Planetary-Scale RFID Services in an Age of Uberveillance

Abstract

Radio-frequency identification (RFID) has a great number of unfulfilled prospects. Part of the problem until now has been the value proposition behind the technology-it has been marketed as a replacement technique for the barcode when the reality is that it has far greater capability than simply non-line-of-sight identification, towards decision making in strategic management and reengineered business processes. The vision of the internet of things (IOT) has not eventuated but a world in which every object you can see around you carries the possibility of being connected to the internet is still within the realm of possibility. However incremental innovations may see RFID being sold as a service (much like photocopiers are maintained today) than a suite of technologies within a system that are sold as individual or bundled packaged components. This paper outlines the vision for such a product service system, what kinds of smart applications we are likely to see in the future as a result, and the importance of data management capabilities in planetary-scale systems.

Section I.

Introduction

Increasingly radio-frequency identification (RFID) will not be viewed as just another barcode-type technology. Instead it will be used in innovative ways for which it was never originally intended. While by its very nature RFID tells us “what is,” industry has focused its attention on achieving adequate read rates using this non-line-of-sight technology, rather than on the value-added “where is,” “when is,” and in “what condition.” Indeed, the value is not merely in identifying a product, but knowing where that product is, when it was last there, and in what condition it was when it was last sighted. To know the what, the where, the when, and the condition of an object or subject will one day grant the firm a type of divine omnipresent view (but not strictly speaking omniscient view) over its entire operations, an idea that has been explored by Michael and Michael and coined uberveillance [1]. With respect to the retail supply chain, for instance, uberveillance is the all pervasive ability to surveil an item or person handling an item, end-to-end, from the primary producer to the end user. The future of RFID is in managing visibility, managing velocity, and managing variability, giving organizations the kind of real-time data they (and their customers in particular) have craved for. It is the ability to be agile in decision making, responding to changes in the service economy.

Section II.

Background

The Auto-ID Center has long touted the vision of the internet of things (IOT). Brock [2] first used the term to imply an open platform for innovation but the vision of a “smart world” today remains an unfulfilled prophecy. Some have blamed this uneventful happening on the closed, proprietary, and somewhat exclusive system designed by the Auto-ID Center, pointing to technical barriers, while others have described governance-related barriers to participation. Whatever the reason for the shortcomings, we are left with a technology with great potential but unrealized capability. The International Telecommunication Union's (ITU) interpretation of the IOT is one that is more attractive and perhaps amenable [3]; a vision where almost every object you can see around you carries the possibility of being connected to the internet. This means that your domestic appliances, your clothes, your books, and your car may one day be assigned a unique IP address, just as both computers and web pages are assigned them today, to enable digital communications. Neither the original vision of the Auto-ID Center nor the vision of the more recently established EPCglobal has addressed the interactivity that occurs between nonliving things and living things, but it seems only logical that if we hope to enact revolutionary changes to business processes that this must be the next radical transformation in our corporate, community, and personal spheres. It is what has led the Auto-ID Labsto recant on their claim to the IOT concept toward a more plausible web of things (WOT) [4].

A. Problems with RFID Adoption

Potential benefits of adopting RFID in supply chain management (SCM) are widely recognized and reported. The actual benefits are yet to be achieved in RFID implementation as compared to the mandated milestones. Three hurdles dominate the delay. They are related to high levels of acquisition cost, risk, and specialist technical skills. First, specialist technical skills are required to manage the wide variety of RFID devices and tags with different frequencies and capacities, and their software application protocol interfaces (API) under varying application environments. Second, the rapid developments in RFID technologies and their fluctuating reading reliability have caused significant risks for real-life industrial implementations. Companies are worried about obsoleteness before they adopt solutions. Companies are also very much concerned about the customizability of the solutions they purchase to their specific and unique business conditions and operations. Third, despite all efforts made so far to reduce the costs of RFID devices and tags, as well as associated middleware and other software components, there is still a perception that RFID systems are too expensive for the enterprise to invest in to gain promised benefits. This is particularly true due to the lack of best practice guidelines for deploying these components.

Section III.

