What's the Frequency, Kenneth?
Radio frequency identification holds great promise for supply chains, but information technology and industry standards matter.
ANN ARBOR, Mich.—Radio frequency identification appears to be the next rung up the ladder of information technology advances designed to improve supply chain management, but there could still be a few bumps in the road, says a researcher at the Ross School of Business.
M.S. Krishnan, professor of business information technology, and colleagues Jonathan Whitaker of the University of Richmond and Sunil Mithas of the University of Maryland say the current lack of a dominant industry-RFID standard may deter some companies from adopting the technology and could delay the benefits for those that do. Furthermore, they suggest that firms must have a robust IT infrastructure in place to process RFID-generated data and should allocate enough resources to implement RFID properly in order to get an early payoff on their investment.
In a study published in the Production and Operations Management Journal, Krishnan and colleagues propose a theoretical framework to determine which organizational characteristics most affect firms' decisions to adopt RFID and the benefits they expect to realize. The researchers test their framework using data from two InformationWeek surveys, one targeting IT managers at 354 U.S. firms and another focused on 46 companies currently using or pilot-testing RFID.
RFID technology utilizes tags, equipped with microchips and antennas, that store tracking information (such as serial numbers) and transmit it to electronic "readers" that enable the integration and sharing of that information within and between firms. Unlike some types of inter-organizational systems that have relatively fixed costs, the expenditures required for RFID increase with volume, due to mainly to the use of RFID tags.
The study shows that technological resources overshadow financial resources alone in driving the adoption of RFID. Firms with high levels of technical sophistication and IT management support are more likely to implement the technology than those with large IT budgets relative to revenue but with inadequate IT infrastructure. However, when ample IT investment capital and sophisticated IT capabilities are combined, the likelihood of adoption is increased.
Firms that deploy RFID because of a partner mandate (e.g., a company's suppliers), expect an early return on their RFID investment, the researchers say.
"Dependent firms can strategically combine supply chain management systems and relationship-specific investments to improve their relative advantage, enhance their benefits and create negative externalities for their competitors," Krishnan says.
Expectations for an early return on RFID investment also hinge on the amount of money a company is willing to spend upfront on implementing the technology.
"Higher RFID spending indicates the firm is allocating greater resources to secure the necessary technology and expertise, enabling the RFID implementation to be completed properly and on time, so it begins generating benefits for the firm," Krishnan says.
Relative to the manufacturing sector, firms in the trade and logistics industry also are more likely to look for positive returns earlier rather than later.
The researchers expect that as uniform RFID standards are developed and use of the technology spreads, companies with broad IT platforms and a critical mass of initial spending are more likely to field successful and beneficial RFID implementations.
"The real benefits will not come strictly from the technology itself but rather from the changes in business processes and analytics applications that enable firms to take advantage of the information provided by RFID," Krishnan says. "With the right infrastructure supporting business processes and managerial mindset for change, this will result in reduced inventory levels and shorter replenishment lead times and a capacity for proactive decisions."
Written by Claudia Capos
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