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Modern Retail industry is characterised by high level of competition, low margin and volatile demand. The industry is segmented into several categories like consumer durables, clothing, drugs & personal care, groceries etc. The largest among them is the grocery retailing.
Due to the life style changes consumers are opting for a one stop shopping to save time and minimize efforts spent at shopping. This resulted in significant expansion of the product line in a retail stores and all major retailers are diversifying into several other product segment. In grocery retailing, major retailers are entering in the non food categories like consumer durables, home furnishing, clothing etc. due to this a typical retailer carries huge number of diversified product in their store and typically major retailers carries between 25000-50000 products at a time (Euromonitor International 2007).
Value consciousness and higher awareness of the product among the consumers is fuelling low price competition in the retailing sector and often retailers are offering price promotion to attract and retain consumers. This results in the volatile and unpredictable demand and creates a huge pressure on the supply chain of the retailers (Euromonitor International 2007).
In modern retailing supply chain management plays a vital role in the competitiveness and profitability of a retailer. To meet the consumer needs retailers source their product from different location around the world. Many of these products are produced in one country, packaged and processed in another country and shipped and delivered to sell in another country. This results in creation of huge interconnected and complex network of global supply chain (BEA 2006).
Even after advancement in the information technology and adoption of new technology and practices like Barcode, EDI, VMI, efficient consumer response etc. supply chain management in retail industry is a daunting task and retail industry is coping with several issues like out of stock, shrinkage, inventory inaccuracy, inaccurate invoicing etc which results in poor customer satisfaction, loss of sales and high operating cost.
According to a study conducted by Gruen et al (2002) the worldwide rate of out of stock is 8.3% which results in an overall 4% sales loss to the retailers. He found that the major reason behind out of stock was poor store ordering, forecasting and replenishment. This happened due to the inaccurate data about inventory level, error in invoicing & receiving, shrinkage etc. According to Beck et al (2002), shrinkage is one of the major problems in the retail industry. In their study of major retailer and supplier in the 20 European countries they found products equivalent to approximately 2.31%-1.75% of the sales or worth euro 13.4 billion lost due to the shrinkage.
The universally used Barcode system for product identification and data collection in retailing is not able to solve these problems. As it requires manual scanning of every product while in the modern retail environment, retailers are required to store, distribute and manage huge amount of inventories which requires a very inexpensive and mass producible way to efficiently tag, categorise and track assets and products (Xiao et al).
Radio Frequency Identification Technology or RFID enables data capturing without any human interaction and provides a way to minimize human errors and labour cost as well as time. In RFID system a small transponder known as tags are stick or attached on a product packet which is electronically scanned by RFID readers to authenticate and track products automatically without any manual intervention ( Furness 2005).
A RFID system is consists of three main components - tag, Reader and a host computer. Tag is used to store data/information about the product while a reader is used for automatic collection of data/information from the tag, these information are then send to host computer which processes the information. This information are utilised for a number of application like product authentication, inventory tracking, tracing and counting, invoicing, receiving, ordering, forecasting etc. (Coronado et al ).According to Furness (2005) firms using RFID system is already witnessing reduction in inventory cost, increase in reliability and accuracy of data and other benefits.
After the Wal-Mart mandate to its suppliers for tagging all products at case and pallet level, the application of RFID system in retailing suddenly got a major push in the large scale retailing. Several other retailers like Tesco, Metro, Gap, Sainsbury's etc. around the world announced their plan to implement RFID system in their supply chain (Delen et al 2007).
Recently after the Wal-Mart mandate of case and pallet level RFID tagging to its suppliers many organisations followed the suit and announced their own RFID implementation plan. Many retailers around the world are conducting RFID trial or already completed the trial for RFID implementation in their supply chain Most of the trial had shown a good amount of improvement in tackling some of the biggest challenges in retailing like out of stock, shrinkage and inventory management. Even after the successful out of the technology only few retailers had adopted the adopted the technology while others abandoned their plan for RFID adoption due to various reasons and there is a big dilemma about adoption of the technology (Gaukar et al 2007) .
This study investigates the adoption of the RFID system in the retail supply chain and explores the drivers of the RFID adoption in retail supply chain and the benefits and challenges of the RFID adoption in the retail supply chain.
The study is aimed to provide the retailers relevant information on the use of technology, the benefits they will get and the challenges of the RFID adoption. The study also aims to provide insight into the application of the RFID technology in the retail supply chain and the area of the benefits. How the RFID system will be useful in solving some of the serious problem in the retail supply chain like out of stock, inaccurate inventory, shrinkage etc and how RFID technology will help the retailers in managing various supply chain activities like distribution, inventory, transportation efficiently.
1.3 Chapter Plan
Chapter one provides the information about the retailing industry and the role of supply chain in making it competitive and introduces the concept of RFID system for managing the retail supply chain. Chapter two gives the background information about Automatic identification technologies, the RFID technology, supply chain management and the retailing industry and recent trends and development in the retailing industry. In RFID section, the history, development, working and the current application of RFID technology in the retail supply chain is discussed.
In chapter three academic literatures on the RFID technology, retailing and supply chain management is viewed. In this chapter literature on RFID application, implementation, benefits and drawback for retail supply chain management is viewed to gain an understanding of the topic and the issues going on. Also in this chapter literature on the retail industry and challenges it's facing is viewed. In this chapter case studies related to RFID implementation in retail supply chain is viewed and discussed.
In chapter four research methods and the usefulness of carrying out a particular methodologies is discussed. In this chapter data collection method and data analysis used for the research is discussed.
In chapter five key findings of the study and data analysis is discussed. This chapter is used to present the key findings and findings from previous case studies and industry trials are presented.
