RFID in Supply Chain Management

Leian Liu, Zhiqiang Chen, Dashun Yan, Yi Lu

College of Computer Science and Engineering
Zhongkai University of Agriculture and Engineering
Guangzhou, China
Email: gudu420@163.com

Hongjiang Wang
School of Electronic and Information Engineering
South China University of Technology
Guangzhou, China


AbstractSupply chain management (SCM) is essential for a
company. Effective SCM can always enable the company
maintain a stable and lasting competitive advantage, thereby can
increase its overall competitiveness. But there are two main
problems in the traditional SCM, which are known as Ripple
Effect mainly due to the delay of a particular activity which
results in the delay of the whole SCM and Bullwhip Effect
caused by the demand uncertainty in the supply chain,
respectively. As markets become more global and competition
intensifies, the old mode of the traditional SCM is not feasible
any more. Companies must find a new way out. RFID technology
is a good choice, which can greatly overcome the shortcomings of
the traditional SCM and improve its efficiency. However, on the
other hand, there are also some challenges. This paper mainly
studies the application of RFID technology in supply chain
management, the strengths and weaknesses of it are all analyzed.
Keywords-RFID; Supply Chain Management; Challenges
I. INTRODUCTION
Supply chain management (SCM) is the oversight of
materials, information, and finances as they move in the whole
process from supplier to consumer. Supply chain management
involves coordinating and integrating these flows both within
and among companies. The efficiency of supply chain
management decides the future of the enterprise and effective
supply chain management has been a focus of many
organizations. With the advent of the information age,
competition between enterprises becomes more and more
intense and organizations increasingly find that they must rely
on effective supply chains, or networks, to successfully
compete in the global market and networked economy. As
businesses have recognized the ability of supply chain
management to deliver significant savings, they continue to
search for new ways to achieve competitive advantages
through cost savings in the supply chain. There are two main
problems in the traditional supply chain management, Ripple
Effect and Bullwhip Effect, which result in excess
inventory and inefficiencies in the supply chain. So in order to
make supply chain management more efficient, the old mode
of the traditional supply chain management has to be changed
and companies must find a new way out. Radio frequency
identification (RFID) is a good choice for its many merits.
A. RFID technology
RFID has been around for decades, going back to
identifying friends or foes in World War II. A typical RFID
system consists of three parts: tag (transponder), reader
(interrogator) and data exchange and management system (we
can see from Fig. 1).

Figure 1. The structure of RFID system
Each tag has a unique identifier, which is associated with a
specific physical product. Depending on whether they have
their own battery or not, tags are divided into two kinds, active
tags which have their own battery and passive tags which do
not. Reader can obtain the information stored in the tags
memory through the electromagnetic field and then send the
information to data exchange and management system for
further processing by the network. Despite the existence of
RFID for several years, only recently, however, it has grown
significantly, due to the push of several large retailers such as
Wal-Mart, Tesco, et al. Compared with bar codes, RFID
technology has lots of advantages as follows:
RFID technology does not require line-of-sight reading;
RFID tags can hold more data than bar codes;
RFID tags have small size and have many kinds of
styles;
Much safer. Because RFID tags use the electronic
information, its data content can be password-protected
so that the content cannot be forged and changed easily;
Data stored in RFID tags can be modified or added;
RFID tags are more effective in harsh environments
where bar code labels may have problems;
A large number of RFID tags can be read almost
instantaneously.
Because of the merits mentioned above, RFID technology
is used in many areas today, and the supply chain is one of the
most important areas. There are indications that research on
RFID technology shows an upward trend year by year over the
last decade, research contents related to various aspects of
2010 International Conference on E-Business and E-Government
978-0-7695-3997-3/10 $26.00 2010 IEEE
DOI 10.1109/ICEE.2010.825
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RFID technology [1]. Despite the security and privacy issues,
RFID is accepted by more and more people [2] [3]. Being a
new kind of automatic identification technology, in conjunction
with Electronic Product Code (EPC) identification technology,
RFID technology provides a new practical way to the supply
chain management.
B. Supply Chain Management
The traditional supply chain consists of all the parties
involved directly or indirectly in fulfilling a customer request,
including manufacturers, suppliers, transporters, warehouses,
retailers, and the customers themselves, as we can see in Fig.2.

