The Role of RFID Technology in Supply Chain Risk Management

Abstract

Supply chain risks come in a variety of forms: disruptions to material flows, product quality problems, information systems breakdowns, and economic instability (Chopra & Sodhi, 2004; Zsidisin et al., 2000). The recent literature in supply chain management recognizes the importance of managing such risks in the age of global supply chains. Various researchers have discussed firms’ increasing exposure to risks and the resulting, potentially severe negative impact on the firms’ financial performances (e.g., Hendricks & Singhal, 2005). One such risk to the supply chain, disruption of supply flows, can occur suddenly due to a number of unpredictable events. Even more unpredictable, however, is the ripple effect caused by the disruption. For example, the September 11th terrorist attacks of 2001 in New York and Washington, D.C., originally disrupted many supply chains on the United States (U.S.) East Coast, one of which was the Ford Motor Company’s parts supply chain. The disruption eventually forced not one but five of Ford’s assembly plants to cease production within a week of the incident (Zakaria, 2001). While Ford was experiencing parts shortages, Quanta Computer, a Taiwanese contract manufacturer for Dell and others, faced a pile-up of finished products when the U.S. airspace closed due to the attacks (Einhorn, 2001). One logistics service company in Europe estimated that the attacks cost the company £5 million (Parker, 2002). In this example, the ripple effects were extensive, affecting businesses in North America, Asia, and Europe. This high degree of impact clearly illustrates the importance of managing ripple effects as a part of supply chain risk management. In the first of two parts, this research shows that Radio Frequency Identification (RFID) technology, a relatively new development in supply chain management, holds great promise for managing supply disruptions and for containing their harmful ripple effects. RFID ⎯ a wireless technology that uses transmitted radio signals to tag an item in order to track and trace its movement without human intervention ⎯ has superior capabilities over bar codes and promises many supply chain benefits, such as reductions in shrinkage, efficient handling of materials, increased product availability, and improved asset management (Angeles, 2005; Li & Visich, 2006; Taghaboni-Dutta & Velthouse, 2006). RFID has many applications in retail, healthcare, logistics, records management, and more, but so far its use in risk management has not been explored in the literature. To fill that gap, this research first addresses the following question: Is RFID applicable in supply chain risk management; in particular, how is it useful for managing supply disruptions?