Executive summary and implications for managers and executives

Citation

(2010), "Executive summary and implications for managers and executives", Journal of Business & Industrial Marketing, Vol. 25 No. 8. https://doi.org/10.1108/jbim.2010.08025haa.002

Executive summary and implications for managers and executives

Article Type: Executive summary and implications for managers and executives From: Journal of Business & Industrial Marketing, Volume 25, Issue 8

This summary has been provided to allow managers and excecutives a rapid appreciation of the content of the issue. Those with a particular interest in the topics covered may then read this issue in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

Applications of radio-frequency identification (RFID), which use “intelligent” tags to transmit information to a reading device, include retail operations, inventory control and logistics, manufacturing and configuration management, as well as authentication, counterfeit protection and security. Even health experts are investigating potential uses, for instance embedded RFID monitoring of diabetes patients’ blood glucose levels to avoid the existing, more painful, procedures.

RFID has emerged as one of the most advanced and commercially promising types of total asset visibility information technologies. Although the know-how has been around since the use of aircraft transponders in the Second World War, the business uses of RFID are relatively new. In inventory tracking, some radio tagging is merely at pallet level or case level, whereas the knowledge exists for a more sophisticated, individualized tagging system. What potential users want to know are the answers to those universal questions which precede any adoption of technological help: “Is it worth the cost? Will I get a good return on my investment? And, as RFID programs require specific knowledge and skills, “Has my organization got the necessary know-how to operate it?”. Questions which take on an added complexity if the organization is part of a supply chain, possibly with coercive tactics being applied on them by a channel partner to adopt the technology or face termination of the relationship.

In its basic form, RFID enables the identification of individual items in a supply chain, and serves as the source collection point of location (and status) data in a supply chain inventory tracking and disposition system. The main principle of RFID is based on the communication between a tag reader and a tag. The reader emits radio waves in multiple directions, and the tag receives those waves, and responds by emitting a signal back to the reader confirming that the tag received the signal.

There are two types of tags (and four different types of frequencies). Passive tags contain no independent source of power. Instead, they are powered by the electromagnetic radio waves that the reader sends out. These tags are the cheapest to manufacture, but because they have no independent power source, their range, and reliability are considerably lower than that of their counterparts, the active tags. Active tags have their own power source and so do not need to be powered by the reader. As a result, they have a much higher range and are more reliable. However, they are much more expensive to make.

Retail shelves fitted with RFID readers continually monitor the stock which remains on the shelves, and issue low-stock and replenishment alerts to store personnel, so that those shelves can be filled from the store’s backroom before customers find empty shelves with the consequent lost sales. Using RFID in the distribution logistics for perishable foods helps to preserve product value by ensuring a constant flow of quality information on its condition.

Effective demand at the shelf is a function of the effectiveness and efficiency of the backroom-to-shelf restocking process. Unavoidable stockouts – where there is no stock left in the backroom to replenish the shelves – are bad enough, but avoidable stockouts – where there is stock in the backroom but no one has yet moved it to where it is needed, and the customer only sees empty shelves, is surely unacceptable in an efficient organization. Customer demand that cannot be satisfied is instantly lost.

In “Preventing avoidable stockouts: the impact of item-level RFID in retail” Gary M. Gaukler addresses the questions:

• •

  Given that the benefits of item-level RFID are:

• •

  better demand level prediction and hence a better decision on how much to stock in the backroom; and

• •

  a better restocking process from the backroom to the shelf – what is the relative contribution of each of the two to the potential overall cost savings? This is an important consideration because better demand prediction could also be achieved by utilizing better-forecast techniques rather than RFID.

• •

  What are the properties of products and processes that make a real world setting more conducive to see substantial benefits from item-level RFID? This will determine, for example, whether or under which circumstances it is better to implement RFID for high or low margin products.

• •

  What are rough, ballpark estimates of the minimum level of tag cost necessary to make item-level RFID profitable? An answer to this question would help determine when one can expect to see widespread adoption of this technology.

Gaukler’s paper presents a study of retail operations where the retailer’s stocking problem is characterized by two separate stocking locations: in the backroom where the bulk of the product is located, and at the shelf, where customer demand is satisfied. The retailer’s goal is to reduce out-of-stock situations at the shelf to avoid lost sales. The role of item-level RFID is to alert the retailer to impending stockouts at the shelf so that product can be replenished in time for the backroom to fill the shelves.

In his model, the influence of RFID is twofold: first, it directly affects efficiency and effectiveness of the backroom-to-shelf replenishment process and hence the amount of product sold. Second, it indirectly affects the retailer’s demand forecast: more products sold mean a higher demand forecast, which means a higher order-up to level in the backroom. His study derives order-up to levels for backroom stocking for both the RFID and non-RFID cases, and examines the relative magnitude of the direct (i.e. sales) and indirect (i.e. forecast-driven order-up to levels) effects on expected retailer profit.