In chapter six conclusion of the study is presented and also based upon the key findings recommendation are suggested for the retail industry. In chapter seven limitation of the study is presented and the impact on the study is discussed.
2. Background Information
2.1 Retail Industry: Trends & Challenges
The global retailing industry is highly segmented and diversified. The largest segment of the retail industry is the supermarket which is followed by house hold goods and home furniture retailers. If we look at the growth rate most of the retailing segments is growing in the region of 8%. Only hypermarket, discounters and internet retailing is seeing a steep growth in the period 2001 to 2006 (Euromonitor International 2007).
In the global retailing industry due to the changing lifestyle consumers are opting for one stop shopping to save time. This is resulting in proliferation of large one stop format hypermarkets and superstore who stores a diversified range of products from grocery items to clothes to consumer durables. Consumers are also very conscious about the value of the money which is resulted in the aggressive price competition among the major retailers. Particularly in developed nations where the growth of the market is slow, price competition is very intense (Euromonitor International 2007).
In the below table worlds top 10 retailers are given based on the 2005 sales excluding Tax/VAT
Increasingly intense competition and slow growth in the developed nations has prompted acquisition and consolidation in the industry. This can be seen by the acquisition of Leader Price in Poland by UK based Tesco Plc and the merger of Sears, Roebuck and Co and Kmart in the United states. Also large retailers from the developed nations are increasing entering into the international market for the growth through acquisition of existing players (Euromonitor International 2007). Following table shows the world top internationalised retailers
With the rising income level consumers demand for premium products is growing this is particularly more visible in the US and European market. Also due to the ageing population in these markets health care related product and services are witnessing a growing demand. Retailers in these markets are opting for new formats and new channels, like internet shopping of Tesco Direct, for growth and attracting new customers. High awareness, media revolution and environmental consideration among consumer are fuelling the demand of ethical products or Fair Trade products (Euromonitor International 2007).
Creating Competitive Advantage through Supply Chain
Porter (2007) defines competitiveness as the productivity with which a nation or region uses its natural, human or capital resources the same is valid for a firm. A firm competiveness is defined by the productivity of its inputs or how much resources it utilise to produce a unit of product. Competitive advantage resides into a company or in its industries and a firm's competiveness depends primarily on the choices a company makes. Also external factor like location and cluster participation is an important contributor to the competitiveness.
According to Porter in order to compete firms performs a set of discrete activities in which competitive advantage resides. Performing an activity better than other gives competitive advantage to a firm. One of the fundamental activities in a firm's value chain is supply chain. Which helps in the creation of the product, delivery to the buyer and then it supports the after sales and services activities.
According to (Harrison & Hoek) Supply chain gives competitive advantage to a firm by meeting the requirements of end consumers through supplying their need which meets their requirements, at a competitive cost. Supply chain provides a firm five ways of competing in their market. These are following
- Quality Advantage: supply chain provides a firm quality advantage over its competitors by delivering the product at right time, making sure the availability of the product and helps in decreasing the defects in the products (Harrison & Hoek).
- Speed Advantage: Time taken to fulfil a customer order plays a vital role in customer satisfaction which results in repeat sales and loyalty as with increasingly busy life customers wants products services instantly even they are willing to pay a premium for it. Therefore timeliness and speed of delivery provides a firm competitive advantage over their competitors. Also with the increasingly copied product the processing and speed of delivery creates a differentiation among the competition as it is hard to copy (Harrison & Hoeck).
- Dependability Advantage: The probability of meeting a deadline is measure of dependability. The higher it is the better the productivity and performance of a firm will be. In consumer mind it creates a reputation of a firm service level. On time delivery and completeness of delivery increases a firm productivity (Harrison & Hoeck).
- Flexibility Advantage: the ability of a supply chain to change according to the market, customer and product requirement gives firms competitive advantage over their competitor in the form of quicker product introduction to meet changing consumer needs or preferences, or meeting the fluctuation in demand by increasing or decreasing the delivery of products resulting in right amount of inventory and overheads.
- Cost or Productive Advantage : According to Hill (2007) in highly competitive environment of today business many products compete on the basis of cost thus a reduced cost of doing a business means a better market share as well as increased margin . He states that as a firm can't decrease the fixed cost of doing the business decrease in variable cost like cost of material typically varies between 50%-70% for different businesses plays a vital role in the profitability of the firm.
1.2. Automatic Identification (Auto-ID) Technologies
According to EPCglobal, technologies associated with the creation and acquisition of machine readable data are called Automatic identification technologies. Automatic identification technologies help to capture data automatically instead of manual entry.
Automatic identification technologies are mainly used for four types of applications. These are categorised as -Authentication, Tracking, Process Effectiveness and Information Management application .Due to these application these technologies are widely used and are very vital for managing supply chain specially in retail supply chain deployment of them results in huge saving of cost and time (Karkkainen et al 2001).
There are many automatic identification technologies are available in the market like Bar-coding, Radio frequency Identification, Optical Character recognition, Vision recognition, Smart cards, Contact memory Technologies and Blue Tooth. Among these technologies Bar-coding and RFID have more universal application and widely used in all walks of life (Karkkainen et al 2001).
Below is the comparison of automatic identification technologies according to their application areas.
(Source: Karkkainen et al 2001)
1.3 Introduction of RFID
Radio Frequency Identification system is not a new technology it was invented during WW-II by Scottish physicist Sir Robert Alexander Watson-Watt for identifying British aircraft from enemy aircrafts. This system was based on the radar technology. Basically any system which uses radio waves for identification of an object, vehicle or anything, wirelessly is referred as RFID system (RFID journal).
