In market economy model of organisations, supply chains have linear flow from acquisition of raw materials to delivery of the finished product to consumer.
Figure 1: Market economy model of supply chain
In this type of supply chain, raw materials and components required for the production of final product are supplied by a chain of suppliers, which are connected and dependent on each other. Regarding to the model of supply chain, the production strategy of the firm is also changing. In market economy model of supply chain, companies use the pushing strategy, which consists of producing products or services to forecasted demand and pushing them through the supply chain and on to the customer.
In network economy model of organisations, supply chain is defined as a loop. It starts with the costumer and ends with the costumer. All materials and finished products, all information, even all transactions flow through this loop.
Figure 2: Network economy model of supply chain
In network model of supply chains, as defined above, company produce the products or services which are ordered by customers. In this model of supply chain, pulling strategy is used by companies. Consumer can configure and order highly customised products. They pull a product from the supply chain based on their individual tastes.
We have seen so far that the model of the supply chain has a direct relation with the production strategy. It is very important to study the structure of the supply chain and build the right chain of suppliers in order to achieve company’s goals. Because the main objective of the supply chain is to build a chain of suppliers that focus on maximising the value to the final customer. To do it correctly, the supply chain must contain three subsystems. The first one is the planning of the supply chain. This takes the forecasted demand for a product and breaks it into how the product is going to be manufactured and sourced. This involves planning materials and modes of procurement, scheduling the transportation and distribution. This is the most important part of supply chain management, because it gives the company an overview of its activity, in other words it procures visibility. Next one is supply chain execution system, which focuses on reducing unplanned costs. For example, shipping of a material or a component may be late. Or because of decreasing sales, inventory may increase, which will result in extra stocking costs. Execution systems are controlling the supply chain for anomalies and give appropriate alerts and actions to resolve the problems. Just in time management model, warehouse and transportation management systems are some of these supply chain execution systems. Finally, supply chain traction systems record and integrate all information flows between the trading partners. This enables the company to track their assets among the supply chain. The automatic identification systems like RFID tools are critical in providing solutions to improve the efficiency and productivity of asset and supply chain management.
- Radio Frequency Identification System
Radio Frequency Identification (RFID) technology is a wireless system that allows a product of any size to be tracked using a small chip attached to the product and read by a remote antenna. The communication between the reader and the tag is done over the air at a certain frequency, like any other radio communication.
- Mechanism of RFID Technology
The reader is a radio, sending analogue signals in electromagnetic waves to RFID tags and receiving responses by an antenna at a certain frequency and wavelength. These analogue signals are translated into a string of zeros and ones, bits of digital information. The type of communication that allows this exchange between the tag and the reader is called “backscatter”. Because the wave sent by the reader hits the RFID tag, and the tag then scatters back a wave at a different frequency with the chip’s information.
As to the tag, it is made of a chip which stores a series of numbers and responds the signals transmitted by the reader, and an antenna which enables the chip to receive power and to communicate. There are two types of tags. The first one is active tags, which own their battery to communicate. These tags are larger, faster and can store more information in their chip, but their lifetime is limited. The other type of tag is passive tags. They communicate when they are in the close presence of a reader’s electromagnetic field. Those are most commonly used tags, because they are cheap, small and have unlimited lifetime. The two RFID technologies are not competitive, but complementary in their ability to be customized for specific uses. Active RFID tags contain not only a battery to broadcast over greater distances, but a memory for product information and the ability to call managers without being asked.
- Advantages of RFID Systems
Tracking products by RFID system offers business insights into their inventory, which enables companies to control costs and reduce investments on inventory, which means lower prices and better competition. Thanks to this technology, companies know how much inventory is still in the warehouse, how much is on its way to distribution centres and stores, how much is currently on the shelves or sold to customers. They can also measure product consumption, and see buying trends by this information.
A radio frequency identification system has several attributes which lead to make savings on time, costs or errors. The first attribute is serialised data. Every object in the supply chain has a unique identifier or serial number. RFID system can pull up a limitless amount of information about a product, like its date of producing, the place, the company who produced it if there are component suppliers in the chain, best before date, etc. This information enables the company to track a product backwards and define the source of problems. Next one is reduced human intervention. RFID is an automatic tracking system without needing people to count the products or scan bar codes in the inventory, which reduce labour costs and increase the quality of the activity by eliminating errors, damages, and this saves enormous time. Another attribute is higher throughput. RFID allows many items to be counted simultaneously, which saves time by reducing the processing time and allowing more products flowing in the supply chain. Moreover, RFID enables real time information which updates the information, across the supply chain, about a product as soon as it changes state. It can be off the shelf, out of a truck, or sold to customer, etc. so the company takes the correct action to resupply the product. The last attribute is increased item security. Tagging items allows them to be tracked inside a facility or another place. This increases the security against loss and theft. And also gives managers the visibility about the place of the product.
