Impact of RFID technology on supply chain decisions with inventory inaccuracies

Abstract

Inventory inaccuracies are costly and prevalent in many industries. This paper focuses on the impact of RFID technology adoption on supply chain decisions with shrinkage and misplacement problems in the Internet of Thing (IoT). We assume that the supply chain consists of one supplier and one retailer that sell a single product to the customer. By assuming that demand is uniformly distributed, and considering the factors of the fixed investment cost, tag price and shrinkage recovery rate, both RFID and non-RFID cases are analyzed under two scenarios: (1) in the centralized supply chain, the Newsvendor model is applied to investigate the impact of applying RFID technology on inventory control policy and supply chain profit; (2) in the decentralized supply chain, the wholesale price contract is formulated to characterize the supply chain partners’ decisions on ordering quantity, wholesale price and profits. We find that when the fixed cost and variable tag cost of RFID technology are shared between the retailer and the manufacturer, the retailer is much more sensitive than the supplier to the sharing proportion of RFID fixed investment cost as well as the tag price.