versión On-line ISSN 0718-1876
J. theor. appl. electron. commer. res. v.3 n.2 Talca ago. 2008
Journal of Theoretical and Applied Electronic Commerce Research
Effectiveness and Efficiency of RFID technology in Supply Chain Management: Strategic valúes and Challenges
Asghar Sabbaghi1 and Ganesh Vaidyanathan2
In this study, we examine the fundamental components of RFID technology in a comprehensive supply chain strategy that directly support the effectiveness and efficiency of supply chain management. We examine the appropriate business processes affected by the RFID technology, the required planning and examination for successful implementation, and many potential impacts on effectiveness and efficiency of supply chain management. We emphasize on business valúes and strategic advantages of RFID technology as well as the challenges and recommendations in adoption of the technology particularly when a company extends its supply chain to upstream suppliers and downstream customers, as their external integration needs to gain in capacity planning and in efficiency. Using four major supply chain processes, we highlight economic opportunities and challenges when planning and implementing RFID technology within an existing supply chain framework. We will focus on the capabilities of RFID in providing security, privacy, and integrity of supply chain processes while facilitating sharing information with upstream suppliers and downstream customers, developing alliances, establishing strategic alliances, and gaining competitive advantages.
Keywords: RFID, Process, Effectiveness, Efficiency, Supply chain management, Valúes, Strategy.
The applications of Radio Frequency Identificaron (RFID) and Electronic Product Codes (EPC) in supply chain management have vast potential in improving effectiveness and efficiencies in solving supply chain problems. EPC is the concept of storing product identification on chips no largerthan a grain of sand, then placing these chips on tags, which in turn are placed on objects so they can be uniquely identified. RFID technology can track inventory more accurately in real time resulting in reduced processing time and labor. There are many applications and possibilities for RFID/EPC as these objects in motion are traced throughout the supply chain. The complete visibility of accurate inventory data throughout the supply chain from manufacturer's shop floor to warehouses to retail stores brings opportunities for improvement and transformation in various processes of the supply chain. RFID technology can help a wide range of organizations and individuáis such as hospitals and patients, retailers and customers, and manufacturers and distributors throughout the supply chain to realize significant productivity gains and efficiencies.
In this study we try to answer the following questions: (1) what processes in supply chain will be affected by RFID technology and where this technology has the potential of creating the most business valúes? (2) Given the integrated and interdependencies of supply chain processes, what would be the capabilities of RFID in providing security, privacy, and integrity of processes while facilitating sharing information with customers and suppliers, developing strategic alliances and ultimately gaining competitive advantage? (3) What are the challenges and recommendations in adopting and implementing RFID technology in supply chain?
We examine the fundamental components of RFID technology as parts of a comprehensive supply chain strategy that directly support the effectiveness and efficiency of supply chain management. We will examine appropriate business processes in supply chain affected by RFID Technology and will identify processes where RFID plays a critical role in creating the most valué. In particular, we highlight the many business valúes and strategic benefits of RFID technology as well as the many challenges and recommendations in adoption and implementation of the technology in the context of integrated and interdependencies of supply chain processes.
2 Literature Review
RFID technology has been promising to enhance support supply chain management efforts , , , . The future success of RFID and other mobile services will be strongly affected by the ability of businesses to offer the right producís and services to consumers , . RFID has the potential in other áreas of operations, such as manufacturing, after-sales service support, and total product life cycle management . An RFID system can be used to identify many types of objects, such as manufactured goods, animáis, and people. RFID technologies support a wide range of applicationseverything from asset management and tracking to manufactured producís and related cusíomer services ío access conírols and auíomaíed paymenís. Each RFID sysíem has differení componenís and cusíomizaíions so íhaí ií can support a particular business process for an eníerprise. Depending on íhe applicaíion in an indusíry and íhe eníerprise wiíhin an indusíry, A RFID sysíem can be very complex, and iís implemeníaíions may vary greaíly. Concepíually, RFID sysíem may be composed of íhree subsysíems as shown  in Figure 1: (1) An RF subsysíem, which performs ideníificaíion and relaíed íransacíions using wireless communicaíion, (2) An eníerprise subsysíem, which coníains compuíers running specialized software thaí can store, process, and analyze daía acquired from RF subsysíem íransacíions ío make íhe daía useful ío a supported business process, and (3) An iníer-eníerprise subsysíem, which connecís eníerprise subsysíems when informaíion needs ío be shared across organizaíional boundaries. Every RFID sysíem coníains an RF subsysíem, which is composed of íags and readers. In many RFID sysíems, íhe RF subsysíem is supported by an eníerprise subsysíem íhaí is composed of middleware, analyíic sysíems, and neíworking services. However, in a supply chain applicaíion, a íagged producí is íracked íhroughouí iís life cycle, from íhe manufacíure ío final purchase, and someíimes even afterwards (e.g., ío support íargeíed producí recalls or relaíed service), and íhus iís RFID sysíems has ío share informaíion across organizaíional boundaries. Thus, íhe RFID sysíems supporting supply chain applicaíions have also an iníer-eníerprise subsysíem.