- Disadvantages of RFID Systems
Although RFID technology has been around for more than 50 years, the cost of developing and implementing it has limited its use. Installing a warehouse only RFID system costs about $600,000, including readers and software. The cost of each tag or chip is an addition to the bill, which is between 0.2$ and 1$ at the present for passive tags and around 100$ for active tags. The specialists estimate the price of passive tags to be under 0.1$ by the end of 2007.
The tags aren't the only expense preventing companies from implementing RFID throughout the supply chain. Metal shelves and beams can interfere with the electromagnetic field, so a company may need to reorganize and restructure its distribution centre before it could implement an RFID solution.
Another problem in the RFID was residing in the standards of the technology. First generation tags have been challenged by second generation standards, which offer faster, denser and universally recognized track-and-trace capability. Many companies have waited for Gen 2 standard before making investments in RFID, to avoid wasting money on Gen 1 technology. This problem is likely to be resolved by the launch of Gen 2 tags, by the end of 2005. Gen 2 technology also promises faster, more flexible and reliable read and write speeds for communicating information to and from RFID tags whereas Gen 1 was using read-only tags.
Since RFID is a wireless networked system, any security gaps in the reader software that queries the tag, in the tagging process, in the applications that validate, store and analyze the information could be exploited by hackers, or RFID tags could be used as a medium to transmit a computer virus and malicious codes that might harm the whole system.
Recommendations
Our company, Asian Tiger, is an Asian company making audio and video electronic equipment with a continent-wide source of parts and a world-wide customer base. This report is a recommendation to adopt the RFID technology into our supply chain. In the previous parts, the technology is defined and its impact on the company is discussed by comparing its current advantages and disadvantages. In this section, we will first analyse the organisation of our supply chain, then point the potential impact of radio frequency identification system on its efficiency.
Figure 3: Our company’s supply chain
We are producing audio and video electronic equipment. Our factory does only the final assemblage of goods. Our component manufacturer produces for us goods required for video cameras and music players. Some of raw materials are coming directly to our factory, but most of them go to component manufacturer as he produces the components. The final product is not very expensive, around 400£ for each item. And each component or other materials are low-cost items. In this part of the supply chain, we add the maximum value to the product as we assemble it in our own factory. As all our suppliers are in the same continent, in Asia, our attempts to search, procure and transport the materials and components are easy and don’t take too much time. But we are experiencing some delays in the delivery of these materials and components. After assembling the components and producing the final product, we stock them in our warehouse. Everyday, different products are entering the warehouse and taking place in the shelves, as many of them quit the warehouse to reach the customers. There is an intense circulation in the warehouse. As we supply world-wide retailers, distribution teams are working in cooperation with international transportation companies to ship the products overseas. We are operating with big retailers in all continents, like Tesco and Carrefour in Europe, Wal-Mart in USA, and also we have some overseas subsidiaries where we sell our products in stores. As we produce our products in Asia, our prices are less expensive than our competitors. For that reason, these retailers are often going out-of-stock and demanding resupply. This after-production part of our supply chain is more complex and problematic. The efficiency in this part would increase customer satisfaction, therefore our sales. So it is important to manage it more efficient and effective.
In these conditions, we are likely to implement the RFID technology into our supply chain which will help us to control our costs and to reduce investments on inventory. This means lower prices and better competition, which will increase our sales. And other reason to get this technology is the business trends. As international business is interconnected and companies in certain supply chains depend on others, RFID systems are going to be implemented in a very large number of firms and industries in very near future. For example, in 2003, Wal-Mart announced that its suppliers should ship RFID-tagged items to distribution centres and shops in Texas by 2005. This was the first stone put in RFID’s future. According to a study, the results are positive. RFID tagging is credited with reducing out-of-stock merchandise and excess inventory by up to 16 percent. As we are a supplier of Wal-Mart, we are also asked kindly to implement it.
As the implementation of RFID systems requires a considerable investment, and as we are rationalising our capital, I recommend implementing this technology into our supply chain in two steps. The first and the most required part is post-production activities. This starts with storing the products in the inventory, then continues with their distribution to retailers and ends with seeing the stock states and sales in retailers. In our warehouse, auto-tracking RFID technology will reduce the human intervention. On one hand, this means reducing labour costs, and on the other hand we increase the processing quality by eliminating human errors and damages. This will also enable higher throughput in the inventory. We will save enormous time and flow more product into and out of the warehouse. Warehouse RFID system will give us the possibility to track the products by their date of entrance in inventory, or by their placements in the inventory. This traction will finally serve to fight against loss and theft in the warehouse. In our distribution activity, RFID technology will enable us to track the product. It will tell us whether if it left the warehouse, if it is in a truck on its way to distribution centre, or if it has already been delivered to retailer. We can also scan the contents of a container ship which goes to another continent, with the help of a global positioning system connected to our RFIS system. This will give us the visibility and the capacity to take sudden decisions and make appropriate changes in real-time. Finally, this technology is going to procure us the opportunity to track our products in our retailers’ inventory and sales places. We can see in real-time changes in quantity of our products on shelves, buying trends and consumer motivations. The traction with RFID also allows maximum security in stores against theft.