With the advancement in Radar and RF communication technology, RFID technology also gradually started to develop as well miniaturised with falling cost. In 1973 Mario W. Cardullo received the first U.S. patent for an active RFID tag with rewritable memory. In the same year California based entrepreneur, Charles Walton, received a patent for a passive transponder which was capable of unlocking a door without a key (RFID journal). In the mid-1980s first mass commercialised application of RFID system was came into existence in the form of automated toll payment systems. This is still widely used on roads, bridges and tunnels around the world for toll collection (RFID journal).
Initially RFID system was based on low frequency which makes data transfer slowly and requires internal power for functioning .These type of system were incapable of storing large amount of data. Shortly after this a USA based firm Los Alamos came up with a passive tag which doesn't requires any power source and uses UHF radio waves. This device drew energy from the reader and simply reflected back a modulated signal to the reader using a technique called backscatter.
Latter, the development of smaller transponder and high frequency RFID system capable of greater range and faster data transfer rates paved the way for further development of numerous application of the technology some of them are tracking of containers, vehicles, access control, payment systems, anti-theft device for cars etc.
Auto-ID centre at MIT, USA was established by Uniform code council, EAN international, Procter & Gamble and Gillette in 1999 for further commercialisation and standardisation of the technology. This move helped tremendously in the development and commercialisation of the technology. Two researchers, David Brock and Sanjay Sarma from the MIT lab, proposed putting low cost RFID tags on all products and track them through the supply chain information system. They proposed to use only product serial number on inexpensive passive RFID tags and then the data associated with the serial number on the tag would be stored in a data base that would be accessible over the internet. This development led to the reduction in the cost of the technology and RFID technology started to widely adopt for supply chain management and real time tracking of product.
Sarma and Brock research essentially changed the way businesses think towards the technology. Due to their work RFID turned into a networking technology by linking objects to the Internet through the tag. Now a firm could automatically let a business partner know when a shipment is leaving the dock at a manufacturing facility or warehouse, and a retailer could automatically let the manufacturer know when the goods arrived in their store. This resulted in supply chain management resulting in on timely delivery, distribution, ordering and replenishment of products. During 1999 and 2003, more than 100 large end-user companies, U.S. Department of Defence or DOD and many key RFID vendors joined the initiative of Auto-ID centre. Latter Auto-ID centre developed the Electronic Product Code (EPC) numbering scheme, and network architecture for looking up data associated on an RFID tag through the Internet. On October 2003, Auto-ID centre closed its door and its research responsibilities were passed to Auto-ID Labs. Some of the biggest retailers in the world—Gap, Mark & Spencer, Metro, Tesco, Wal-Mart, Carrefour and DOD announced their plan to use EPC technology to track goods in their supply chain. The automotive, pharmaceutical, tire, defence and other industries are also moving to adopt the technology.
1.4 RFID VS Bar Code
Barcode is the most universally used method for product identification. In Barcode information is encoded in a series of printed bars and spaces. These can be printed on a simple paper, metals and plastics which make it very convenient to use. The data are captured through an optical laser scanner and a decoder converts the captured image of data into computer compatible digital data. This data is validated through a verifier. As Barcodes uses simple paper and technology for data encoding it's very cheap and convenient to use (Karkkainen & Ala- Risku).
In the modern retail environment, retailer are required to store huge amount of inventories which requires a very inexpensive and mass producible way to efficiently tag, categorise and track assets and products. RFID enables data capturing without any human interaction and provides a way to minimize human errors and labour cost as well as time (Xiao et al ).
In the below table comparison of RFID and Barcode is given
(Source : Hardgrave et al 2007 ,Rebecca Angeles 2005)
1.5 What is RFID?
Radio Frequency identification or RFID technology is used for automatic identification and exchange of data from a physical object with the use of radio waves without any human intervention. A basic RFID system is consists of three parts
A. Tag or transponder which is consists of an antenna, Microchip for data storage and processing and some times batteries as an internal power source,
B. Reader which is used for interrogation and data capturing from a tag, and
C. host computer which processes the information received from the reader in the same way a barcode system does (Hodge & McFarlane 2005).
1.5.1How RFID Works
The tag or transponder which is attached to a product, is consists of unique product code also known as Electronic Product code (EPC). When a tag receives a signal from the reader it becomes active and transmits the data/EPC stored in its memory, to the reader using RF waves. Upon receiving the signal from the tag, reader decodes it and sends the data and location to a host computer. By using specific enterprise information system this information can be utilised for automated transaction such as automatic entering of receipt of goods send/received, comparing of advance shipping notice, inventory management etc (d,hont).
In a RFID system individual products are identified by a unique product code known as EPC , which is stored in the RFID tag. The antenna in the RFID tag communicates wirelessly with the RFID reader. Readers are placed on strategic location which helps it to scan all the products passing through the location. Reader sends this scanned information to the internet. The Object Naming Service or ONS helps in the identification of the product through its EPC. Product Markup Language or PML displays information about the product which is scanned. By using internet, ONS and PML information about the product is automatically processed and displayed on the firms information system.This information can be utilised by the manufacturers, suppliers and logistics operators or retailers for knowing the location, quantity, sales and condition of the products (Kambil&Brooks2002).
RFID helps in identification of an object without any human intervention which results in elimination of general human errors as well as saving of time and labour cost. This result in greater accuracy and efficiency of a process and higher visibility of the process involved. Further with the integration of internet and database technologies RFID system enables users towards sharing of data between various users on real time basis which can be utilise for various business purposes i.e. inventory management, order fulfilment, stock replenishment etc.
