Radio Frequency Identification is an automatic identification and data capture technology used in the identification of products or services (Masum, Bhuiyan, and Azad, 2013). RFID is composed of tags, readers, and middleware. The tag is formed from chips and attached to products, the reader helps in receiving and returning answers from tags, while the middleware bridges software in question to the hardware. Value addition is an important concept in business as it allows firms to have more appealing features that customers perceive to be of greater value. Information technology is one of the most important resources in creating organizational value (Kohli and Devaraj, 2004). RFID technology adds intelligence and capabilities to the firm via its identification, tracking and tracing nature. The technology can acquire a vast amount of location and property data via objects that can be physically tagged and wirelessly scanned (Curtin et al., 2007; Weinstein 2005). RFID thus leads to value addition and enhances the ability of the supply chain management (SCM) to offer high-quality services to its customers. The SCM helps in the planning and management of activities pertaining the sourcing and procurement. The theoretical and conceptual framework will show an analysis of the value added to supply chain that results in the incorporation of RFID.
Keywords; RFID, supply chain management, value addition, technology, innovation
Theories
There are several theories that can be used to critically analyses the value addition that results with the use of RFID in supply chain management. The theories include the following Diffusion of Innovation Theory, TRIZ theory, First Mover Advantage Theory.
Diffusion of Innovation Theory (DOI)
DOI theory was developed by E.M. Rogers in 1962 (Tsai, Lee, and Wu, 2010). The theory originated from communication and it explained how ideas and products with time diffuse to specific populations. Adoption, according to the theory means that individuals or firms do things differently compared to how they were used to previously. According to Tsai, Lee, and Wu, (2010), IT innovations are multidisciplinary in nature and they can be classified into adopter or diffusion models. Diffusion and assimilation are affected by environmental, organizational, and innovation characteristics. Usually, a decision to adopt an innovation is explained by the relative advantage it will have on the organization. In supply chain management, the use of RFID technology will benefit the organization as it will eliminate a need of line of sight, improve asset visibility, and reduce the need for data storage as well as a need for multiple tags for reading items.
The concept of supply chain management is defined as “the integration of key business process from end user through original suppliers that provides product, services, and information that add value for customers and other stakeholders” (Wamba and Chatfield, 2009, p. 620). Supply chain management deals with the flow of goods and services within an organization. Usually, these goods and services are of a wide range and can be challenging to coordinate all of them while avoiding mix-ups. As such, there is a need to optimize operations by seamlessly integrating the key business processes across the supply chain. Diffusion of innovation shows that firms will benefit a great deal if a measure is adopted and diffused through the company. The future of RFID; in other terms, successful diffusion of the technology shows that business will be able to offer right products and services to consumers.
The Theory of Inventive Problem Solving (TRIZ)
The theory provides a structured way of doing innovations and changes the way an engineer would approach the problem. TRIZ theory was developed by Genrich Altshuller in 1940 (Lin, Chen, and Hsu, 2011). The theory consists of a set of systematic thinking tools that help in improving systems in innovative ways. TRIZ is based on the fact that innovations are governed by repetitive patents. The 40 inventive principles of TRIZ show that innovation can be used to develop rough and basic solutions to supply chain. Evidently, the theory has helped in identifying the problems with supply chain management such as complexity, delay, the possibility of confusion, and lengthy distribution process (Lin, Chen, and Hsu, 2011). Based on the problems identified, RFID offers a better solution for the supply chain management and thus should be adopted.
First Mover Advantage theory
The first mover advantage theory may also be known as technological leadership. The theory is based on the advantage that a firm gets first entry and thus gains a competitive advantage by controlling resources (Kim, Yang, and Kim, 2008). According to the theory, a new innovation provides a sustainable cost advantage for new entrants as long as the technology is acquired. Based on the theory, it is clear that firms that take up RFID technology and diffuse in all their process will gain a competitive advantage over companies that do not use the technology.
In particular, the theory focuses on the economic gains achieved by learning on the importance and need for a technology and the adopting it. Integration of RFID in daily activities of the business increases the ability of a firm to survive. Further, RFIDs ensures management of inventory and procurement (Costa et al., 2012). As such, companies that adopt RFID will be able to meet the needs of customers by delivering seamless and well-organized goods and services.
Empirical Evidence
Businesses are exploring different options of integrating the usage of RFID across the supply chain to see how they can improve internal and external business processes. The main aim of management is to promote operational cost savings and improved inventory management as the key benefits of its use (Heim, Wentworth Jr. and Peng, 2009). If RFID can, in fact, reduce costs and increase competitiveness then this should, in theory, result in added value for both the adopting firm and the end customer. Value addition that results from the incorporation of RFID can be seen in manufacturing, warehouse processing, management tracking, distribution processes, and retail benefits.