The eníerprise subsysíem is íhe compuíer sysíem and software thaí uíilizes informaíion síored on RFID íags. Ií is íhe glue íhaí iníegraíes an RFID sysíem. Depending on íhe indusíry coníexí, buí usually a froní end componení manages íhe readers and íhe aníennas and a middleware componení rouíes íhis informaíion ío servers íhaí run íhe backbone daíabase applicaíions. For example, in a manufacíuring coníexí, íhe eníerprise software will need to be made aware of RFID ai various levéis depending on how far downsíream inío manufacíuring and ouí inío íhe supply chain RFID is implemeníed. The middleware technologies are caíegorized inío íhree levéis: (1) software applications which solve connecíiviíy problems and moniíoring in specific vertical indusíries, (2) applicaíion managers íhaí connecí disparaíe applicaíions wiíhin an eníerprise, and (3) device brokers íhaí connecí applicaíions ío devices like shop-floor machines and RFID readers . The Auío-ID Ceníer ai MIT developed a software program named 'Savant' ío manage íhe enormous amouní of daía expecíed ío be generaíed by RFID readers . In a íypical manufacíuring scenario, for example, readers will be picking up a coníinuous síream of íag daía, which mighí coníain errors such as duplícate reads and phaníom-reads. The Job of a savaní is ío filíer and manage íhis daía and forward only clean daía in order to avoid overwhelming enterprise applications. Applications vary in how they interact with RFID. Some treat RFID reads like keyed data or bar-code scans, and others work specifically with RFID tags.
The application of RFID ranges from manufacturing and distribution of physical goods such as automobiles and its various components to minting bank notes, oil exploration, shipping and port operations and pharmaceutical package processes, among others . RFID is a form of automatic identification and data capture (AIDC) technology that uses electric or magnetic fields at radio frequencies for identification, authentication, location, or automatic data acquisition and transmit, and support a wide range of applicationseverything from asset management and tracking to access control and automated payment. RFID systems have the capability of sharing information across organizational boundaries, such as supply chain applications. Reno GmbH, one of Europe's largest shoe companies, operating more than 700 stores in 15 countries, plans to embed wireless RFID chips in shoes sold at stores across the continent. Reno has been using RFID technology to track product shipments from its factories to its stores for several years but has not yet used the technology to track individual producís inside each store. These wafer-thin RFID chips are designed especially for shoes from its Asian production facilities. By having the RFID tags integrated into its shoes, Reno aims to curb theft for boxed producís, fhose on display, and íhe shoes cusíomers íry on inside íhe síores.