1.6 Components of RFID
A RFID system is consists of following components
1. Tag or Transponder
3. Host computer
1.6.1. Tag: Transponder also called Tag is a transreceiver (transmitter cum receiver) which are capable of storing a certain amount of data and receives and transmit information. Tags are different types according to the memory type and power requirement.
Tag or transponders consists of three parts. One part is an integrated circuit for storing and processing data. The ICs are designed in a way that they are capable of storing at least a unique identification number also called electronic product code or EPC. Second part is consists of an antenna for transmission and reception of RF signal. The antenna in RFID tags are made of conductive elements. Through the antenna, tags are capable of communicating the EPC electronically. The third part of tag, which is optional, consists of internal power source in the form of batteries (generally Watch batteries) (Sarma et al 2003).
According to power requirements tags can be divided into three categories:
a. Passive Tag
b. Active Tags
c. Semi Active / Passive Tags
a. Passive Tags: A passive tag doesn't require any internal power source and utilizes the energy of the reader's signal for its operations. Passive tag uses coiled antenna which creates a magnetic field by using the energy provided by the reader's signal. When a tag receives a RF signal from the reader, the antenna within the tag forms a magnetic field. The tag utilizes this magnetic field for drawing power for chip operation which in turn transmits the information encoded in its memory through antenna by a technique known as backscattering.
The major disadvantage associated with passive tag is that due to lack of power its read distance is very short which limits its much application. The typical range for a passive tag will be between a few cm to few meters. Also power requirement restricts memory space and several other applications like use of different sensors for detecting tampering or temperature requirements.
One of the main advantage of these type of tag is that they are inexpensive to manufacture, have a longer life typically between 20 to 30 years and smaller in size (Some times even smaller than a grain of rice).passive tags capable of EPC storage are available in the range of $0.01 to $1.
Due to these characteristics passive tags have found unlimited application in fast moving consumer goods, retail supply chain and in other areas. In fact researchers from Auto id labs recommended that theses type of tag should be utilized for item level tagging by putting Electronic Product code in the tags memory and then linking the RFID system with internet for further information and data processing.
b. Active tags: These are tags which are fitted with an internal power source generally in the form of watch batteries for powering chips and antennas. Active tags comes in two forms one with replaceable batteries other with sealed units.
The major advantage of active tags is that they have long read distance (in hundreds of meters or more), high data capture/transmission rate and can be reprogrammed several times, have larger memories and can have other sensors for temperature, humidity or tampering detection. Also active tags are capable of performing independent monitoring, control and diagnostics. They have high bandwidth and can be equipped with autonomous networking.
The major disadvantage of active tags is that they are very expensive and they are larger in size compare to passive tags which limits their uses in many areas. Also power outage can result in expensive misread and they need maintenance.
- Semi Passive Tags :There is third kind of tags are available in the market which run on external power sources as well as on internal power source and is known as Semi passive Tags. These types of tags are similar to active tags but they utilize internal power only for microchip and memory storage operation. Signal is transmitted through the antenna using backscattering the RF wave from the reader, similar to the passive tags (Gibson & Bonsor ).
Due to this semi passive tags have greater battery life compared to active tags with the same functionality of an active tag. Also semi passive tags have greater response time compared to passive tags which results in greater read range and reliability.The major drawback of semi passive tags are that they are expensive and bigger in size compared to passive tags which restrict their uses in many applications ((Gibson & Bonsor )).
Reader is used to interrogate a RFID tag. It consists of a transceiver for receiving and transmitting RF waves and decoder for decoding the received signal. Reader emits energy in the form of RF wave at a particular frequency. This RF wave is used to power and communicate with the RFID tag.
When a tag receives a reader's signal it become activate and transmits the information in its memory to the reader. Readers receive the transmission back from a tag and decode the data and send it to a host computer for further processing. A reader emits the RF waves in the range of few centimetres to hundreds of meters depending on the requirement and build.
Depending upon the application, cost of a reader varies from $20-$5000 and some times even more. Readers can be handheld or fixed mounted .Below is some figures of different types of readers.
1.6.3. Host Computer
When a reader collects data from the tags it decodes it and again pass it to a host computer (It may be an entire networked system). Host computer processes these data for further operation depending on the need and can be shared among various users through internet.
Application of RFID in Retailing
(Source: Delen & Hardgrave et al 2006)
According to Karkkainnen & Holmstrom (2002) by using RFID system across a retail supply chain inventory inaccuracy can be minimized due to the elimination of manual scanning and data entry in the various stages of the supply chain which result in the better order fulfilment and Replenishment, and reduction in out of stock.
In a RFID enabled environment when a retailer sells a product the RFID tag attached to the product is automatically scanned and the information about the product sale is automatically updated on the information system of the retailer. The IT system of the retailer uses this information for stock reorder to supplier, if the product inventory is running low. On receiving the order from the retailer's IT system supplier will checks the stock availability in its inventory and consequently fulfils the order ( Leong et al ).
Product and Asset Tracking
A product or asset which is attached with a RFID tag, allows continuous identification through out the supply chain which results in better utilisation and tracking of the asset . The information about the utilisation of the asset can be easily used for better management of the asset i.e. if asset is not frequently in use it can be removed from the operation or engaged in other activities (Boushka et al 2002).
In a RFID enabled environment when a product or assets passes through a strategically located reader, information about the product or asset is recorded automatically. This record is passed to the asset and product tracking system which is used for the monitoring of the shipment. A transport manager can utilised this information for the on time delivery of product (Boushka et al 2002).
According to Chappell et al (2002) utilising the above information an asset can be tracked efficiently and assets that are under used can be removed from the operation. Also this information can be used for locating missing assets and framing loss prevention policy.
