The introduction of RFID will have many advantages compared to barcodes, for example barcodes read only the tag of the product, where as RFID reads the product itself (Pritchard 2006) With all the benefits of the technology the barcodes are likely to remain a dominant force where large volumes of lower price goods are purchased (Hingley 2006) Hingley (2007) (cited in IGD 2004) identified that while the RFID may have many advantages compared to barcodes, barcodes still have three main strengths, the cost, the reliability and established technology. It is important to note that when barcodes were first introduced similar problems were experienced to those currently experienced with RFID (Hingley 2007)
Even thought the cost and all the limitations of RFID technology most major retailers have introduced it in their supply chain, tags are currently placed on pallets and cases. Retailers also believe that RFID will bring huge benefits speed and efficiency in store operations, better tracking of products throughout the supply change and also enhance forecasting (Jones et al 2005) In the Sainsbury trial Karkkainen 2003 found out that they were able to reduce their cost associated with stock rotation and counting and reduces spoilage to the supply chain by alternating the supply chain.
Perceived benefits of RFID
The perceived benefits associated with the use of RFID technology within the retail sector are wide ranging. The main potential benefit is improving, efficiency, accuracy and security of both the supply chain management and inventory management and also cost savings. (Jones et al 2005a, Jones et al 2005b). Research carried out by different retailers found out that RFID would also bring many financial benefits. For example, in a research by Karkkainen in (2003) in Sainsbury reported that an estimated benefit of about £8.5millions per year will be realised if RFID was to be use. Karkkainen also stated that the potential benefits are not only restricted to retailers but also to suppliers through operational synergy and the potential to reduce the out of stock rate of their products. Another potential financial benefit is the use of the smart tag which can be used in the prevention of the product being lost, stolen or wasted. (Mayfield 2002).
Another benefit for the use of RFID technology is its real time capability. Hingly (2007) quoted (Davies 2006) as saying that RFID provide an accurate inventory database enabling greater efficiency in shelf replenishing and forecasting and resulting in less out of stock occurrences. This could lead to competitive advantage as a result of customer satisfaction and loyalty. In this case, products will always be available and customers would have no cause to switch stores due to due to persistent out of stock.
Customer service improvement and marketing by targeting customers. As the information held by RFID is so huge, a customer database can be use to for target marketing as lots of information about the customer. The information held about the product will also include when, where and who bought it and this enable customer to return the product easily. (Hingley 2007).
As barcodes scan products individually, RFID technology drastically reduces the time and labour cost at the time at checkout as it is capable of scanning a whole trolley at once. For example see (Jones et al 2004, Jones et al 2006a, Jones et al 2006b, Attaran 2007), the same will be applied to the supply chain management. Gilbert (2003) was cited as saying RFID allows retailers and suppliers to have real time responsiveness, in the warehouse products do not have to be stored according to product type to facilitate stock counting or looking for stock, RFID facilitate counting and the effective use of warehouse space. RFID would also guarantee traceability and authenticity of the product if it is used through the supply chain. (Hingley 2007).
Challenges
Despite all the investment and the potential benefit associated with the use of RFID technology, it also poses major challenges that need to be overcome before full implementation is possible in retailing. (Wu et al 2006) identifies seven major challenges.
- technological challenges
- standard challenges
- patent challenges
- cost challenges
- infrastructural challenges
- return on investment
- barcode to RFID challenges
Passive tags are the cheapest RFID tags; however they do not batteries to power them, but relies on the antenna to receives waves produced by the reader. (Wu et al 2006, Attaran 2007). Radio waves will reflect when propagated toward metal and refracted in water, this will reduce/ degrade the reception quality of the tag. (Wu et al 2006). Therefore the product to which the tag is attached will become a problem, for example a bottle of water and a tin of baked beans. Another technical is that RFID create a huge volume of data which could be very difficult to manage (Attaran 2007) and this can cause a massive strain on of the company’s IT system. However implementing a proper data management system that can analyse huge amount of data quickly can possibly solve that problem. (Attaran 2007).