Figure 2. The structure of the traditional supply chain
The main goal of each member within the supply chain is to
reduce unwanted inventory levels and increase ROI (Return on
Investment). In the 1980s, the term Supply Chain Management
was developed to express the need to integrate the key business
processes, from end-users to original suppliers. Supply chain
management is intended to grasp the needs of end-users from a
strategic level and a holistic point of view and get the best
results of cost, time, efficiency, flexibility, etc, relying on the
effective cooperation between enterprises. It is a combination
of art and science and is aimed to enable companies to
purchase products, provide raw materials, produce goods, and
provide service to customers in the end. Supply chain
management includes five basic elements as follows:
Plan. It is a strategic part of the SCM. It needs a
strategy to manage all the resources to meet customer
demand. Good plan is to build a series of methods to
monitor the supply chain so that it can provide
customers with high-quality and high-value products
and services cost-effectively;
Procurement. The process is to choose suppliers who
can provide goods and services, establish a pricing,
distribution, and payment processes with suppliers, and
establish methods to monitor and improve management,
including the delivery of goods, verification of
invoices, transfer of goods to the manufacturing sector
and to approve payments to suppliers and so on;
Manufacture. The activities of arranging producing,
testing, packaging, and delivery, which contains the
most measuring content of the supply chain
management, including the measurements of quality
standards, product yield and productivity of workers;
Distribution. The process is to adjust the users order
receipt, set up a warehouse network, send delivery
personnel to pick up and send goods to customers,
establish invoicing system, and receive payments;
Goods returned. This is the problem-solving part of the
supply chain management, establishing a network to
receive the defective and excess products returned by
customers and providing support when things go
wrong during the process of using products by
customers.
In the traditional supply chain, the retailer reacts to the
customer demand and based on this information, the
wholesaler places an order to the distributor. To determine the
order quantities, the wholesaler must forecast the retailers
demand. If the wholesaler does not have the demand data of
customer, he has to use the order placed by the retailer to make
forecast. But apparently, this forecast cannot reflect the
customer demand, so more stock may be carried by the
wholesaler or higher than necessary inventory levels to meet
the same service level as the retailer will happen. The same
thing will be happen between distributor and manufacturer,
which will result in even higher inventory levels and therefore
higher costs at these facilities. This kind of phenomenon is
called as Bullwhip Effect, which must be eliminated or
weakened.
II. SUPPLY CHAIN MANAGEMENT FRAMEWORK BASED ON
RFID TECHNOLOGY
RFID has recently received significant attention as a viable
option in an organizations supply chain management strategy.
RFID is expected to provide greater collaboration capabilities
across value chains given its ability for real-time identification
and tracking over long distances without line-of-sight
requirements. Other major benefits of RFID in SCM include
labor reduction throughout the supply-chain network and better
inventory management that can yield significant cost savings
and improved data collection with greater accuracy [4], [5].
General framework and the simple structure of RFID-based
supply chain are shown in Fig. 3 and Fig.4 [6] respectively.