Putaway and Replenishment: In a RFID enabled DC or ware house, putaway drivers will be automatically guided to the correct pick up location and the need for scanning which is done in barcode system will be eliminated. Also location inventory quantity will be automatically updated. If the product is stocked at the wrong location an alerts will be created. Due to this during replenishment, operator will not have to look for loads at wrong location and load can be removed without scanning the product and if a operator stocks a product at a wrong place an alerts will be created (Chappell et al 2002).
1. Out of Stock (OOS)
According to Gruen et al (2002) worldwide average of out of stock in supermarkets is 8.3%. According to them the major cause of Out of Stock (OOS) is poor store ordering (30%), store forecasting (18) shelf replenishment (22%) and rest are related to upstream processes. This results in 3-4% annual sales loss to retailers in addition to poor customer satisfaction and retention.
The main reason behind this is the poor information visibility. RFID provides accurate data quality as it automatically detects and updates information system about the arrival and departure of products from a store or ware house which gives better information visibility to a retailer about the location and status and quantity of product resulting in better ordering, forecasting and replenishment and decreased OOS situations ( Theisse & Michahelles 2006).
3. Tracking and Tracing of Product
This is a vital function in the supply chain as product tracking and tracing is required for managing internal processes of a retailer as well as due to regulatory traceability requirement of food products. If a RFID system strategically implemented across a supply chain it provides accurate data about the movements of a good in a supply chain (Tellkamp et al 2005).
Receiving and Check-in
According to Chappell et al (2002) if cases and pallets tagged with RFID is brought in a distribution centre, RFID reader will read the tags automatically and updates the inventory quantity which eliminates the present labour intensive quantity check in process which is highly prone to errors. Also many of the clerical functions like printing receiving , data entry, purchase order verification is done automatically by the RFID system .
For more information see Alexander topic on produc availability in auto id folder in new articles -seen for ref
According to Chappell et al (2002), RFID system makes order filling operations error free by directing the pickers to the correct location of the product and verifies the correct quantity of the order and automatically updates the current inventory and store order information.
The existing verification system for product shipment consumes lots of time and resources and is prone to errors. In a typical distribution environment only 40% to 60% shipments that are free of damage and contains the right quantity of products delivered at right time. The error in shipping operation increases customer claims, inaccuracy in inventory levels and returns which results in highly dissatisfied customers (Alexander & Gilliam et al 2002).
RFID makes shipping operation efficient by eliminating the need for manual scanning of loads/products. Also due to high read rate the conveyers carrying the products will run at high speed resulting in time saving. RFID will also generate error free shipping document (Chappell 2002).
According to Tellkamp et al (2005) the major reason behind inventory inaccuracy is shrinkage which occurs due to employee theft, shoplifting, supplier fraud, administration error etc. through the use of RFID a retailer can identify the location of the leakage in the supply chain and adopt some preventive measures (BEA).
Demand Planning and Replenishment
According to Kambil & Brooks () RFID tremendously helps demand planning and Replenishment. It does so by providing accurate information about the sales, shrinkage and the inventory level which helps in demand planning, ordering and supply of product. This results in better shelf replenishment and less out of stock situation.
Supply Chain Management
According to Cooper and Ellram ‘'SCM is an integrative approach to manage the total flow of product in a distribution channel from the supplier to the ultimate user'' (Fawcett, Ellram & Ogden, 2007).
The objective of any SCM is to provider customers with satisfactory product and services at competitive prices in a fixed time frame (Fawcett, Ellram & Ogden, 2007).
The historical and Modern perspective of SCM
Purchasing and Supply chain:
Purchasing or procurement is the process of acquiring raw materials, components, products, services and other resources from supplier in order to execute the operation (Chopra & Meindl, 2007).
Sourcing is the entire set of business processes required to purchase goods and services. Sourcing processes includes the selection of supplier, design contract, product design collaboration, procurement of materials and services and evaluation of supplier performance (Chopra & Meindl, 2007).
Physical Distribution Management
Physical distribution management is the management of movement and storage of product from supplier to the end customer (Chopra & Meindl, 2007). It focuses on the outbound transportation and storage of finished goods/products from manufacturer to the end customer (Chopra & Meindl, 2007).
Material movement or physical distribution is a major driver of an organizational profitability and competitiveness because it contributes directly to the cost of doing business as well as the experience of the end customer (Chopra & Meindl, 2007).
It's an extension of physical distribution .logistics refers to the management of material flow and information flow. Inbound logistics deals with the flow of materials and information to operations from its suppliers while outbound logistics refers to the movement of materials and information from operations to its customers (Harrison & Hoek, 2005).
We can gauge the importance of logistics by the fact that two of the world's most successful organizations, Wal-Mart and Seven-Eleven have built their entire business around their outstanding logistic network and operations (Chopra & Meindl, 2007).
Broadly activities of logistics can be divided into three categories
- Order fulfilment
- Transportation management
- Distribution management
1. Order fulfilment
Main activity of logistics is order fulfilment. Below figure shows the key activity that consists of an order fulfilment (Fawcett, Ellram & Ogden, 2007).
2 Transportation Management
Transportation is one of the important and most visible activities of logistics. Cost of transportation and availability and reliability plays a measure role in the logistics system.Transportation influences the choice of inventory management, design of product and packaging and customer services strategies (Fawcett, Ellram & Ogden, 2007).
