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When Does RFID Make Business Sense for Managing Supply Chain?

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  • Ertunga C. Ozelkan

    (The University of North Carolina at Charlotte, USA)

  • Agnes Galambosi

    (The University of North Carolina at Charlotte, USA)

Abstract

Radio frequency identification (RFID) is believed to change how supply chains operate today. While RFID’s promise for improved inventory visibility and automation in inventory management is making many supply chain players hopeful for increased sales and reduced operating costs, these benefits do come at a cost and involve risks. This article presents a financial returns analysis that captures RFID’s costs and benefits, and quantifies the financial risks of implementing RFID for various business sizes and products with different unit profits to understand when RFID makes business sense. More precisely, the returns analysis is performed using an econometric model to understand how break-even sales volumes, unit profits, tag prices, return on investment, and risks vary between a manufacturer and a retailer in a supply chain. The results are extended to multiproduct cases as well. A sensitivity analysis is also performed to understand the returns in pessimistic and optimistic scenarios.

Suggested Citation

  • Ertunga C. Ozelkan & Agnes Galambosi, 2008. "When Does RFID Make Business Sense for Managing Supply Chain?," International Journal of Information Systems and Supply Chain Management (IJISSCM), IGI Global, vol. 1(1), pages 15-47, January.
    • Handle: RePEc:igg:jisscm:v:1:y:2008:i:1:p:15-47
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    Cited by:

    1. De Marco, Alberto & Cagliano, Anna C. & Nervo, Mauro L. & Rafele, Carlo, 2012. "Using System Dynamics to assess the impact of RFID technology on retail operations," International Journal of Production Economics, Elsevier, vol. 135(1), pages 333-344.

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