RFID investment strategy for fresh food supply chains

Abstract

We study RFID investment decisions for a fresh food supply chain consisting of a retailer, a manufacturer, and a supplier. The supplier supplies a type of raw fresh food that is further processed by the manufacturer. The end product remains fresh and is sold to the retailer, which then sells it to consumers. The retailer can choose to either control the procurement of the raw fresh food or delegate the function to the manufacturer. The demand for the end product is random and there exists a spot market with ample supply for emergency purchase. Applying game theory to analyse the retailer’s decisions as to whether or not to invest in a RFID technology under the control or delegation strategy, we find the equilibrium outcomes. We derive the conditions under which RFID investment is profitable and discuss the investment cost sharing issue. We also determine the optimal joint decisions of procurement strategy selection and RFID investment. Our findings provide important managerial insights to managers in the fresh food business where RFID investment is an intriguing issue: (1) RFID shall be invested so long as the investment cost is not significantly high, either by the retailer under the control strategy or by the manufacturer under the delegation strategy, whichever is more profitable; (2) sometimes it is not optimal for the retailer to invest in RFID by itself, but it is still possible to gain from the RFID investment by the manufacturer under the delegation strategy; (3) the procurement function shall not be delegated to the manufacturer unless it is optimal for the manufacturer to invest in RFID and the retailer is better off by doing so, i.e., the delegation with RFID strategy is better than both of the control with and without RFID strategies.