3 Distribution Management
Distribution management concerned with the distribution and storage of the product. Inventory is stored in ware houses located in the manufacturing facility or in distribution centre (Fawcett, Ellram & Ogden, 2007). Warehouses and DC's perform following vital activities
- Supplying and receiving goods
- Material handling
- Order processing
- Consolidation and distribution of supplies
- Transportation management by route mapping, tracing and monitoring of goods
- Packaging and labelling
- Scrap and disposal
(Fawcett, Ellram & Ogden, 2007).
As keeping inventory costs businesses and hamper their cash movement efficient distribution management provides business cost advantage by quick order processing and better inventory management (Fawcett, Ellram & Ogden, 2007).
Thus by designing a good distribution network business can get the advantage of good customer service fast response time, reduction in waste and overall it can decrease operation cost (Fawcett, Ellram & Ogden, 2007).
As the goal of the supply chain is to achieve the competitive strategy of the company it needs to structure its logistical and functional drivers to get the required efficiency and responsiveness (Chopra & Meindl, 2007).
The below figure shows the supply chain decision making framework
Supply Chain Operations Reference Model (SCOR)
SCOR or supply chain operations reference model is developed by supply chain council for measurement of the performance of the supply chain of a firm and areas of improvement. The model is based on the five management processes: plan, source, make, deliver and return. SCOR is used as a benchmarking tool for the performance of the supply chain (Harrison & Hoek, 2005).
Turning good business plan into customer value requires co-ordinated management of purchasing, production, logistics and order fulfilment. SCM provides businesses an opportunity to be cost effective and responsive to the customer as well as business demands (Chopra & Meindl, 2007).
The main aim of this section is to explore the academic work to familiarise with the current development and issues in the retailing, RFID technology, the application and implementation of RFID in the retail supply chain, challenges of adopting the technology, what kind of process efficiency it provides to retailers. Also case study on the implementation of the RFID technology in retail industry is viewed to gain an insight on the actual performance of the technology in day to day activities of the retail supply chain.
Parter et al (2005) in his research found that even after spending million of dollars on new technologies such as Auto Replenishment program, grocery retailers were unable to decreased their inventory cost due to
- Forward buying
- high number of product stored in a supermarket
- Tendency of employees to bypass scanning of each similar product
This Resulting in
- High inventory levels and other related costs.
- Lack of shelf space
- Product unavailability or out of stock
In their research they found that RFID can be used to reduce inventory level by linking the entire RFID system with the stores main computer. Sridharan et al (2005) states that poor implementation of supply chain management solution can destroy the value of a firm and this result in disruption in supply chain as well as huge losses for the firm.
Gruen and Corsten et al (2002) found that out of stocks or OOS presents a serious problem for retailers as consumer switch brands when they didn't find the products they want to buy. The response of the consumer is shown in the below figure
(Source: Gruen and Corsten et al 2002)
According to them this problem arises due to poor information management. In their study they found following reason for OOS
Further they said these errors resulted in 50% sales loss of intended purchase and overall 4% sales loss to the retailer. According to their study OOS can result in following things
1. Consumer loss
2. Sales loss
3. Loss of customer to manufacturer
4. Sales loss to manufacturer
Gruen and Corsten et al (2002) suggested that by utilizing better technology these problem can be solved but they didn't prescribed any technological solution in their study. Their study is significant in the way that it clearly shows the implication of poor inventory management especially out of stock and its causes and resulting financial loss.
This study is quite reliable as they studied more than 52 OOS across 661 retail outlets in 29 countries and taken account of 32 FMCG product categories around the globe and surveyed 71000 customers and they are not aligned to any technology provider or lobby.
Another study done in this area by Howgego (2002) also arrived at the same conclusion. He also suggests that retailers have to integrate their supply chain from manufacturer to end customer for competitiveness which will result in reduced cost and higher customer satisfaction.
A major study conducted to address the extent, nature and impact of stock loss or shrinkage in Fast moving consumer goods sector in Europe Beck (2004) collected data from retailers in 18 European countries with a combined turnover of euro 137.2 billion.
The finding of the study reveals that the loss due to shrinkages costs European manufacturer, suppliers and retailers a whopping euro 24.17 billion annually or euro 465 million weekly and it is 2.41% of the overall market turnover (Beck 2004). In the below table cost to different parties is shown
Beck (2004) observed that unawareness about the causes of the loss is a major problem among the manufacturers, suppliers and retailers due which they were unable to identify the extent, location and accountability of the employees. Following figure shows the percentage of loss which is known and unknown.
On the basis of the data collected from the known loss, four major causes were found which is shown in the below figure. The major reason behind the stock loss emerged as the process failure which was followed by external, internal theft and inter -company fraud (Beck 2004).
According to Beck (2004) European retailers had spend euro 2.92 billion to save stock loss worth euro 18.2 billion in 2005.
On retail crime like shrinkage and shoplifting Bamfield (2004) also arrived at the same conclusion and founds that theft by customer and employees and supplier theft and internal erros where the main cause of the shrinkage however the finding estimate were different.
Kelepouris et al suggested that the main requirement of traceability of product can be addressed by the RFID. In their study they outlined information data reference model and system architecture for easy and feasible deployment of RFID system across a supply chain. Further they suggest that through RFID traceability information can be obtained at a reduced labour cost. According to them RFID combined with an appropriate IT infrastructure can enable end to end traceability in supply chain at small costs even affordable by SMEs. but they did not reveal the way and the extent of cost of the technology adaptation and implementation in their study.
Fleisch and Tellkamp (2003) in their simulated study on cause of inventory inaccuracy and impact in retail supply chain performance found that elimination of inventory inaccuracy can reduce the supply chain costs as well as the out of stock level. In their study they examined the direct effects of the factors that causes the inventory inaccuracy on each of the supply chain measures which is shown in the below figure
(Source: Fleisch and Tellkamp 2003)
Further they suggested technological measure to eliminate inventory inaccuracy and out of stock. They suggested that RFID due to its high tag cost can be only utilised for high value items but their simulated study indicates that the RFID can be utilised for higher process efficiency and reduction in shrinkage.