The numerical study confirms that the direct effect of more efficient and effective backroom-to-shelf replenishment contributes the majority of benefits. On average, the model shows that approximately 80-85 per cent of the total RFID benefit is directly due to the backroom-to-shelf process, and only 15 to 20 per cent is due to an improvement in backroom stocking. This finding suggests that, in general, the operation of the backroom is not as crucial to the overall retail profitability. The model presented in the study, therefore, delivers further evidence of the importance of the “last several yards” in the retail execution. This has important implications for retail RFID projects: the majority of current RFID implementations and pilots focus on case- and pallet-level RFID. The benefits of these implementations are mainly on improving logistics and receiving operations, reducing order inaccuracy etc. From the retailer’s perspective, these benefits almost exclusively pertain to ensuring correct backroom stocking. Seeing, however, that this type of benefit accounts for less than 20 per cent of total potential RFID benefits, it appears that current case- and pallet-level implementations are insufficient.

The study also quantifies the impact of RFID tag cost and the fixed cost of readers and IT investment on the profitability of an item-level RFID implementation. Neglecting any fixed costs, the numerical results show that under the very conservative assumption that the backroom-to-shelf replenishment process under RFID is two percentage points more effective than without RFID, a tag cost of $0.05 can yield a profitable implementation. Accounting for fixed costs of readers etc., the study still shows profitability of item-level RFID at realistic tag prices of up to 10 cents and fixed costs up to $500 per product, if the backroom-to-shelf process can be guaranteed to be 5 percentage points more effective under RFID. Based on these findings, it is the author’s opinion that a widespread adoption of item-level RFID in retail may not be as far in the distant future as is commonly believed.

While RFID technology has potential for both cost savings and revenue enhancement, it appears – according to Pamela J. Zelbst et al. in “RFID utilization and information sharing: the impact on supply chain performance” – that for RFID technology to positively impact supply chain performance (and that reflects the ability of the supply chain to satisfy ultimate customers at a relatively low cost) the technology must be coupled with established enterprise resource planning (ERP) systems. Where ERP systems are in place and functioning well, managers can expect the implementation of RFID technology to lead to more satisfied customers.

Managers are charged with and held accountable for improving the performance of the organizational entity for which they are directly responsible. Within a supply chain context, however, organizational managers must adopt an external focus and must consider the impact of organizational strategies on supply chain partners. Supply chain performance is optimized only when an “inter-organizational, inter-functional” strategic approach is adopted by all partners operating within the supply chain. Optimization at the supply chain level maximizes the supply chain surplus available for sharing by all supply chain partners.

Information sharing enhanced by RFID utilization allows for a better response to changes in the needs of the ultimate customers of the supply chain. To affect such responsiveness, timely information must be made available to all supply chain partners that support the linking and alignment of the manufacturing, purchasing, marketing, and logistics processes throughout the supply chain.

The ability to generate and synchronously supply real-time information throughout the supply chain depends on the ability to efficiently capture data as products and services move through the supply chain to ultimate customers. Bar coding technology has supported the necessary data collection for many years. RFID technology is being adopted to improve data collection capability throughout the supply chain. In effect, the utilization of RFID technology more efficiently feeds data to the ERP information engines.

Findings of the Zelbst et al. study indicate that RFID technology utilization does not directly impact supply chain performance as hypothesized. It indirectly impacts supply chain performance through supply chain information sharing. It appears, then, that the adoption of RFID technology improves an organization’s ability to provide the data necessary for ERP systems to generate and disperse timely information throughout the supply chain. The ability to share this real-time information synchronously with partners leads to improved supply chain performance. More succinctly, RFID technology utilization enhances information sharing which improves the supply chain’s ability to satisfy ultimate customers.

While Gary M. Gaukler feels that the widespread adoption of item-level RFID in retail may not be as far in the distant future as is commonly believed, Jennifer L. Fries et al., in their paper “Factors that influence the implementation of collaborative RFID programs”, take the view that the deployment of RFID technology in channel and other business relationships has not lived up to industry expectations. At Wal-Mart, more than 600 suppliers have been mandated to adopt RFID. However the majority are implementing it at the minimum levels required (known as the “slap-and-ship” approach) and use only the most basic aspect of the technology – the RFID tag, which is applied manually to either the case or pallet just before leaving the warehouse. Most have not invested in any of the hardware and software components necessary to scan, collect and use data generated from the tag technology. On the other hand some suppliers have derived tremendous benefits after making the requisite investments in the hardware (RFID readers), collaborative networking, and related software.