RFID as a Service

Enter the ability to see every business process that happens in the world as a “service,” and even more provocatively to claim that every product that is created should be considered a “service” [5]. The future of RFID will hinge on the successful cocreation of a service between stakeholders. This notion of cocreation does not claim, for instance, merely that one stakeholder is a participant in the creation of a service, but that they are part creators of a service, that they live and breathe it as if it were their own. This is the act of continually sharing sources of knowledge interactively and intimately between what was once considered disparate members of a single (albeit meshed) chain. Although intricate dependencies between members of any chain (supply or value) have been known to exist, cocreation is about oneness of mind through the feedback mechanism. It seems this is the only way in which RFID will really prosper and will be guided by robust design principles that are all-inclusive and shared between a set of stakeholders. And perhaps nontraditionally, this stakeholder set will be composed of more than just the firm and the customer; cocreation will require representatives from private and public organizations to serve holistic requirements in order to overcome cross-functional challenges. This goes beyond the concept of coproduction which emphasized the need for a firm and a customer to work together to produce an offering. Without cocreation, it is claimed that there can be no real value [6].

This new level of complexity encountered in cocreation is underpinned by theories in design science and innovation. In order to transform, or to make changes that are considered disruptive or even radical, existing ideas are brought together in new ways to satisfy the needs of all stakeholders. When ideas do not satisfy the desires of the firms, or add meaningful value, they are scrapped or individual stakeholders forgo representation. Social innovation, social entrepreneurship, and service innovation are terms that are used synonymously in the literature to describe this kind of activity. Highly successful ventures usually involve collaboration across sectors between companies, the nonprofit sector, and government. This establishes enough of a buy-in between stakeholders who are willing to collaborate openly to minimize the risk of failure in what some would consider the ambitious creation of a new service. Such thinking is characterized by organic growth and investment in research and development, not just on keeping things stable.

Section IV.

The Product Service System

Currently, companies must take risks in investing in acquiring expensive RFID components and technical skills, whether using internal or external or joint project teams. This adoption mode may not be practical nor may it be necessary, especially to small and medium enterprise (SME). On the one hand, SMEs, individually, may not have the practical financial strengths to gain RFID benefits. On the other hand, SMEs are always associated with other SMEs or large corporations. For example, small and medium manufacturers and suppliers of automotive components may be physically located in an industrial park or region, operationally associated with their customers or business alliances. Such associations form a logical foundation for these SMEs to jointly solve problems to do with high acquisition costs, risk, and specialist technical skills. For example, they can share the specialist technical skills and middleware services, thus reducing the cost and risk. A new business model is therefore needed for RFID adoption.

The concept of the product service system (PSS) has been increasingly used as a new business model in implementing advanced technologies including RFID [7]. PSS, unlike the traditional model of focusing just on products, recognizes that services in combination with products are more likely to yield higher profits for the business. The adoption of PSS leads to significant change in the manner in which business is conducted in a value chain. The revenue of a manufacturer comes from the sale of providing product functionality while retaining the product ownership rather than from the sale of products. One of the most successful real-life examples of integrating services into products is that office users are renting photocopiers instead of buying them. The rental is charged on the utilization level (e.g., number of copies). Users are ensured to have the photocopying functionality during office hours through a guarantee of timely repairing and maintenance services from a service stakeholder in this PSS. As another example, Rolls-Royce (R-R) delivers power-by-the-hour instead of transferring ownership of the gas turbine engine to an airline company [7]. At the other end, an example of integrating products into services is that of mobile communication providers giving a free mobile phone handset to customers who sign up for a service. Another example is that internet service providers (ISPs) deploy connection facilities in hotels free of charge but share the revenue obtained from the residents' internet usage.

Following the PSS business model, the usage of automatic identification services is sold to end users while RFID solution providers retain the ownership of RFID devices, software, and networks. End users do not have to invest in acquiring RFID hardware devices that are not charged by ownership but usage. RFID manufacturers share and reduce technical risks and total costs with end users by retaining the ownership and by providing upgrades to their devices. In addition, RFID solution providers are responsible for technical support for RFID systems throughout the implementation process. Such support is shared among multiple end users, leading to further reduction in maintenance and operating costs, technical risks, and the requirement for scarce technical skills. This new business model based on the PSS concept has shown a potential in overcoming some major hurdles that have hindered the progress of RFID across industrial applications.

However, RFID products, both hardware devices and software systems, have not yet been designed and developed for suitable deployment within a PSS business model. In order to tackle this key challenge, research and development efforts have been carried out to develop RFID-enabled gateway solutions that are suitable for a PSS business model [8]. RFID gateway solutions include 1) gateway hardware, and 2) gateway services. A RFID gateway hardware hub acts as a server that hosts and connects RFID-enabled devices, called smart objects, in a standard way. The gateway hub also provides a suite of software services for managing operations and events of smart objects. A significant contribution of RFID gateway technology is to provide services that capture real-time data and convert them into useful and usable real-time information for upper level enterprise application systems.