Another major challenge is standardisation, at the moment, there is a lack of an internationally agreed RFID standard. According to researchers, RFID technology’s success will depend on tying the technology to an open standard like the internet (Mayfield 2002). The issue have become a major barrier to the adaptation to the RFID technology (Mayfield 2002). In 2004, two organisations, EPCglobal and International Standard Organisation (ISO) have both issued protocols which are still evolving but not compatible (Wu et al 2006).However, in June 2004, a joint venture between European and North American member bodies agreed on an established protocol on the types of tags to be used. This marks as an important step in the development of such common standard (Jones 2004). In a meeting between representatives of UK’s leading retailers and UK’s leading RFID technology providers in 2004 states that the lack of an international standard is irrelevant as the prevalent standard already adapted by the UK is the EPC developed by EPCglobal and that it is recognised by all major RFID user as the established standard.(Baxter 2004, ft.com)
The decision to move from barcodes to RFID tags in retailing should be financially viable as well as how long it will take to pay back the huge potential investment that the introduction of RFID will involve. However in his research into Sainsbury’s experiment of RFID, Karkkainen (2003) found out that the investment needed for the implementation is between £18 and £24million and the payback period is estimated to be between 2 to 3years. This is really a short period of payback considering the huge investment.
Again the cost price of an RFID tag can be expensive. At the moment, all the major retailers are doing most of their experimenting in the supply chain. For a total adaptation within retail, there will be the need for mass production of tags. The managing Director of MGI Metro group information technology states that “for the use of RFID technology to be a viable alternative to barcodes, the unit cost needs to drop to €0.01 or less”.(Blau 2006, ft.com). However, Kevin Ashton the executive director of MIT’s auto-ID centre believed that a $0.05 is attainable in the next few years. (Mayfield 2002).
Finally the issue of privacy has been raised by civil liberty groups (Jones et al 2005a). The adaptation of RFID technology at the individual product level will enable retailers to track the movement of not only their product but also their customer and this is term as being intrusive into their customers’ private lives. For example see(Jones et al 2005a) experts believed that there should be consultation with consumers as well as awareness campaign to reassure customers that the use of RFID is to improve efficiency in store, lower prices and better shopping experiences (Baxter 2004, ft.com). Some activists even went further to call for government regulation and called on retailer to limit the range at which the tags could be read. That is there should be a close proximity between the reader and the tag. Customer should also have the option to wipe out the RFID chip once the product is paid for (Baxter 2004)
Potential impacts
When RFID is fully implemented by retailers, whether in the supply chain or on the shop floor level, the major retailers will become the powerful players. For example Wal-Mart in the USA have instructed all its major suppliers to place RFID tags on all pallets and cases, in most cases, this done at the suppliers own cost and this could be very costly (Jones et al 2005). It has been estimated that for the suppliers to comply with Wal-Mart request is costing each $500.000(Hingley 2007). In the UK, some retailers have not made any decision as to who will be responsible for the implementation in the supply chain (Hingley 2007). However, in their study, Hingley (2007) found that one of the suppliers had the retailer paid for the tags.
The use of RFID will simplify the collection of information needed to drive category management and retailers will not need suppliers to collect data for them and this could further strengthen the retailer’s understanding of the category management at the expense of the suppliers(Jones et al 2005).
The introduction of RFID in retail will give a competitive advantage to larger organisations over smaller organisations. This is because of the huge investment involved in the implementation of RFID; it will also benefit larger retailers in the sense that it is capable of gathering lots of information about the customer and thus more knowledge about their customers.
On the shop floor level, the impact will not only be felt by the customers but also employees. For example, when the smart shelf is introduced, staff will only have to have a hand held work pad to which the stock level will be transmitted, this will eliminate the regular checks. However, the movement of the staff can be monitored by the management for efficiency and customer interactivity. This may also bring back the issue of privacy (Jones et al 2005)
Conclusion
Despite the challenges of RFID by retailers, its is expected that they will continue to use barcodes while gradually introducing RFID tagging until the price right is for a full implementation.(Attaran 2007). Currently, most organisations are using it in their supply chain but the huge financial cost involved in introducing RFID technology throughout the supply chain is a big burden on suppliers. Until both retailers and suppliers share the cost, it might become unsustainable. Again until the privacy issue surrounding RFID is solved, the consumers will always have reservation towards its introduction.
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