Tracking of goods and services using the RFID helps in the management of shipping containers. Shipping containers are the most popular ways of transporting large cargo (Kim and Glock, 2014). Transportation of the shipping containers is the duty of supply chain management team which has to ensure high transport density, standard packaging, low costs, and safe and secure transportation. According to Kim and Glock, (2014); Zelbst et al., (2012), active use of RFID tags help in tracking the containers in real time in yards and docks. Importantly, the use of ultra-high frequency RFID will speed up the process of identification. Therefore, value addition is actualized in shipping containers. Real-time data is usually critical for ensuring excellent performance. The availability of real-time data to management significantly improves the planning processes in management.
The supply chain management covers different steps and combines with marketing decisions and customer demands in line with the corporate are goals. Supply chain covers processes such as transportation, distribution, and manufacturing in an attempt to monitor the flow of goods to customers. According to Fan et al., (2012); Zelbst et al., (2012), supply chain processes are complex and knowledge-intensive; therefore, it can benefit from the use of RFID. Linton (2017) further says that the use of RFID improves reliability and efficiency and makes the supply chain considerably precise. The use of RFID ensures that the right goods are available in the right place with no errors and discrepancies.
The complexity in dealing with products in cartons and their delivery to warehouses can be improved with the use of RFID. In the supply chain, cargo usually reaches the warehouse first before reaching the final destination. According to Kim and Glock (2014), keeping track of the large numbers of cartons is complex, time and labor consuming. The process requires a constant flow of information so as to ease the complexities. The incorporation of RFID involves the installation of read-write equipment that enhances the management of information. The management center will thus be well equipped to effectively monitor all cargo with tags.
Supply chain management deals with different process. Importantly, all the process will benefit from the use of RFID as it “supports a wide range of applications from asset management and tracking to manufactured products and related customer services to access controls and automated payment” (Sabbaghi and Vaidyanathan, 2008, p. 72). Usually, RFIDs are customized to meet the needs of a particular business process. Importantly, the RFIDs have subsystems with tags and readers. The tags and readers ensure that the supply chain management can track a product through its cycle; from the manufacturers to a point where they are purchased by the customers.
In particular, the incorporation of RFID increases efficiency in the distribution processes. The innovation adds value to the supply chain as it speeds up the process by which goods are distributed from region to another (Costa et al., 2012). Additionally, it improves the efficiency and accuracy with which distribution process are chosen. Eventually, business will see an overall reduction in the cost of distribution which in turn increases sales.
The use of RFID increases visibility and performance of the supply chain. According to several researchers including Visich et al., (2009); Kim and Glock (2014); Fan et al., (2012), the use of RFID makes it easier for users to identify all objects in the supply chain including people, goods, and services. Presently several companies have experienced value addition by adopting RFID in their supply chain. For instance, a credit card having RFIDs are used by millions of users and it has positive impacts on firms involved. Additionally, the Tokyo's subways and bus operations also make use of RFIDs (Qianli and Zhang, 2016). The application of the technology in the two cases has not only increased visibility but also enhanced the use of e-money systems that increase sales within organizations. Evidently, the use of RFID enhances retail performance and thus, it is worth the investment.
Conclusion
To date, there are a few firms that have successfully adopted RFID. As such, many firms are missing out on the full potential of RFID implementation. Importantly, the use of RFID will be more beneficial to companies when the supply chain fully adopts the technological innovation.
The Diffusion of Innovation Theory suggests that companies that adopt RFID are better placed as it enhances the efficiency in supply chain management. In particular, companies will be able to solve problems like multiple tag reading and it will increase visibility. TRIZ theory helps in identification of the errors in supply chain management that does not use RFID. The theory also identifies shortcomings and the solution that will help in eradicating the shortcomings of the problem. The final theory, first mover advantage, shows that companies that adopt RFID will have a competitive advantage and thus a need to implement the innovation. According to the theory, learning is paramount to the adoption of the innovation as companies understand the benefits and the need to integrate the technology in supply chain management. Importantly, the company will increase its ability to survive.
The conceptual framework recognizes the vast areas covered by the supply chain management. Complexity increases due to a need for supply chain managers to combine marketing decisions and the objectives of the organization. Supply chain oversees transport, distribution, manufacture, and delivery of goods and services. As such, supply chain management will benefit a great deal by incorporating RFID that will facilitate monitoring of goods and services in all stages. In particular, the incorporation of RFID adds value to the process of manufacture, warehouse management, tracking shipping containers, enhance the process of distribution, and improve performance in the retail sector.
References
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