In a PSS framework, the gateway hub is the core product around which associated software services are deployed to form a product service system. Gateway hub products can be deployed in application environments just as photocopier products are rented or deployed in office applications. Technical support and services can be centrally provided to ensure that smart objects and gateways are in proper working order. Common services for RFID device management such as definition, configuration, and execution can then be operated by a central service provider and shared among different enterprise users of RFID technology.

While the gateway technology provides a technical solution to introduce the PSS concept for RFID adoption, business issues are still open for further investigation and experimentation. The revenue model among stakeholders is unclear. For example, how RFID device manufacturers collect their revenues is not clear in the PSS framework, e.g., through equipment rentals or the number of tag interrogations. A similar challenge exists on how RFID service producers will collect their revenues, e.g., through subscription or the volume of real-time information transactions. These issues must be fully addressed before the PSS approach takes effect in real-life industrial deployment.

In a different light to PSS, but in a similar paradigmatic shift, is the movement away from middleware-based applications to cloud computing-based applications for end users. Middleware can be considered computer software that connects multiple applications together. Middleware-based RFID applications were the first generation. They were usually situated in a server, processing data emanating from “dumb” readers with little processing power to translate them into a comprehensible business event. But now, the entire data processing has shifted to edgeware and cloud computing. Edgeware-based applications, also known as edge of the network applications, are typically in mobile data collecting nodes. In the case of RFID, these are mainly readers. Larger data management by means of edgeware is becoming increasingly common due to higher processing power and higher memory capabilities in the readers. The data generated by the tags are gathered by the readers and managed by edgeware-based applications. The resulting output from the edgeware is then transported to the cloud (or a remote server sitting in the internet), where it is further processed in accordance with the end-user requirements. Cloud computing is that operational setup where information and communication technology (ICT) is consumed as a service (e.g., software, platform, and infrastructure). The future innovations in RFID are going to be in rich tags. As both readers and tags are becoming smarter, the edge is becoming smarter. Subsequent generations will have embedded information about themselves that they can selectively and intelligently communicate with other objects in their wireless neighborhood. This would essentially form what Gadh termed as the wireless “internet of artifacts” [9].

Section V.

The Vision

RFID is often seen as the enabler of a new paradigm for computing whereby users employ information services through direct interaction with natural objects and manufactured artifacts, places and, when appropriate, living entities [10]. RFID effectively implements a transparent binding of such entities in the physical world to their info-simulacrum and vice versa, and through this link creates the opportunity for new types of systems. A core ingredient for the delivery of this vision is the availability of a comprehensive universal system of automatic identification for all tagged physical entities. Such a system would implement a fully automated data capture and maintenance of contextual, usage, and other metadata at planetary scale [11].

Moreover, such a system will have to accommodate those features of modern RFID that have made possible its current functionality, namely, the fact that practically all modern widely available passive ultra-high-frequency (UHF) RFID tags have very low storage capacity and support only simple logic in order to minimize power consumption. As a consequence, building complete and useful RFID-based systems requires that the majority of processing and storage be offloaded to surrogate services on the internet [12]. Emerging consensus seems to indicate that to support RFID systems several kinds of network services would have to be provided, specifically resolution services that link unique identifiers from diverse schemes and their metadata, and repository services that maintain and publish data related to individual identifiers. Both services should be widely accessible and available across the globe to reflect the globalized movement of manufactured artifacts typical in modern commerce.

The scale and complexity of these services both in terms of geographic scope and number of stakeholders involved is unprecedented [13]. The only system sharing its properties is the internet, which also provides a model (and the underlying infrastructure) for the provision of these services. However, the specific needs of RFID are not restricted to the transfer of data only but most importantly extend to the capture, management, and publication of persistent metadata with each element of this chain, setting its particular challenges and imposing further constraints (e.g., analytical and reporting mechanisms of the captured data, with respect to business intelligence).

Although the requirement for the development of such networked services to support planetary scale RFID was identified over a decade ago [14], the depth and complexity of the challenges presented from a service and data management perspective have been fully recognized only in the last few years and are still only partially understood. In the following section, we will attempt to identify some of the main problems and identify future research directions adopting a data management approach. In particular, we identify the main challenges in resolution and repository systems when the scale of the system encompasses the whole planet. Note that there are complementary research questions related with the provision of global RFID services, for example, those relating to questions of service positioning and adaptation to energy consumption patterns and workloads. There is significant research activity in these areas especially in the context of cloud computing that would surely benefit RFID as well [15].