RFID technologies encompass a myriad of technological components such as tags, readers, middleware, enterprise systems and collaborative networks that both channel partners must adopt. As a result, the implementation of RFID programs across channel relationships is a complex and highly interdependent process.

Collaborative RFID programs require investments by both parties involved in the channel relationship before the benefits of the technology can be fully optimized. One trading partner cannot effectively utilize the technology without its counterpart also participating in the implementation. Each channel partner must invest in the various RFID system components, which may include the tags and readers, middleware and servers, enterprise applications and the EPCglobal network infrastructure, all of which may or may not be adopted at the same time. The adoption of RFID technology in a channel relationship begins with one trading partner’s decision to invest in it. This partner is the initiator and may be the supplier or retailer. After the initiator decides to adopt the technology, they must then deploy it across their channel partners by convincing them that they too should implement it. Often this is done through coercive tactics, such as mandates requiring the channel partner to adopt the equipment or face the termination of the relationship. The channel partners who are required by the initiator to also adopt the process are called followers.

Fries et al. attempt to identify the specific factors that are likely to enable the follower firm to have a successful RFID implementation that results in increased organizational efficiency, proposing a conceptual model, which leads to some very practical implications. One basic implication is that top management must be involved and support the implementation program. They must have a strong understanding of the technology and the performance implications for the firm. Additionally, executive level support enables the transfer of knowledge by opening up the capital resources necessary for the firm to build the technical knowledge through training, educational seminars and attendance at conferences. Cross-functional teams are also suggested to help with the implementation. These help transfer knowledge regarding the benefits and problems associated with an implementation across the functional areas.

The implementation often requires other functional units to understand the benefits of the program and how to use the data to create value for the firm. Firms with more prior technical knowledge will be more likely to have the conditions necessary for a successful implementation. Firms with a history of successful implementations or experience with RFID technology in other applications have the ability and confidence to tackle a complex implementation.

The successful implementation of the RFID program encompasses much more than the purchase of the technology – it also includes the reorganization of business processes, and the utilization of the data created by the system. With RFID systems, the technological components are the physical hardware and software components that are needed to run the network, such as readers, tags and internal data-mining software. Current mandates only require the application of the RFID tag at the pallet level. For those followers who only adopt at this level, the costs of implementing the program often exceed the benefits derived. It is only when the follower firm adopts all of the components necessary to enable the exchange of real-time data across the channel relationship that the true benefits of the system can be derived. This level of implementation requires the follower to change business processes, activities and procedures in such a way that the data can be collected and distributed across the organization and channel relationship. The final requirement for a successful implementation is that the follower must have the ability to use the data in such a way that they can derive value from the information provided.

The social norms that surround the exchange relationship between the follower and the initiator will influence their levels of commitment to the program. Inter-organizational relationships that are highly collaborative are more conducive to motivating the follower to adopt the technology. Collaborative relationships provide the follower with the expectation that there will be a fair distribution of profits and burdens associated with the implementation. Initiating firms can encourage successful adoptions through collaborative behaviors. Companies must have strong top management support for the new RFID programs, as well as high-quality cross-functional teams that can help with the knowledge transfer across company areas.

Using RFID to ensure food safety – in other words tracking perishable food – has obvious benefits. The delivery of safe products while meeting customer demand is a critical marketing requirement for logistics, and for retailers it is always a challenge to provide enough low-cost fresh food to meet customer needs and expectations. Complete visibility of perishable food products in cold chain distribution is critical in providing enough safe food in the right marketplace.

In “Optimizing distribution strategy for perishable foods using RFID and sensor technologies” Jing Shi et al. propose a comprehensive solution framework for tracking and tracing, environment parameter monitoring, and good quality assessment in a cold chain, by means of integrating RFID, sensor, and wireless communication technologies. Using real-time quality and inventory information, retailers can promote the product with shorter shelf life, and dispose of spoiled food products to avoid delivering them to customers. As a result retailers can build a good relationship with customers and keep their market share in communities.

Both the delivery of safe food products to customers and the availability of products at every stage of a cold chain are the fundamental requirements that marketing sets for logistics management. Yet, despite existing efforts, real-time monitoring of the quality and flow of perishable foods in a cold chain remain a challenge. The major difficulty comes from food quality and identification detection, and data transmission during transportation.

Shi et al. offer a potentially robust and economical solution to this challenge by integrating extant technologies in the marketplace, the primary focus being to address how organizations may fully take advantage of RFID and sensor technologies as a managerial mechanism for optimizing product flows. For instance, if significant quality deterioration for some products in a shipment is detected, the transportation plan may need to be changed so that the products can be delivered to a distribution center nearby. In this way, the impact on customer satisfaction is minimized in that the redistribution plan can maximize the chance of delivering good products in the right amount. Mathematical decision making models are developed to optimize the distribution planning for a cold chain network with the complete visibility and quality information.