Figure 3. General framework of supply chain management system
combinated with RFID technology
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Figure 4. The structure of RFID-based Supply chain
III. BENEFITS FROM RFID TECHNOLOGY
As mentioned earlier, using RFID technology, the
efficiency of supply chain management will be enhanced
greatly. Keith et al., predict that receiving check-in time could
be reduced by 60%-93% with RFID technology [7]. It is also
estimated that RFID could yield labor savings of up to 36% in
order picking and a 90% reduction in verification costs for
shipping processes [5]. Enhanced visibility is also one of the
greatest benefits from RFID technology. In the paper [8], Joshi
simulates a simple supply chain in order to evaluate the value
of information visibility in the supply chain through RFID and
Bullwhip Effect is mainly concerned about. The results show
that, in supply chains, information visibility and actors
collaboration can provide 40%-70% reduction in inventory
cost. In the past, supply chain management mainly focused on
fine-tuning procedures through planning. However, for the
existence of Bullwhip Effect, even the best plans frequently
fall victim to human error or to unexpected deviations that
occur within real-world settings. It is estimated that the U.S.
retail industry is losing about US$70 billion annually from its
SCM practices [9]. On the contrary, using RFID technology,
the information of the actual events taking place across the
extended supply chain can be turned into actionable data. RFID
delivers visibility to product movement at each and every point
along the supply chain. Depending on the knowledge,
companies can quickly determine when execution fails to
follow the plan and resolve the issues accordingly. In the paper
[10], a three-echelon supply chain is modeled and simulated
based on multi-agent technology and it is shown that the real-
time RFID tagged information of in transit goods is valuable
and can be used to reduce Bullwhip Effect efficiently.
As an example, we can look back at Fig.4. The whole
process of the supply chain can be divided into several
processes, such as retail process, store process, transportation
process, distribution process, and producing process, etc.
During the retail process, RFID can improve the retailers
inventory management, enable the retailers to replenish goods
in time, track transportation and inventory efficiently, improve
efficiency, and reduce errors, etc. Moreover, the validity of
some time-sensitive goods can be monitored by smart RFID
tags, and automatic toll collection can be achieved without
human intervention. In the warehouse, RFID technology is
usually used in the process of the access of goods and
inventory. Throughout the warehouse management, receipt
plan, picking up plans and shipment plans of supply chain
planning systems combined with RFID technology can
efficiently complete a variety of business operations. Thus,
accuracy, service quality and operations are all enhanced, and
cost and inventory are reduced and also labor is saved. At the
same time, the loss of the overall logistics due to the
misplacement of goods, theft, damage, and shipping errors is
also reduced. In transport management, because the vehicles
and goods are all attached with RFID tags, when they pass
through some checkpoints, information stored in tags can be
captured by the readers. Then, the information and the location
of the goods are all uploaded to the communication satellite,
and after that transmitted by satellite to the transportation
dispatch center and stored into the database at last. During the
distribution process, using RFID technology can greatly
accelerate the speed of delivery, improve the efficiency and
accuracy, reduce labor and costs, and ensure accurate inventory
control, or even know exactly how many containers are in
transit, origin and destination of transshipment, and the
expected time of arrival, etc. Likewise, using RFID technology
in the manufacturing process can complete the operation of the
automated production lines, realize the identification and
tracking of raw materials, components, semi-finished and
finished product in the whole production line, reduce labor
costs and the recognition error rate, and also improve
efficiency. RFID technology can not only help managers to
send replenishment messages in time according in order to
production schedule to achieve a balanced line and steady
production, but also strengthen the control and tracking of
quality.
IV. CHALLENGES REMAINING
Although RFID technology can greatly enhance the
efficiency of supply chain management, or even change the old
model of the traditional supply chain management
fundamentally, the adoption rate is rather moving at modest
pace [11]. For instance, the warehouse study reported that only
15% of warehousing firms had adopted RFID while 41%
responded considering the adoption and 44% not considered
the adoption at all [12]. Companies are more concerned about
ROI. If they are not very familiar with RFID technology, they
are not sure they can benefit from RFID system which will cost
them a lot of money. Therefore, instead of investing in RFID
system, many companies hope to learn more from the early
adopters [13]. In fact, there are some challenges indeed.
A. Cost challenges
Accenture survey found cost to be one of the two primary
barriers to the implementation of RFID [14]. Currently, RFID
readers and tags are still relatively expensive. Therefore, the
deployment of RFID system to instead of old bar code system
will cost a lot of money. Especially under the situation that
many companies do not really understand RFID technology,
they will be more hesitate to deploy RFID system. And in fact,
there are no comprehensive RFID infrastructure exists as yet. It
is difficult to calculate the true returns based on limited benefit
information from pilot projects in segmented RFID system
installations.
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B. Data challenges
Data challenges contain two major aspects, exponential
increases in data volume and filtering out unwanted (Duplicate
or erroneous) data. In RFID system, tags can store more and
more information and readers can read 800 or more tags in one
second. In RFID-based supply chain management system, there
may be hundreds and thousands readers and tags. Thus, in a
very short period of time, large amounts of data can be
produced. It is reported that Wal-Mart is looking at generating
some 7.5 terabytes of RFID data per day. How to handle these
massive data is really a challenge. On the other hand, there are
many problems in the original data, such as incorrect data or
duplicate data, etc. There are a variety of reasons which can
lead to produce the erroneous data and duplicate data. For
example, the relative position of tags and readers, collision
problems, or tags being read by many readers, etc. Therefore,
how to get rid of the data we do not want and keep only the
data we want is another challenge.
C. Reliability challenges
In RFID system, readers use radio waves to complete the
identification of tags. Because of the characteristics of radio
waves itself, metal and liquid have a great influence on the
reading process. Radio waves can be reflected and refracted
differently by metal and liquid respectively. If UHF radio
waves propagate toward liquid, a large portion of the radio
energy will be refracted into the liquid and likewise, if UHF
radio waves pass onto metal, a large portion of the radio energy
will be reflected. In both cases, if tags are attached to the items
which are metal or liquid, the items will not be identified.
Besides, the relative position and orientation of the tag antenna
and reader antenna can also affect RFID readability. As a
result, if a tag antenna is perpendicular to a reader antenna, the
tag will not be read by the reader. Moreover, in the real
circumstance, passive tags may be positioned in the shadow
zone where the enough power supply is not achieved, and so
they cannot be read by the reader either.
D. Standard challenges
Currently, there is not a mature uniform RFID standard and
compatibility of RFID products of all manufacturers is also
very poor, which greatly limits the industrialization of RFID.
There are three RFID standards: ISO, EPC and UID. If RFID
technology wants to achieve a greater development, uniform
standard is required. Only in this way, can it be possible that
RFID can work seamlessly globally, and thus contributing to
the global supply chain is possible too. Moreover, uniform
standard is very important to the innovation of products and
applications. In addition to the existence of different standards,
regulations on radio spectrum allocation for RFID are not
unified among nations, which will also bring significant
constraint to the global application of RFID technology.
Besides challenges mentioned above, there are some other
challenges, such as security challenges, privacy challenges, and
patent challenges, etc, which impede application of RFID in
supply chain management too.
V. CONCLUSION
The main purpose of this paper is to study the application
of RFID technology in supply chain management. On the one
hand, it is shown that using RFID technology, the efficiency of
supply chain management can be improved greatly. On the
other hand, however, because of challenges mentioned above,
many companies are still skeptical about using RFID
technology in supply chain management. Fortunately,
nowadays, there are lots of researchers who are working hard
to deal with these challenges, and we can believe that with the
mature of RFID technology, more and more companies can use
RFID technology in their supply chain management safely.
ACKNOWLEDGMENT
This work is supported by the Natural Science Foundation
of Guangdong Province, China (9151022501000008).
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