Section VI.

The Pressing Need for Data Management

Looking closely at RFID repositories, their role is to manage entity usage information represented as application-level event records. Such services are operated either privately by individual entity custodians or by third party service providers. Conceptually, they can be considered a particular type of loosely federated distributed database, specified through public interfaces that provide methods to record, retrieve, and modify event information.

Typically, event data are inserted in the repository by different data capture applications operating at the network edge, which would often include legacy systems. Data are consumed by a variety of applications usually located at the network core, for example, enterprise resource management, data mining, and consumer-facing applications. Conceptually, the repository services are thus rather well defined and appear to be straightforward to operate, but in practice they demand particular attention due to their very large size and potential complexity of the derivative relationships between data stored. For example, one feature that merits further consideration, as it is often the source of such complexity, is the so-called containment relationship. This technique is used to create composite entities out of constellations of individual items, which can be subsequently referenced through a single handle. These composite structures are temporally defined and support multiple levels of encapsulation. As a consequence, they may lead to considerably higher complexity of even simple queries as serials within constellations have to be traced and the respective containment relationships expanded in order to produce correct results.

The current norm is for RFID repositories to be implemented as relational databases (RDBMSs). This is of course not unreasonable as RDBMSs have been the principle paradigm in data management since the 1970s. The success of this technology has been partly due to its “one-size-fits-all” approach that is, employing a single code base for all application domains. This has proven to be a very cost-effective solution and has enabled the use of advanced data management techniques across a variety of application areas using the same small number of systems. But when used for RFID service provision, RDBMSs may incur a very high implementation cost without offering a correspondingly high performance advantage.

RFID repositories share many common features with stream-based systems, which combine real-time and persistent data, and data warehousing, where compression and column orientation play a critical role on performance. This has forced relational databases to their limit and still represents a considerable challenge. Recent work provides evidence that specialized software can achieve a 10- to 50-fold improvement in many of these cases [16] and we seek to achieve similar performance in this case. We anticipate that the design and development of domain-specific data store engines for the main services can become a critical element in attempting to lower the barrier of entry to planetary scale RFID for a variety of medium and smaller scale organizations and for individuals. Furthermore, making these implementations open could facilitate their adoption akin to the way Berkeley internet domain name (BIND) has facilitated the adoption of domain name system (DNS) on the internet.

RFID resolution is typically achieved by maintaining a record of the complete sequence of successive custodians of a particular entity and associated metadata, from the time of initial tagging and until its expiration. Data used for such resolution must be relayed by individual repositories which register the fact that information is held for particular entities at specific locations but should not replicate the information itself.

RFID resolution can take one of two modes, one-off and standing queries. One-off queries are executed once at preset time and return results synchronously or asynchronously. They can execute either in direct or relayed style and they are comparatively simple with the main complication the possibility of inefficient or withheld access to data by specific repository operators, which may prevent the system from achieving correctness or predictable response time.

The so-called standing queries are longer running specifications of interest in patterns of application-level events, and depend upon future situation updates from potentially new data sources. In this mode of operation, individual applications subscribe to specific queries and are notified when the conditions specified in the query are met. Typically, these queries relate to the existence of a new custodian or the presence of the entity at a specific location, both of which may imply a change in ownership or a prominent event in the entity lifetime. Complexity in standing queries is due to the involvement of multiple repositories, a potentially large number of subscribing applications to a particular query, and the complex distributed internal structure of the discovery service required for performance reasons.

Standing queries present close similarities to continuous query models of stream processing and distributed event management systems. The execution profile of a standing query often matches the following pattern: event metadata are inserted as a continuous stream and are subsequently cross checked against stored data, for example, access control credentials and policies. When specific criteria have been met, suitable notifications are delivered to all subscribed applications. To carry out these tasks, it is necessary to transform standing queries into an executable query plan, optimize the query plan or generate a set of candidate plans, and map query operations onto the particular network topology. Such queries could express complex spatial, temporal, and semantic relationships and include serial and class level patterns.

This modus operandi implies the need for an expressive language for their specification with rich language features, which at the same time allows for a high performance implementation for stream-based matching. Processors optimized for RFID are not currently available and we also expect significant efficiency gains through the implementation of different distributed event management techniques, for example, multilayer and broker-network architectures.

Section VII.