Focusing on the economic side of cold chain distribution with the objective of minimizing the overall transaction cost, the study proposes a three-stage planning model for decision-making. The linear programming models can provide decision makers with an initial optimal food distribution plan, and can update such plans at each stage using real-time quality information. If the system detects quality deterioration before food reaches retailers, the proposed model can suggest how to alter the original distribution plan to minimize the overall transaction cost for all stakeholders, and also forecast unmet demands. With the unmet demand information, retailers can proactively take actions, such as preparing more alternative food products or temporarily purchasing from the distribution centers outside, to reduce the negative impact of food loss during distribution logistics. Product flow visibility and quality information provided by the solution and the associated decision making model can help logistics management to better meet the requirements from marketing.

The social benefits from avoiding unsafe foods are enormous in that the technology detects and prevents spoiled products reaching consumers. The cold chain partners may suffer the economic loss, but it defends human health and reduces the potential for any food-borne sickness. The social benefits are usually difficult to measure, but obviously far more significant than the potential economic loss. For example, an E-coli outbreak from spinach in 2006 led to the deaths of three people and sickness among 300 others in 26 US states and in Canada. The economic cost was clearly large, but the illness and loss of life was devastating.

Real-time quality information makes it possible to promptly respond to emergencies so that remedy or correction can be made on time. For instance, if the temperature of a refrigerated shipment is out of control during transportation, the informed driver can make a correction right away. Sometimes, the temperature shift may not be pronounced but can still significantly affect the growth of bacteria. In this case, knowing current quality information can help to develop a tight temperature control plan so that the deterioration will slow down. Plus the benefit of allowing the decision-makers to divert the shipment to the closest downstream partner so that the sales can still be made.

Quality information indicates the product shelf life, and knowing the shelf life brings economic benefits to retailers. For example, instead of using first-in/first-out method of inventory management, the retailers should sell the products with the shorter shelf life so that the revenue can be maximized. Also, different pricing schemes for food products of different quality levels may be developed. Promotional sales may be used for products that are exposed to marginally unfavorable conditions.

An increased ability to extend the shelf life of food is welcome enough, but maybe not as essential as the aims of the people who work in the medical profession who constantly strive to improve not only the “shelf life” of we human beings, but also the quality of our lives.

In order to keep blood sugar levels in check, people with diabetes must prick their finger and transfer the blood to a special computer where the amount of sugar in the blood is analyzed. Many companies are trying to develop new products that will check a person’s blood sugar level without the need to provide blood. Owing to the increasing popularity of RFID, many corporations are attempting to incorporate the technology into testing for blood sugar – an implant of an RFID chip will eliminate the need for any needles. The main drawback with the commercialization of this procedure, apart from the considerable expense, is the fact that people must insert a foreign object inside their body, and it would stay inside their bloodstream for the rest of their life.

In “A post-retail consumer application of RFID in medical supply chains” Stephen M. Swartz et al. describe an experiment to analyze the effects of glucose in human blood on a RFID system to create a non-invasive method of checking blood sugar levels. The study examines the effect of increased amounts of glucose in human blood on the readability range between a RFID tag and reader, concluding that embedded RFID monitoring of blood glucose levels can be used to effectively monitor and help manage patient care. Swartz et al, who present an integrated system of monitoring and management with an effective medical supply chain information system, say the results can be extended to other environments. For example iron content in blood (an anaemia indicator) could also be tested using RFID. High frequency readers often have different reactions to various materials than low frequency readers. Therefore combinations of readers and tags could be used to develop more comprehensive patient condition monitoring systems in the home health care setting.

When combined with an event management system (EMS) in a supply chain management system, the source point monitoring data can be very useful. In this experiment, blood glucose can be monitored and data can provide input into the EMS. The EMS can evaluate the blood glucose levels, and signal the user with remediation actions (timing and dosage recommendations). The EMS can also monitor the medical supplies data, and place automated replenishment orders through authorized prescription medication providers as the product is consumed. The data can also be monitored by medical professionals remotely, simply by being granted access into the users’ database.

RFID technology utilization remains in an early stage of adoption, and continued investigation into the impact of the technology on organizational and supply chain performance – not to mention human health – is necessary as the RFID story unfolds. However, the benefits are, and have been for some considerable time, quite apparent.

(A précis of the Special Issue “Radio frequency identification (RFiD): fact or fiction, hype or reality?”. Supplied by Marketing Consultants for Emerald.)