In Japan, íhe RFID chip has become a de fació síandard in íhe lasí five years, and credií cards coníaining RFID are used by millions of people every day ío make railway íravel and e-money purchases. In 2004, íhe RFID chip by Sony's FeliCa, síaríed geíting iníegraíed in cell phones and íoday owners of íhose cell phones can make credií card purchases in síores. Tokyo's subway and privaíe railway and bus operaíors are launching a common íravel card based on íhe FeliCa plafiorm. The Pasmo sysíem will be iníeroperable wiíh Easí Japan Railway Co.'s (JR Easí's) Suica card, allowing íhe 35 million people who live in íhe Tokyo Meíropoliían área íhe abiliíy ío íravel on more íhan 100 railway lines and hundreds of bus rouíes wiíh a single card. The íouch-and-go paymenís ií supporís work over a disíance of a few ceníimeíers and íake 0.1 seconds for each ío compleíe. In addiíion ío Japan, íhe íechnology provides íhe base for íhe Ocíopus subway card in Hong Kong, which has also morphed inío an e-money paymení sysíem, and íhe ez-Link íransporí card in Singapore. FeliCa is also used in Shenzhen's TransCard, India's TravelCard and Bangkok's Meíro Card buí has yeí ío break significaníly inío European or Noríh American markeís.
Schiff Nuíriíion Iníernaíional, a midsize company based in Salí Lake Ciíy, maker of viíamins and nuíriíional supplemenís, is in íhe process of a deploymení of íhe RFID íechnology in order ío coníinue doing business wiíh Wal-Mart . In 2003, Wal-Marí began seíting deadlines for suppliers ío síarí using RFID íags on íheir shipmenís. While ií was argued íhaí íhe RFID íags weren'í resulíing in íhe savings íhaí Wal-Marí expecíed, many suppliers were complaining about the cost of implementing the technology. However, it is expected that the project will ultimately help to build stronger supply chains that cut costs and improve efficiencies.
The International Data Corporation (IDC) has estimated that the RFID market for related consulting, implementation, and managed services was expected to grow 47% in 2004 and reached $2 billion worldwide by 2008. It was also estimated that two-third of enterprise organizations considering RFID applications in 2004 indicated that they would rely on external resources in implementing RFID. The Yankee group estimates that RFID technology will be a $4.2 billion market by 2008. By some estimates, over 1.3 billion RFID tags were produced in 2005, and that figure is estimated to soarto 33 billion in 2010, and by farthe biggest segment is accounted for supply chain. However, for a successful deployment of RFID, it is importantto have a set of widely accepted standards and regulations. According to McCathie and Michael , the progression of barcode standards from proprietary to globally accepted open standards had played a pivotal role in a world wide acceptance of the technology. Therefore, in orderto be effective, there has to be standards and regulations in the case of RFID as well. For example, many companies, particularly small-medium enterprises, have reported that RFID is extremely costly in their supply chain. The cost of acquiring, installing, and maintaining an RFID system has been a major and often determining factor in the deployment of RFID in the commercial sector.
In exploring the effectiveness and efficiency of RFID applications, we consider the eight key processes ,  that make up the supply chain management process. These processes provide a framework for various aspects of strategic and tactical issues present in the management of the supply chain. These eight processes and their functions are described as follows:
(a) Customer Relationship Management: Provides structure to customer relationship and how such relationships are developed, maintained, and managed. Identifies target customer groups as part of the business mission and develops agreements with key accounts. Performance reporte also measure profitability and financial impact for key customers.
(b) Customer Service Management: Provides customer information such as shipping dates, product availability, and real-time information between customers and the firm.
(c) Demand Management: Balances the customers' requirements with the firm's supply capabilities. This would include forecasting demand and managing the demand in production, procurement, distribution, and in all other outputs of the company.
(d) Order Fulfillment Management: Provides integration of the firm's manufacturing, logistics and marketing plans. This would require the management of partnerships maintained by the company to meet customer requirements.
(e) Manufacturing Flow Management: Helps to manufacture producís and establishes the manufacturing flexibility required to service target markets. Requires management of product flow and maintaining the flexibility established.
(f) Supplier Relationship Management: Defines how a company interacts with its suppliers. Similar to customer relationship management, partnership management is required to develop key relationship with core suppliers potentially providing a competitive advantage.
(g) Product Development and Commercialization: Provides the development of new producís by integraíing cusíomers and suppliers in reducing íime ío markeí. Timely developmení of new producís and services are keys ío firm's success.
(h) Reíurns Managemení: Provides a criíical componení of susíained compeíiíive advaníage foríhe firm. Allows firm ío monitor producíiviíy improvemenís and ideníify valuable projecís relaíed ío producís or services.