After experiencing the results of RFID technology in the post-production part of our supply chain, we can analyse and consider its potential impact in the procurement and production part of our supply chain. It is certain that implementation of this technology will increase the efficiency and the effectiveness of our supply chain. Besides saving time and allowing higher throughputs, RFID will also enable to increase the quality of our production process. Each material and component will have its own tag, with a unique serial number, containing information about the product. This will allow us to define the source of any problems. But on the other side, as we are producing low cost audio and video electronics, the procurement of materials and components has not a strategic importance. And also, the price of RFID tags is almost the same with some of the materials used in production. So it would be better to first implement the RFID system in the post-production part of our supply chain, and keep waiting for further developments of this technology to implement it in the first part of our supply chain.
REFERENCES
Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 9
2 Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 4
3 Heizer J. ad Render B., 2004, Operations Management, Pearson Education, New Jersey, pg 417
4 Heizer J. ad Render B., 2004, Operations Management, Pearson Education, New Jersey, pg 414
5 Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 6
6 Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg xvii
7 Gattorna J.L. and Walters W., 1996, Managing the Supply Chain: A Strategic Perspective, Palgrave, UK, pg 12
8 Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 10
9 Oberland M., New Collaborative Partnerships are the Future of Supply Chain Management, PR Newswire Europe, 30 March, 2006
10 Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 19
11 Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 20
12 Hoffman W., RFID Gets More Active, Traffic World, Sec. Logistics, p 17 20 March, 2006
13 Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 11
14 Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 11-12
15 Davis C., RFID advances put businesses in the fast lane by 2010, South China Morning Post, p 15 30 March, 2006
16 Kroll K. M., Beyond RFID, Multichannel Merchant, Vol. 23, Issue. 4, 01 April, 2006
17 Hoffman W., RFID's Generation Why?, Traffic World, Sec. Spec, 13 March, 2006
18 Hoffman W., RFID Gets More Active, Traffic World, Sec. Logistics, p 17 20 March, 2006
19 Scannell T., Dutch researchers claim RFID technology is open to hacker attacks and disruptive viruses. What's the answer?, www.internetnews.com, 17 March, 2006
BIBLIOGRAPHY
BOOKS
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Gattorna J.L. and Walters W., 1996, Managing the Supply Chain: A Strategic Perspective, Palgrave, UK
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Heizer J. ad Render B., 2004, Operations Management, Pearson Education, New Jersey
-
Reddy R. and Reddy S., 2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA
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Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis
ARTICLES
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Davis C., RFID advances put businesses in the fast lane by 2010, South China Morning Post, p 15 30 March, 2006
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G2 launches WiFi RFID chip, Datamonitor Industry NewsWire 31 March, 2006
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Hoffman W., When RFID Goes Bad, Traffic World, Sec. Logistics, p 15 27 March, 2006
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Hoffman W., RFID's Generation Why?, Traffic World, Sec. Spec, 13 March, 2006
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Hoffman W., RFID Gets More Active, Traffic World, Sec. Logistics, p 17 20 March, 2006
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Kroll K. M., Beyond RFID, Multichannel Merchant, Vol. 23, Issue. 4, 01 April, 2006
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Oberland M., New Collaborative Partnerships are the Future of Supply Chain Management, PR Newswire Europe, 30 March, 2006
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Procter & Gamble deploys Vue's RFID solution, Datamonitor Industry NewsWire 29 March, 2006
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Scannell T., Dutch researchers claim RFID technology is open to hacker attacks and disruptive viruses. What's the answer?, www.internetnews.com, 17 March, 2006
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Thompson J., Tag of war, Retail Week, 17 March, 2006
Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 9
Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 4
Heizer J. ad Render B., 2004, Operations Management, Pearson Education, New Jersey, pg 417
Heizer J. ad Render B., 2004, Operations Management, Pearson Education, New Jersey, pg 414
Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 6
Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg xvii
Gattorna J.L. and Walters W., 1996, Managing the Supply Chain: A Strategic Perspective, Palgrave, UK, pg 12
Reddy R. and Reddy S.,2001, E-commerce Solutions for Business and IT Managers - Supply Chain to Virtual Integration, McGraw Hill, USA, pg 10
Oberland M., New Collaborative Partnerships are the Future of Supply Chain Management, PR Newswire Europe, 30 March, 2006
Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 19
Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 20
Hoffman W., RFID Gets More Active, Traffic World, Sec. Logistics, p 17 20 March, 2006
Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 11
Sweeney P. J., 2005, RFID for Dummies, Wiley Publishing, Indianapolis, pg 11-12
Davis C., RFID advances put businesses in the fast lane by 2010, South China Morning Post, p 15 30 March, 2006
Kroll K. M., Beyond RFID, Multichannel Merchant, Vol. 23, Issue. 4, 01 April, 2006
Hoffman W., RFID's Generation Why?, Traffic World, Sec. Spec, 13 March, 2006
Hoffman W., RFID Gets More Active, Traffic World, Sec. Logistics, p 17 20 March, 2006
Scannell T., Dutch researchers claim RFID technology is open to hacker attacks and disruptive viruses. What's the answer?, www.internetnews.com, 17 March, 2006