Liu et al (2008), states that RFID enabled automatic data capturing enhances the product item visibility in the retail food supply chain resulting in greater business transparency and better management of perishable food in supermarket supply chain. further he suggest that in supermarkets, complexity of monitoring and control of the perishable food can be managed by application of RFID technology, which enables non contact, real time data collection and by using this information supermarkets can know the condition ,location, quantity and expiry date of the products. Also point of sale data obtained through RFID can be utilised for demand forecasting and order fulfilment resulting in better inventory management and dynamic price adjustment to meet the demand and maximization of profit.
White et al (2008) studied the factors influencing the successful RFID adoption efforts. They found that early operational deployment was influenced by the mandate from key retailers requiring the technology use and retailers insisted on the technology deployment in anticipation of faster sales cycle and enhanced system integration. In contrast to this the major benefits were found in the industrial goods and logistics industries where mandate were less common. They also found that perceived organizational innovativeness has a positive impact on the expected ROI from RFID. Also they found that the system integration played a vital role in deriving benefits from the RFID.
Angeles (2005) studied various RFID adaptation cases and laid guidelines for RFID adoption and suggested proactive adoption of the technology. In her study she found that the RFID offers both process freedom and better information visibility throughout the supply chain in different industries. She also states that WAL-Mart, Department of Defence (USA) mandate and initiative by industry body EPCglobal will help in the proliferation of the technology.
According to Boeck and Wamba (2008) relationship between a supplier and buyer are crucial for successful RFID implementation and infrastructure. In their study they found eight key issues such as communication, information sharing, co-operation, trust, commitment, relationship value, power imbalance, and interdependence, adaptation and conflict resolution necessary to resolve for successful implementation of RFID system. As the technology involves huge investment in IT and infrastructure and immediate benefits to suppliers are negligible compare to the retailer.
According to Barrat and Oliveira SCM should be built around the integration of all business partners so that firms should be able to benefits from the common goals of all its business partners. In retail supply chain this results in the continuous replenishment of goods, vendor managed inventory or VMI and collaborative planning, forecasting and replenishment (Pramatari 2007).
Kim (2006) found that efficient supply chain integration plays a vital role in performance improvement in a small scale firm while in large firm performance improvement is obtained from the close inter-relationship between the SCM processes and competition capability.
Tellkamp et al (2005) found that even with adequate use of data capturing and data transmission technology, data quality is poor in the retail supply chain. He advocated the use of RFID and states that RFID system helps in filling the gap between real and virtual world. And after RFID implementation cost of data capturing becomes low and quality becomes better. they cites this reason behind the technology adaptation by major retailers.
In their research they found that RFID helps in better data acquisition, product availability, inventory and shelf management in supermarkets but they didn't explore the cost and complexity issues related with the technology.
Koh et al in their study explores the impact of RFID in the retail industry they identified four major benefits of RFID in retailing they are 1.Better inventory management 2. Efficient store operation, 3.Incresed retail cycle and integration of operations. In addition they also identified three major risk factor in the form of 1.Complexity of technology 2. Lack of technical expertise and 3.uncertainty of technology. This is essentially resulted due to the novelty of technology in retailing. Also as the finding were based on the individual opinion of executives involved in retailing and the sample size was small its not considered reliable.
McFarlane et al (2002) in their paper explores the impact of RFID on simple and complex product supply chain. They states that the connectivity of product through RFID and then coupling it with firms information system will provide accurate data about product location and quantity which will eliminate the mismatch between the material and information flow. This will result in better order fulfilment, inventory management. In their research they find that RFID can immensely change the way supply chain are managed and uncertainty about product and resource availability will be eliminated.
Hardgrave et al (2007) studies the business value of RFID system for suppliers and retailers. In their study they identified many performance matrices that can be derived from RFID deployment. They suggested ways for improving logistical performance supply chain operations of distribution centre and retail store.
Hardgrave et al (2008) conducted a study on impact of RFID on inventory accuracy which was commissioned by Wal-Mart. They found that RFID reduces the inventory inaccuracy even if it was not fully deployed and integrated with the firm's information systems. The RFID contributed in a better forecasting, Ordering and Replenishment resulting in reduction in out of stock situations. This finding supported the earlier study conducted by Hardgrave, Waller et al in 2006,on influence of RFID system on out of stock by sales velocity analysis and supported the case for RFID implementation as RFID data information provided better supply chain visibility resulting in better decision making.
A very interesting study done in the implementation of RFID and automation is carried out by the Corsten and Gallen (2005). In their investigation of the failure of the Sainsbury's £700 million overhaul of its supply chain, they found that although the idea was the brilliant, the project failed due to poor implementation and lack of expertise. They outlined following reason for the failure of the project
- Shortening of time period of project from 7 years to 3 years
- Lack of co-ordination between technology providers and Sainsbury's executives
- Lack of expertise on implementation of new technology
Corsten and Gallen (2005)
Further they noticed that if automation system does not work properly even manual intervention become very time consuming and costly.
In their investigation on use of RFID in UK retail sector Jones et al (2004) found several benefits of the technology. They argues that the opportunities and challenges for RFID tags for retailer are significant but the extent of adoption will depend on the cost and benefits analysis and also the perception and acceptance of the consumer.