Ouí of íhese eighí processes, we have chosen and ideníified four processes íhaí include demand managemení, order fulfillment, manufacíuring flow managemení, and reíurn managemení where RFID plays a criíical role and creaíes íhe mosí valué. Keen and Mackiníosh  iníroduce "process freedom" as íhose processes wiíh íhe abiliíy ío add valué along íhe eníire supply Chain by enabling íhe mobiliíy of criíical elemenís. These criíical elemenís are business acíiviíies, people, informaíion, documenís, and communicaíions íhaí are needed for a more effecíive business process design. Angels  argües íhaí RFIDs hold íhe poíeníial ío provide significaní "freedom" íhaí will libérate considerable human labor from ceríain workflows, as well as faciliíaíe íhe possibiliíy of making informaíion visible ío all paríicipanís íhroughouí íhe valué chain.
We will emphasize on business valúes and strategic advantages of RFID technology as well as the challenges and recommendations in adoption and implementation of the technology particularly when a company extends its supply chain to upstream suppiiers and downstream customers, as their external integration needs to gain in capacity planning and in efficiency.
4 RFID Technology in enterprise systems
In the 1990s, IBM created companywide organizations for procurement, logistics, fulfillment and manufacturing. In 2002, IBM brought all of those units together under a new Integrated Supply Chain división . The división was credited with helping to cut costs and improve responsiveness within a year. The company had to balance two ways of measuring supply-chain performance: (1) effectiveness: flexibility and responsiveness, and (2) efficiency: lowering costs as much as possible. It was reported in the same paper  that the supply-chain optimization effort torced IBM to seek opportunities to balance effectiveness versus efficiency in all four dimensions: (a) data collected at various points in the supply chain, (b) the business processes involved in the supply chain, (c) the information systems involved and (d) the organizations involved in carrying outthe various business practices.
In order to measure effectiveness and efficiency, firms need to have a clear picture of the key supply chain processes and a measure of performance in each one of the processes. Companies in many industries, such as fast-moving consumer goods industry, manufactures, consumer electronics, apparel industries, are in their infancy stages in the implementation of new technologies that use EPC and RFID. This technology will extend the abilities of firms to capture accurate information on the location and status of physical objects across the supply chain. The pace of implementation in Wal-Mart has been slower than the giant retailer had predicted due to insufficient infrastructure of supply chain for RFID and the cost of implementing the technology. To better understand supply chain management and RFID technology as well as the opportunities and the challenges, we will discuss supply chain infrastructure, particularly as it relates to the enterprise and inter-enterprise subsystems of RFID systems.
4.1 RFID in enterprise systems
The focus of supply chain technologies has primarily been on providing operational and transactional efficiencies in the área of sourcing, manufacturing, and distribution activities within a firm and across its supply chain. According to the Suppiy-Chain Council, "The supply-chain encompasses every effort involved in producing and delivering a final product or service, from the supplier's supplier to the customer's customer. Supply-chain management includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventorytracking, order entry and order management, distribution across all channels, and delivery to the customer.
Keen and Mackintosh  argüe that RFID technologies are part of the "universal infrastructure" that will support mobile commerce. They introduced "process freedom", the ability to add valué along the entire supply chain, to relate logistical operations and business relationships by enabling the mobility of critical elements that included business activities, people, information, documents, and communications. In this context, the technology holds the potential for providing significant "freedoms" that will reduce considerable human labor from certain workflows as well as for facilitating the possibility of making information readily available to all participants throughout the valué chain. However, due to its wide scope, supply-chain management must address complex interdependencies and accordingly be open to reengineer its appropriate processes. Moreover, these processes should créate an "extended enterprise" that reaches far beyond the factory door. In effect, material and service suppiiers, channel supply partners that include wholesalers, distributors, retailers, and customers, supply chain management consultants, software product suppiiers and system developers, become key players in the supply chain process. For a supply chain participant, core competencies and capabilities must enable them to créate valué in the form of lower cost, improved quality, more flexibility, higher speed, and better information/intelligence about the processes and market torces. In particular, using the concept of business intelligence to data from supply chain management systems, supply chain technologies may be applied to provide strategic information for decisión making purposes. In this manner, data collected across the supply chain may be analyzed to provide information for evaluation of the supply chain performance and its reconfiguration, as well as conducting what-if scenarios to measure the effectiveness and efficiency of supply chain.