Future Applications

Enter the future possibilities for RFID that are sure to overwhelm more traditional business models; perhaps what some consider the stuff of science fiction, but tested enough to now be considered science fact [17]. The insurance industry is an excellent example of how technology has been used in innovative ways to introduce premium models that were previously considered impossible to implement. In 2006, IBM and Norwich Union in the United Kingdom teamed up and installed microchips coupled with global position system (GPS) receivers to track and monitor the driving behaviors of about 7000 cars [18]. By measuring the risk based on age, gender, and time of driving, they were able to introduce customized car insurance premiums. If you are a male, under the age of 25, and driving after 11 p.m. on a Friday night, for instance, expect to pay full fees. Adjust your travel behaviors based on certain driving curfews, and expect to pay far less on your premium. It will not be too far out before implantable solutions for humans based on RFID make it possible to monitor real-time blood alcohol levels, heart rates, temperature, and other physiological characteristics—the patents were filed in some cases two decades ago.

Web-services-based applications will form the underbelly of pervasive computing. The building blocks of the web services domain were established when middleware became prominent in the requirement for interoperability. Middleware brought uniformity and standardization, allowed for heterogeneity of various hardware components and operating systems, and provided a set of common services to developers and end users. Today, web services sit in the internet cloud serving multiple clients but with middleware components still very much acting as the enabler. Web services together with web-enabled technologies such as sensor motes will play a pivotal role in the context of ubiquitous computing in combination with RFID technology.

The convergence of sensor capabilities in RFID tags further expands their sphere of utility in applications such as perishable products. Sensor technology is being fused into RFID such that different variables measured by sensors can also be reported by tags instead of just plain IDs. The types of sensing capabilities reported to have been fused into RFID tags include temperature, acceleration, and chemical, among others. RFID-sensor fusion can help us to monitor large scale environmental factors by networking the readers with RFID sensors spread within certain bounds. This would help us to make real-time queries about the area under observation (e.g., bushfire prone zones) and also offer results at a much higher resolution than previously attempted.

Sensor-based tags have also given rise to a new category of tags known as semipassive tags. Semipassive or battery-assisted tags are different from the conventional passive tags, whereby, a battery source is provided in the tag to power the on-board sensors. The tag has other intelligent features such as sleep mode to conserve power. Applications where sensor-based tags have been introduced include tracking fresh cut flowers, monitoring temperature of drugs, monitoring blood and organs for transplant, etc., [19].

The diffusion of RFID and mobile technologies is greatly empowering a number of sectors. Miniaturized readers and tags are being embedded into mobile phones to expand their capabilities, while advanced wireless and mobile phone technologies are also being incorporated into readers. The connectivity of mobile technology to the internet makes it a suitable domain for development of web service components. Real-time-location-based systems consist of a group of sensors or passive or active RFID tags, working in concert to track the position of objects or people of interest in regular intervals. Several techniques have been devised to utilize the capabilities of existing RFID infrastructure in predicting locations of target items in an indoor setup. Real-time location-based operations will constitute a large chunk of RFID operations. The continuous updates provided by RFID systems enable transparency, speedy operation, counterfeit prevention, and staff safety by tracking people in hazardous or sensitive work environments. This capability complements the other utilities of an RFID system in an enterprise, as many organizations have the need of continuously knowing the location of their resources inside a complex indoor setup. Some examples of these are: locating tools inside a big factory floor or locating patients inside a hospital.

Opening office doors simply by showing your hands may have been used to demonstrate the capabilities of RFID in the 1990s but entrepreneurs and some government officials are now thinking outside the box. RFID-based applications have significantly gathered momentum in the medical domain. Consider, for instance, the swallowable sensor device, patented on April 2, 2009 [20], the U.S. health bill which was put forward to Congress in July 2009 containing a national medical device registry based on a possible class II implantable device, life supporting and/or life sustaining in nature [21], and the RFID implant that can detect the H1N1 virus patented in October 2009 [22]. Once upon a time having an implantable could only be imagined for restorative purposes (e.g., heart pacemaker, cochlear implant); now we are looking for new ways in which to improve services. A study carried out by IDTechEx RFID Knowledgebase [23] predicted that the two biggest contributors to demand in RFID in the healthcare sector would be pharmaceutical tagging and asset/patient and patient tracking. With automated patient tracking, many repetitive tasks such as keeping tabs on patient records, their daily drug doses, and their movement about the hospital will be delegated to automated systems. This will also reduce the number of human errors in the tasks. Enter the concept of uberveillance, in its ultimate form an omnipresent electronic surveillance that makes it possible to embed ICT devices in the human body for a variety of applications [24].

