
improves the effectiveness of supply chain. RFID will enable
process automation in picking, shelving, cross-docking, implementing
consolidation operations and reduce costly logistics mistakes such as
sending an item to a wrong destination and not dispatching the right item at the right time. Such process changes will reduce the cost of
operations. RFID technology enables suppliers to accurately determine
the location of a pallet, to track its journey through the supply chain,
and to make instantaneous routing decisions. . For instance, RFID portions, mounted in strategic points in the distribution center, can be
used to read tags and automatically update inventory quantities as
tagged cases and pallets enter the center. The incoming merchandise will
be matched against the correct purchase order and discrepancies will be
identified much more easily. The process freedom will be attained in
freeing up labor-intensive manual labor involved in the quantity
check-in and receiving processes.
Manufacturing Flow Management and RFID
In
manufacturing, assembly line operations may get streamlined by using
RFID. This automation in the production line will certainly reduce cycle
time and increase production throughput. With enhanced process
automation and tracking capabilities enabled by RFID, the velocity and
visibility of products in the supply chain will likely improve. This
process will help manufacturers with their just-in-time (JIT) assembly
lines. Procter & Gamble (P&G) believes that RFID technology can
help the company to track where every item is in the manufacturing
process and supply chain. P&G expects the cost saving of up to $1
billion in working capital and $200 million in inventory carrying costs
with its RFID implementation. Lee and Ozer believe that the
bottom-up approach, Le., starting with the operating characteristics of
the processes, is a sound way to assess the value of RFID.
Returns Management and RFID
The
reverse logistics product recall and return of detective products
is common in supply chain operations. The return track could be traced
back very easily using RFID in the return process. RFID technology,
through its smart Electronic Security Marker (ESM) can also facilitate
return management by helping retailers know if they sold the item being
returned. An ESM ties the relationship of a particular product to a
given sale and then to the return. Manufacturers could benefit from the
elimination of fraudulent products being returned to retailers by
placing item-level RFID tags on their high end products and components. Customer returns will add to the inventory pile as opposed to
depleting it. These returns can be viewed as RFID providing downstream
visibility of negative demands.
Figure 3 illustrates the
challenges and values of RFID in the supply chains of firms. Infernal
process integration and interdependence in firms as well as external
variables such as security, privacy, and standards play a vital role in
moderating the effectiveness and efficiency of RFID. We discuss these
factors in detail in the next section.
Strategic Values, Challenges, and Recommendations for RFID Implementation
There
are a number of issues concerning the future of RFID with regard to the
processes. These issues are related to complexity of process
implementation, integration and interdependence of processes, and
security of processes. Further research needs to be conducted to figure
out how to enhance the range of RFID signings and figure out how to cut
back on the interference issues. Furthermore, the solutions providers
and consultants need to figure out how new smart labels, barcodes, and
RFID equipment can work with customers' existing business practices. One of the most challenging task facing companies adopting RFID
technology is to properly integrate it with other information systems,
both internally and externally, in their supply chain, and accordingly
redesign their business processes that create strategic advantage. For
example, given the capability of RFID in generating significant
voluminous data compared to barcode technology, it would require new
data warehousing systems to intelligently parse the usable data from the
RFID data stream to ensure appropriate data processing and effective
data mining at an economic storage cost. In particular, when a company
extends its supply chain to upstream suppliers and downstream customers,
their external integration needs to gain in capacity planning and in
efficiency.
Security, privacy and integrity of the RFID system
play a significant role in the type of supply chain application. In
particular, as a wireless technology, RFID poses some potential security
concerns to users when the communication between the tags and the
reader is exposed to eavesdropping and traffic analysis. Security
concerns may arise regarding the compromise of data during wireless
transmission, storage of data, and physical security of storage site.
Supply chain applications may be particularly vulnerable to security
risk because a variety of external entities may have read access to the
tags or related databases. For instance, the world's three largest
seaport operators started to collaborate and deploy automated tracking,
RFID-based detection and security technology for containers entering US
ports. Theft prevention is another by-product of RFID.
Quantification of such values has been researched by Lee and WhangThus, while this wireless remote access is significantly beneficial, it
can also create security risks if proper controls are not in place.
RFID vendors have addressed some of these security issues through
encrypting data transfers, blocking data transmissions through jamming,
employing varying querying protocols, and blocker tag technique. A
number of proposed RFID privacy-protection schemes are classified based
on the new functionality they implement in RFID technology. They
range from adding only memory to adding lightweight circuits and each
involves a trade-off between the cost of the tag and the value of
privacy protection. The EPC global standard specifies that tags must be
equipped with at least one nullification function, kill command, as a
way to address public opposition by disabling the functionality of the
tag after consumers purchase a product. It involves a high degree of
consumer privacy protection at negligible cost but human error is always
a possibilityPrivacy has been issue with RFID tags. Other
privacy-protection schemes generally reflect two main approaches:
normal-tag and smart-tag. The normal-tag approach protects individual
consumer privacy without having to modify the existing tag or cost the
user organization more money. Smart tags are equipped with additional
components such as re writable memory, basic logic circuits, hash
function units, and common-key/public-key encryption units
Another
challenge in adopting RFID technology in supply chain is multiple and
sometimes conflicting standards that may hinder the technology's
deployment and reduce its anticipated benefits. For example, while
EPC global has developed a series of RFID application specifications and
manages standardization for encoding information on RFID tags within the
US, ISO has developed standards to address issues such as the "Generic
Parameters for the Air interface for Globally Accepted Frequencies" and
the "Parameters for the Air Interface Communications" at different
operating. Companies with supply chain extended to the
global market may force to choose between standards and develop
applications that might work under one standard and not the other. In
this context, competing international standards between ISO and
EPC global for deploying their standards is a concern. If various
counties adopt significantly divergent RFID technologies, this would
undermine interoperability of RFID and the software applications in
tracking goods through the supply chain. In particular in global supply
chain, this may encourage countries to mandate adoption of certain
standards to protect internal market and to gain short-term economic
gains rather than for technical reason. Thus, in order to enable the
RFID technology in global supply chain, international interoperability
of tags and readers and international spectrum allocation to facilitate
international operability of technology needs to be addressed. In this
context, it is critical that international regulatory processes remain
transparent and nondiscriminatory in supporting RFID standards to ensure
that these standards are based on technical merit and support
interoperability. This will ensure that RFID technology will reach its
potential economies of scale in the global supply chain.
Conclusion
In this study, we have examined the effectiveness
and efficiency of supply chain management in using RFID. We have also
thoroughly examined appropriate business processes affected by RFID
technology. Using four major supply chain processes, we highlight
economic opportunities and challenges when planning and implementing
RFID technology within an existing supply chain framework. RFID
technology enables an organization to significantly change its business
processes, not only to increase its efficiency which results in lower
costs, but also increase its effectiveness, i.e. improving mission
performance and makes the implementing organization more resilient and
better able to assign accountability, as well as responding to customer
requirements to use RFID technology to support supply chains and other
applications. As discussed earlier, RFID offers significant strategic value potential for companies in developing an integrated model of
supply and demand chain to drive revenues and innovation and to gain
competitive advantage. Companies that implement the appropriate business
processes to leverage the data collected by RFID and its conversion to
information and intelligence will accelerate these benefits. As
companies develop their RFID strategies, they must look beyond mere
compliance for ways to implement these initiatives into their total
supply chain strategy and harness the true business value of the
technology, hastening profits.