4.2 Valué of RFID in enterprise systems
What has been developed and presented as a supply chain within distinct companies has varied widely. In essence, no two companies' supply chains look alike. There are many supply chain models, and these models only effectively deliver on their promise when aligned with the way in which the company wants to go to market. Furthermore, most companies don't merely have one chain. They have many, and several of them are actually networks. As shown in the figure 2, on the basis of business impact and complexity, Cavinato  distinguishes sixteen types of supply chains. With respect to complexity, supply chains can range from a very basic form to a very sophisticated complex chain and based on business impact, they range from a very traditional to a supply chain with competitive advantage. As one move toward more sophistication and business impact, atthe high end, the emphasis is placed on the model of supply chain with information networks, and on data access that can be converted into information, knowledge, and intelligence. RFID technology can support to develop such an integrated model of supply and demand chain or an integrated valué chain in which one use the technology to drive revenues and innovation and créate value-not just to reduce cost, butto gain competitive advantage.
The major purpose of deploying RFID is identification, authentication, location, or automatic data acquisition (ADA). Authentication applications usually assume the tag-holder to be a person who has smart cards for simple and automatic payments of small amounts such as highway tolls and cafetería bilis rather than an object; whereas most supply chain applications assume that the tag-holder is an object . One of the major thrust of the supply chain applications is ADA. In most ADA applications, objects such as producís, cases, and pallets are tracked automatically and the captured data is used to derive enterprise applications such as supply chain management systems, customer relationship management systems, and enterprise resource planning systems. Applications that require identification or ADA, such as RFID tags embedded in athletes' shoes to keep accurate timings at major athletics events, belong to the domain of ubiquitous computing. This concept envisages a world where RFID tags are attached to a multitude of Ítems that automatically communicate and coordínate with other networked intelligent devices to accomplish tasks that now require human intervention . The effectiveness and the functionality of these applications will be largely dependent on the type of tag itself. While some tags offer longer read ranges, others can hold more data or are easierto manufacture henee less costly.
As the prices of technology decline and the applications become more economical, RFID becomes very valuable from a productivity point of view. One can see broader efficieney and operational improvements over traditional processes, methods, and technologies. Ford uses a real-time logistics system for visibility through triangulation. Similar to e-commerce, RFID is evolving in application and its impact on effectiveness. Initially, e-commerce was just automating existing processes and work flows. One could send a purchase order by the Internet or pay an invoice or communicate through e-mail, and thus substituting an existing technology for a new one. However, the biggest valué in e-commerce is when a company develops collaboration with its suppliers. Microsoft found valué in e-commerce when they used the Internet to collaborate to design the Xbox. RFID is following the same kind of evolution path. Currently, RFID may be viewed mostly for efficient tracking. However, the most valuable impact of RFID will be realized from new applications that use the technology's intelligence. As Neubauer, et al  note, if businesses view RFID simply as a replacement for barcodes and do not change or redesign their business processes based on RFID's capabilities, the return on investment will be suboptimal. RFID can créate a borderless supply chain when cargoes are equipped with tags showing the contents, so that customs clearance can be done almost automatically. RFID can also provide supply chain security when RFID tags are used to electronically seal containers and monitor movements of the containers, so that any tampering can be tracked. Finally another important benefit of RFID is to facilitate sharing information with customers and suppliers, developing alliances, innovating with suppliers, and establishing strategic alliances. In other words, RFID can facilitate to develop an integrated supply and demand chain or an integrated valué chain in which one uses the technology to drive revenues and innovation and créate value-notjustto reduce cost, and to gain strategic advantage.