This does not mean that we can expect all humans to be walking around with chips implanted in their bodies, well not for the present anyway. Although constantly changing, the current culture probably does not warrant this kind of pervasive monitoring and tracking. But surveys are now showing time and time again that most people do not mind this kind of ubiquitous tracking of nonliving things and animals. If the online and mobile social networking phenomenon is anything to go by, 20 to 30 years from now, RFID embedded technologies might see a full-blown uberveillance society where everyone shares microdetails about themselves and their household with their respective community of interest for the cocreation of social services, particularly pertaining to infrastructure requirements engineering. This kind of web of things and people (WOTAP) scenario will only happen if RFID is embraced within the paradigms of integration, convergence, and coexistence. The future scenario is not about RFID rendering all other auto-ID technologies obsolete, nor is it about a story of migration from one technology to the next. RFID will be about harnessing the power of the technology within a hybrid wireless network context, knowing all too well it is the end-point data collection mechanism, the smallest common denominator of knowledge that can be acquired (the individual unit). Consider the capabilities of RFID with sensor technology, RFID and the wireless Internet, and RFID and global positioning systems. The natural trajectory when one ponders what these new convergences may herald is nothing short of breathtaking.

Section VIII.

Conclusion

But to ground ourselves in the current realities and some of the technical and nontechnical challenges that RFID still presents us with, including with respect to privacy and security issues, legal/regulatory, socioethical and economic/market issues, is to admit to the need for greater coproduction among stakeholders, especially the participation of end users from the outset of service design (i.e., cocreation). RFID is far from perfect, and a greater investment is needed by all sectors to bring about a more robust and economical technology, possibly following a PSS model, that all acknowledge as adhering to legal, ethical, and policy-related standards [25]. Item level tracking, for instance, comes with its own endowed advantages and benefits for some organizations within a retail supply chain context but may not be desirable for other application areas. A level of harmonization needs to be reached between the level of required visibility in a given service and adhering to a consumer's right to informational privacy [26]. Solutions can be devised and built-in to the design of a service to overcome such challenges; they just need to be innovative. If a consumer perceives that the value proposition to them of using a given technology outweighs any costs they may experience, then they are likely to adopt the technology. By including consumers early in the process of cocreation and coproduction of RFID technology, more innovative services are destined to come to fruition. The challenge ahead will be in harnessing planetary scale RFID services using nontraditional business models like those presented in this paper that provide us with an unforeseen level of uberveillance management and decision support.

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Authors

Katina Michael

Centre for Business Services Science, University of Wollongong , Wollongong, Australia

Katina Michael

Katina Michael

Katina Michael (Senior Member, IEEE) received the B.I.T. degree in information technology from the School of Mathematical and Computing Science, University of Technology, Sydney, N.S.W., Australia, in 1996, the Doctor of Philosophy degree in information and communication technology (ICT) from the Faculty of Informatics, University of Wollongong, Wollongong, N.S.W., Australia, in 2003, and the Master of Transnational Crime Prevention degree from the Faculty of Law, University of Wollongong, in 2009. Currently, she is an Associate Professor at the School of Information Systems and Technology, University of Wollongong (2002–2010), and has previously been employed as a Senior Network Engineer at Nortel Networks (1996–2001). She has also worked as a Systems Analyst at Andersen Consulting and OTIS Elevator Company. She has published several edited books, but more recently coauthored a 500 page reference volume: Innovative Automatic Identification and Location Based Services: from Bar Codes to Chip Implants (Hershey, PA: IGI, 2009). She has published over 85 peer-reviewed papers. She researches predominantly in the area of emerging technologies, and has secondary interests in technologies used for national security and their corresponding social implications.

 

George Roussos

Department of Computer Science and Information Systems at Birbeck College, University of London, London, U.K.

George Roussos

George Roussos

George Roussos (Member, IEEE) received the B.S. degree in mathematics from the University of Athens, Athens, Greece, the M.S. degree in numerical analysis and computing from the University of Manchester Institute of Science and Technology, Manchester, U.K., and the Doctor of Philosophy degree from the Imperial College of Science Technology and Medicine, University of London, London, U.K. Before joining Birkbeck College, University of London, as a Lecturer he worked as the Research and Development Manager for a multinational information technology corporation in Athens, Greece, where he was responsible for the strategic development of new IT products in the areas of knowledge management and mobile internet; as an Internet Security Officer for the Ministry of Defense, Athens, Greece, where he designed the Hellenic armed forces internet exchange and domain name systems; and as a Research Fellow for Imperial College, London, U.K., where he conducted research in distributed systems. He is currently investigating the effects of social activity on system architectures, and exploring mechanisms to support navigation and findability. Dr. Roussos is a member of the Association for Computing Machinery (ACM), SIGMOBILE, the IEEE Communications Society, and the IEEE Computer Society.