McFarlane and Wong studied the impact of RFID on the shelf replenishment in simulated inventory control model. They analysed the impact of RFID information on current shelf replenishment policies in a store and identified information relevant for improving the processes. They compared the old Barcode, EDI, ASN, EPOS system with the new RFID, EDI, ASN, EPOS system. They found some improvement in RFID enabled environment. The result is shown in the below figure
In their study McFarlane and Wong observed that for maximum RFID impact shelf replenishment practices should be modified and benefits will vary among different classes of products.
Karkkainen (2003) conducted a study on short shelf life product in the retailing and found that due to high number of product variants, strict traceability requirements, temperature control and large volume of goods, supply chain management of these products is a big challenge. In this study he examines the RFID trials conducted at Sainsbury's for short shelf life products and explores the benefits for short life product retailers and manufacturers.
McFarlane (2002) suggests that to maximise the benefits from RFID adoption reconsideration of operational and business decisions making process, which he referred as control system, is essential. In his research he found several potential benefits of developing a control system based on the RFID data and demonstrated the requirement of developing a control system.
McFarlane (2002) further divided the RFID adoption and information processing in two parts and referred them as open loop and closed loop. According to him open loop deals with the infrastructure building and storage of RFID data while close loop deals with the decision making and actions based on the RFID data.
According to McFarlane (2002) open loop provides benefits in the form of increased accuracy, quality and timeliness of data while closed loop activities will change the decision making processes due to the availability of accurate and timely information. The application of the open loop and closed loop RFID is shown in the below figure
Hingley et al (2007) studied the implication of RFID tagging on suppliers to the UK grocery retail market. They found that due to the high cost of the technology suppliers were unwilling to adopt the technology as they see little benefits for them self compared to the retailer. They conclude that in order to keep the cost of the application minimum, retailers and suppliers should develop a standardised and flexible system. Also they suggests that for successful RFID implementation supply chain power imbalance must be addressed and the cost of should be evenly distributed between the suppliers and the retailers.
Attaran (2007) in his study finds that RFID implementation can result in better supply chain collaboration and visibility. In his study he found that if RFID is implemented properly it will increase the business ROI with major improvement in retail supply chain communication. Further he suggests that outside technological issue like Marketing, High expectation, false promises, privacy and security issues are the main stumbling block in the full commercialisation of the technology
Muir (2007) raised the issue of privacy and security of consumer data and said that due to inherent nature of the RFID system anyone with a background in electronics can know the product, a person is carrying by using a good quality reader. Further he suggests that before implementing the RFID on item level proper policy about privacy and security should be constituted.
Sarma et al (2003) states that as the RFID tag will enter into our daily lives, privacy and privacy issue will play a major role in the adaptation of the technology further he suggested that in retailer environment passive tags should be used at item level tagging which has a very short read range and also he suggested incorporation of new features like self kill tag, signal authentication etc for safety of data.
Luckett (2004) pointed out the issue of privacy and state that issue of privacy and security of data comes in consumer mind because they didn't see any direct benefits from the RFID. In his article he says that even mobile phone falls in the same category as a RFID enabled product and can be used for tracking and surveillance but people still carry it because they can clearly see the convenience and benefits of a mobile phone.
Alexander et al (2002) states that investment in RFID technology is huge and requires lot of dedication and co-operation between the concerned parties and the rewards may not be instant. Also he pointed out that as RFID is a new technology there is lot of uncertainties exist about the cost of implementation and performance. In his report he suggested the use of RFID on case level and given the example of successful implementation in various major retailer like Wal-Mart, Tesco, Metro etc. also they suggested that case level tagging will help companies to gain experience to implement item level tagging in future when the technology will mature.
According to Ghauri & Gronhaug (2005) research design helps in organisation and planning of data collection and analysis. The technique of data collection is known as research methodology. There are different ways of conducting a research. The type of the problem a research is dealing with determines the use of a particular research design like exploratory, descriptive or casual. Exploratory studies are carried out when the research problem is not structured. To under stand a problem or arrive at solution knowledge of various theories, methods and concepts are necessary (Ghauri & Gronhaug 2005).
In this study content analysis research method is used for the data collection and data analysis. This method is widely used in media, Marketing, social sciences and many other fields. This methodology is used to determine presence of certain concepts and words in a set of literature. The methodology is exploratory in nature and used to capture and quantify qualitative information (writing.colostate.edu).
This approach is chosen because to achieve the objective of the study it was felt necessary to explore the past literature on the application of RFID technology in retail supply chain and advantages and disadvantages associated with it. And it was found that majority of the data published on the topics where qualitative in nature and for the simplification of the presentation and explanation quantification of qualitative data was felt necessary.
4.2 Data Collection
As the requirement of the study involved reviews and analysis of past and present literature this study uses secondary data collection method. For the data collection major sources where identified. Article, journal and case studies, white paper and news articles were collected from respected sources for the reliability of the information.
Data were collected from various sources like RFID journal, GS1, EPCglobal, Elsevier Science Direct, Emerald (MCB), Proquest, Keynotes, Market line Business Information Centre, wiley and other online resources. Articles were searched by using key words like RFID, RFID in retail supply chain, Application of RFID etc. All relevant articles where then retrieved for further data analysis. A total of 90 articles were used for the data collection as it is felt that they are sufficient for the understanding and explanation of the objective.
After the selection of the article major issues were identified by reading the literature and focussing on the study objective. Three major areas were identified they are Drivers for adoption of RFID technology in retailing, Benefits of the RFID technology for Retail supply chain and Challenges of RFID adoption in retail supply chain. Major issues related to these three areas were further shorted in different categories depending upon the association with the main issues. This is shown in the below table.
Drivers of RFID Adoption in Retail Supply Chain