4.3 RFID standards in enterprise systems
One of the critical elements of RFID application in supply chain is Standardization for encoding information on RFID tags similar to the current bar codes on Universal Producf Code (UPC) system. When one company ships goods to another company, these standards will help simplify the electronic transactions that occur between the organizations' ERP (enterprise resource planning) systems. The standards will determine how middleware handles data scanned by an RFID reader as goods enter a warehouse and will pass the data to an enterprise application. The current versión of the EPC Tag Data Standard specifies the data format for encoding and reading data from RFID tags. The data stored in these tags dictates information about a product in UPC terms, including company and product identifiers. Both EPCglobal and International Standards Organization (ISO) have adopted RFID in their standards.
The most prominent industry standards for RFID are the EPCglobal specifications and standards for supply chain. EPCglobal Inc. manages standardization for encoding information on RFID tags. This is the same institution that manages UPC information in bar codes, sets the standards for how basic product information is encoded in the RFID chips. EPCglobal Inc is a nonprofit organization that was initiated in 2003 by the MIT Auto-ID Center in cooperation with other research universities to establish and support the EPC network as the global standard for the automatic and accurate identification of any Ítem in supply chain. EPCglobal will establish the standards on how information is passed from RFID readers to various applications, as well as from application to application, in the supply chain. ISO also has RFID standards. ISO is a network of the national standards institutes of 157 countries, on the basis of one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system. ISO occupies a special position between the public and private sectors. This is because, on the one hand, many of its member institutes are part of the governmental structure of their countries, or are mandated by their government. On the other hand, other members have their roots uniquely in the private sector, having been set up by national partnerships of industry associations. The ISO18000 series covers both Active and Passive RFID technologies. The data contení of RFID is covered in ISO 15418, 15434, 15459, 24721, 15961, and 15962. The conformance and performance standards are covered in ISO 18046 and ISO 18047 series for both active and passive RFID technologies.
4.4 Data synchronization in RFID
Data synchronization is another important element of supply chain to be addressed by RFID. Companies require detailed information about their producís and supply chain, and the abiliíy ío share íhaí informaíion wiíh íheir írading paríners in order ío faciliíaíe various business íransacíions and íhe movemení of goods and services. Two disíincí informaíion neíworks have been developed: íhe Global Daía Synchronizaíion Neíwork (GDSN) and íhe EPCglobal Neíwork. The GDSN ensures íhe qualiíy of síaíic informaíion abouí commercial eníiíies and producí/service groups among paríners for collaboraíive írading. The EPCglobal Neíwork provides access ío dynamic informaíion abouí íhe movemení of individual iíems as íhey pass íhrough íhe supply chain. The EPCglobal Neíwork and íhe GDSN each provide significaní benefiís in íheir own righí. Moreover, for companies síriving ío achieve a fully collaboraíive business model, íhe combinaíion of íhe EPCglobal Neíwork and íhe GDSN can provide a comprehensive, iníegraíed approach ío elecíronic collaboraíion and, as a resulí, can be complemeníary in íhe efforí ío opíimize global írading relaíionships.
5 Supply Chain Management Processes and RFID applications
RFID may be used in demand managemení, order fulfillmení, manufacíuring flow managemení, and reíurn managemení. In íhis secíion, we discuss íhese four supply chain managemení processes in deíail.
5.1 Demand management and RFID
One of íhe main difficulíies in demand planning is a lack of reliable daía and adopíing RFID would produce accuraíe informaíion relaíed ío íhe inveníory of finished goods, work-in-progress, and in-íransií síages wiíh reliable due daíes . Daía obíained from RFID can eliminaíe inaccuracies in daía due ío human error or absence of daía. Consumer demand for lower price and higher qualiíy are íhe driving torces for companies ío make íheir supply chain more effecíive and efficiení. Timely daía ai íhe iíem-level and in aggregaíe abouí íhe markeí demand for any producí/service would help ío develop more successful síraíegies in producíion, markeíing and disíribuíion. The forecasí provides íhe inpuí for maíching demand wiíh supply in íhe form of aggregaíe planning. This aggregaíe planning can be enhanced by accuraíe daía using RFID íhereby avoiding cosíly buffer stocks while demand planning.