 

George Q. Huang

Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Hong Kong

George Huang

George Huang

George Q. Huang received the B.Eng. degree in manufacturing automation from Southeast University, Nanjing, China, in 1983 and the Doctor of Philosophy degree in mechanical engineering from Cardiff University, Cardiff, U.K., in 1991. Currently, he is a Professor at the Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Hong Kong. He has been previously employed as Research Fellow and Lecturer in various universities. He has been conducting research projects in intelligent product design and manufacturing in a context of supply chain logistics. He has published over 250 research papers, half of which have appeared in reputable journals in addition to two monographs and two edited reference books. Dr. Huang serves on editorial boards of a number of international journals. He is a Chartered Engineer and a member of the American Society Of Mechanical Engineers (ASME), the Institution of Industrial Engineers (IIE), the Institution of Engineering and Technology (IET), Hong Kong Institution of Engineers (HKIE), and Hong Kong Logistics Association (HKLA).

 

Arunabh Chattopadhyay

Wireless Internet for the Mobile Enterprise Consortium (WINMEC) at the Henry Samueli School of Engineering and Applied Science, University of California Los Angeles , Los Angeles, CA, USA. 

Arunabh Chattopadhyay received the B.S. degree from Jamia Millia Islamia (JMI) University, Delhi, India, in 2005 and the M.S. degree in electrical engineering from the Indian Institute of Technology, Kanpur, India, in 2007. Currently, he is working towards the Ph.D. degree at the Wireless Internet for the Mobile Enterprise Consortium (WINMEC) Center, University of California Los Angeles, Los Angeles. His areas of interests are in RFID and distributed database systems.

Rajit Gadh

Wireless Internet for the Mobile Enterprise Consortium (WINMEC) at the Henry Samueli School of Engineering and Applied Science, University of California Los Angeles, Los Angeles, CA, USA

Rajit Gadh (Member, IEEE) received the B.S. degree from Indian Institute of Technology, Kanpur, India, the M.S. degree from Cornell University, Ithaca, NY, and the Ph.D. degree from Carnegie Mellon University (CMU), Pittsburgh, PA. He is a Professor of Engineering, Director of Wireless Internet for the Mobile Enterprise Consortium (WINMEC) Center, University of California Los Angeles (UCLA-WINMEC), and Director of UCLA Smart Grid Energy Research Center. He has taught as a Visiting Researcher at the University of California Berkeley, has been an Assistant, Associate, and Full Professor at the University of Wisconsin—Madison, and did his sabbatical as a Visiting Researcher at Stanford University, Stanford, CA, for a year. He has lectured and given keynote addresses worldwide. Dr. Gadh has won several awards from the National Science Foundation (CAREER award, Research Initiation Award, NSF-Lucent Industry Ecology Award, GOAL-I award), The Society of Automotive Engineers (Ralph Teetor award), IEEE (second best student-paper, WTS), the American Society Of Mechanical Engineers (Kodak Best Technical Paper award), AT&T (Industrial Ecology Fellow Award), Engineering Education Foundation (Research Initiation Award), William Wong Fellowship award from the University of Hong Kong, and other accolades in his career. He is on the Editorial board of the ACM Computers in Entertainment and the CAD Journal.

B. S. Prabhu

Wireless Internet for the Mobile Enterprise Consortium (WINMEC) at the Henry Samueli School of Engineering and Applied Science, University of California Los Angeles, Los Angeles, CA, USA

B. S. Prahbu received the Doctor of Philosophy degree. Currently, he is a Senior Research Engineer at the Wireless Media Lab and Wireless Internet for Mobile Enterprise Consortium (WINMEC), Henry Samueli School of Engineering, University of California Los Angeles (UCLA). He is currently engaged in research in the areas of adopting wireless technologies (RFID, Wi-Fi, Bluetooth, GPRS, GPS) for enterprise applications. His areas of interest include RFID ecosystem for manufacturing, development of a generic wireless sensor interface, RFID and sensors in healthcare (both in-patient and ambulatory), and semantics-based automated applications. He has been the lead architect of a RFID middleware project, a pioneering effort in developing a comprehensive RFID architecture which supports multiple RFID technologies to work synergistically to provide best-of-breed solutions to many industry verticals. He has over 30 research publications in peer-reviewed journals, conferences, and books.