5.2 Order Fulfillment and RFID
Order fulfillment is a key process in meeting customer requirements and improves the effectiveness of supply chain . RFID will enable process automation in picking, shelving, cross-docking, implementing consolidation operations and reduce costly logistics mistakes such as sending an Ítem to a wrong destination and not dispatching the right Ítem at the right time . Such process changes will reduce the cost of operations. RFID technology enables suppliers to accurately determine the location of a pallet, to track its journey through the supply chain, and to make instantaneous routing decisions. . For instance, RFID portáis, mounted in strategic points in the distribution center, can be used to read tags and automatically update inventory quantities as tagged cases and pallets enterthe center. The incoming merchandise will be matched against the correct purchase order and discrepancies will be identified much more easily. The process freedom will be attained in freeing up labor-intensive manual labor involved in the quantity check-in and receiving processes .
5.3 Manufacturing Flow Management and RFID
In manufacturing, assembly line operations may get streamlined by using RFID. This automation in the production line will certainly reduce cycle time and increase production throughput. With enhanced process automation and tracking capabilities enabled by RFID, the velocity and visibility of producís in the supply chain will likely improve . This process will help manufacturers with their just-in-time (JIT) assembly lines. Procter & Gamble (P&G) believes that RFID technology can help the company to track where every Ítem is in the manufacturing process and supply chain. P&G expects the cost saving of up to $1 billion in working capital and $200 million in inventory carrying costs with its RFID implementation. Lee and Ozer  believe that the bottom-up approach, Le., starting with the operating characteristics of the processes, is a sound way to assess the valué of RFID.
5.4 Returns Management and RFID
The reverse logistics product recall and return of detective producís is common in supply chain operations. The reíurn írack could be íraced back very easily using RFID in íhe reíurn process. RFID íechnology, íhrough iís smart Electronic Security Marker (ESM) can also facilítate return management by helping retailers know if they sold the ítem being returned. An ESM ties the relationship of a particular product to a given sale and then to the return. Manufacturers could benefit from the elimination of fraudulent producís being returned ío reíailers by placing iíem-level RFID íags on íheir high end producís and componenís . Cusíomer reíurns will add ío íhe inveníory pile as opposed ío depleíing ií. These reíurns can be viewed as RFID providing downsíream visibiliíy of negaíive demands .
Figure 3 illusfraf.es íhe challenges and valúes of RFID in íhe supply chains of firms. Infernal process iníegraíion and iníerdependence in firms as well as exíernal variables such as securiíy, privacy, and síandards play a viíal role in moderaíing íhe effecíiveness and efficiency of RFID. We discuss íhese facíors in deíail in íhe nexí secíion.
6 Strategic Valúes, Challenges, and Recommendations for RFID Implementation
There are a number of issues concerning íhe fuíure of RFID wiíh regard ío íhe processes , . These issues are relaíed ío complexiíy of process implemeníaíion, iníegraíion and iníerdependency of processes, and securiíy of processes. Furiher research needs ío be conducíed ío figure ouí how ío enhance íhe range of RFID signáis and figure ouí how ío cuí back on íhe iníerference issues. Furíhermore, íhe soluíions providers and consulíanís need ío figure ouí how new smart labels, barcodes, and RFID equipmení can work wiíh cusfomers' exisíing business pracíices . One of íhe mosí challenging íask facing companies adopíing RFID íechnology is ío properly iníegraíe ií wiíh oíher informaíion sysíems, boíh iníernally and exíernally, in íheir supply chain, and accordingly redesign íheir business processes íhaí creaíe síraíegic advaníage. For example, given íhe capabiliíy of RFID in generaíing significaní voluminous daía compared ío barcode íechnology, ií would require new daía warehousing sysíems ío iníelligeníly parse íhe usable daía from íhe RFID daía síream ío ensure appropriaíe daía processing and effecíive daía mining ai an economic síorage cosí. In particular, when a company exíends iís supply chain ío upsíream suppliers and downsíream cusfomers, íheir exíernal iníegraíion needs ío gain in capaciíy planning and in efficiency.
Securiíy, privacy and iníegriíy of íhe RFID sysíem play a significaní role in íhe íype of supply chain applicaíion. In particular, as a wireless íechnology, RFID poses some poíeníial securiíy concerns ío users when íhe communicaíion beíween íhe íags and íhe reader is exposed ío eavesdropping and íraffic analysis. Securiíy concerns may arise regarding íhe compromise of daía during wireless íransmission, síorage of daía, and physical securiíy of síorage siíe. Supply chain applicaíions may be particularly vulnerable ío securiíy risk because a varieíy of exíernal eníiíies may have read access ío íhe íags or relaíed daíabases. For insíance, íhe world's íhree largesí seaport operaíors síarted ío collaboraíe and deploy auíomaíed íracking, RFID-based deíecíion and securiíy íechnology for coníainers eníering US ports , . Theft preveníion is anoíher by-producí of RFID. Quaníificaíion of such valúes has been researched by Lee and Whang . Thus, while íhis wireless remoíe access is significaníly beneficial, ií can also creaíe securiíy risks if proper controls are not in place. RFID vendors have addressed some of these security issues through encrypting data transfers, blocking data transmissions through jamming, employing varying querying protocols, and blocker tag technique. A number of proposed RFID privacy-protection schemes are classified based on the new functionality they implement in RFID technology . They range from adding only memory to adding lightweight circuits and each involves a trade-off between the cost of the tag and the valué of privacy protection. The EPCglobal standard specifies that tags must be equipped with at least one nullification function, kill command, as a way to address public opposition by disabling the functionality of the tag after consumers purchase a product. It involves a high degree of consumer privacy protection at negligible cost but human error is always a possibility . Privacy has been issue with RFID tags . Other privacy-protection schemes generally reflect two main approaches: normal-tag and smart-tag. The normal-tag approach protects individual consumer privacy without having to modify the existing tag or cost the user organization more money. Smart tags are equipped with additional components such as rewritable memory, basic logic circuits, hash function units, and common-key/public-key encryption units .
Another challenge in adopting RFID technology in supply chain is múltiple and sometimes conflicting standards that may hinder the technology's deployment and reduce its anticipated benefits. For example, while EPCglobal has developed a series of RFID application specifications and manages standardization for encoding information on RFID tags within the US, ISO has developed standards to address issues such as the "Generic Parameters for the Air interface for Globally Accepted Frequencies" and the "Parameters for the Air Interface Communications" at different operating frequencies . Companies with supply chain extended to the global market may forcé to choose between standards and develop applications that might work under one standard and not the other. In this context, competing international standards between ISO and EPCglobal for deploying their standards is a concern. If various counties adopt significantly divergent RFID technologies, this would undermine interoperability of RFID and the software applications in tracking goods through the supply chain. In particular in global supply chain, this may encourage countries to mándate adoption of certain standards to protect internal market and to gain short-term economic gains rather than for technical reason. Thus, in order to enable the RFID technology in global supply chain, international interoperability of tags and readers and international spectrum allocation to facilitate international operability of technology needs to be addressed. In this context, it is critical that international regulatory processes remain transparent and nondiscriminatory in supporting RFID standards to ensure that these standards are based on technical merit and support interoperability. This will ensure that RFID technology will reach its potential economies of scale in the global supply chain.
ln this study, we have examined the effectiveness and efficiency of supply chain management in using RFID. We have also thoroughly examined appropriate business processes affected by RFID technology. Using four major supply chain processes, we highlight economic opportunities and challenges when planning and implementing RFID technology within an existing supply chain framework. RFID technology enables an organization to significantly change its business processes, not only to increase its efficiency which results in lower costs, but also increase its effectiveness, i.e. improving mission performance and makes the implementing organization more resilient and better able to assign accountability, as well as responding to customer requirements to use RFID technology to support supply chains and other applications. As discussed earlier, RFID offers significant strategic valué potential for companies in developing an integrated model of supply and demand chain to drive revenues and innovation and to gain competitive advantage. Companies that implement the appropriate business processes to leverage the data collected by RFID and its conversión to information and intelligence will accelerate these benefits. As companies develop their RFID strategies, they must look beyond mere compliance for ways to implement these initiatives into their total supply chain strategy and harness the true business valué of the technology, hastening profits.
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Received 4 August 2007; received in revised form 29 January 2008; accepted 22 April 2008.