Peter Chu

Wireless Internet for the Mobile Enterprise Consortium (WINMEC) at the Henry Samueli School of Engineering and Applied Science, University of California Los Angeles, Los Angeles, CA, USA

Peter Chu received the B.S. degree from the National Taiwan University, Tainan, Taiwan, in 1990 and the Doctor of Philosophy degree from the University of Wisconsin—Madison in 2001.

Currently, he is a Senior Researcher at the Henry Samueli School of Engineering and Applied Science, University of California Los Angeles (UCLA). He is a seasoned Research Manager who has supervised and steered multiple industry and academia research projects in the field of smart grid, RFID technologies, mobile communication (WiFi, Bluetooth, Zigbee, GPRS, 3G), media entertainment (DRM, mobile music, video, imaging, gaming, etc.), 3-D/2-D visualization of scientific data (astronomical, power system, industry process data, etc.), and computer-aided design. He has over ten years of experience in research and development of software architectures, frameworks, and solutions, and has delivered multiple project solutions and software packages to the industry globally. He leads active research collaborative projects with companies such as Siemems, Qualcomm, Motorola, HP, Raytheon, Maersk, and Northrop Grumman. He holds two patents and has published more than 30 papers in professional engineering and scientific journals, books, and conference proceedings. He had published papers focused on RFID research and more recently was invited to author a book chapter on “Mobile, wireless and sensor networks: Technology, applications and future directions” (Wiley). He has been invited to Korea and Taiwan to speak on the current status of RFID and sensor network applications. Dr. Chu received the Best Paper Award in Excellence for Applied Research at the 2004 Wireless Telecommunications Symposium.

Citation:  Katina Michael; George Roussos; George Q. Huang; Arunabh Chattopadhyay; Rajit Gadh; B. S. Prabhu; Peter Chu, "Planetary-Scale RFID Services in an Age of Uberveillance", Proceedings of the IEEE, Year: 2010, Volume: 98, Issue: 9, pp. 1663 - 1671, DOI: 10.1109/JPROC.2010.2050850

IEEE Keywords: Radiofrequency identification, Internet, Radio frequency, Technological innovation, Decision making,Technology management, Business process re-engineering, Packaging, Supply chains, Australia

INSPEC: surveillance, business process re-engineering, decision-making, Internet, radiofrequency identification, strategic planning, vision, RFID services, uberveillance, radiofrequency identification, barcode tagging, nonline of sight identification, decision making, strategic management, reengineered business process

Author Keywords: vision, Innovation, radio-frequency identification (RFID), service

RFID-Enabled Inventory Control Optimization

Abstract

This study examines the impact of radio-frequency identification (RFID) technology on the inventory control practices of a small-to-medium retailer using a proof of concept (PoC) approach. The exploratory study was conducted using a single case study of a hardware retailer stocking 5000 product lines provided by 110 active suppliers. To analyze the present mode of operation, procedural documents, semi-structured interviews and a participant observation was conducted. The basis for the proof of concept was a future mode of operation using a quasi-experimental design. Results indicate that in a small-to-medium retail environment, RFID technology could act as a loss prevention mechanism, an enabler for locating misplaced stock, and make a significant contribution to the overall improvement of the delivery process.

Section I

Introduction

Radio-frequency identification (RFID), which is defined as a wireless automatic identification and data capture (AIDC) technology [1], is increasingly considered by many scholars as the “missing link” in the supply chain management [2], [3]. For example, the technology could allow the identification of any tagged item in real-time in a given supply chain with minimum human intervention [4] [5] [6] [7]. When integrating into a firm's business processes [5], the RFID technology allows “any tagged entity to become a mobile, intelligent, communicating component of the organization's overall information infrastructure” (p. 88), thus improving supply chain information flow [8], [9] and supply chain efficiency [3]. A basic RFID system is composed of a tag containing a microprocessor, a reader and its antennas, and a computer equipped with a middleware program, in which business rules are configured to automate some decisions [10]. Despite the high potential of the technology as an enabler of the supply chain transformation, the current adoption rate is still fairly low mainly because many technological and business questions are still to be answered. In order to reduce this knowledge gap, this study draws on the current RFID agenda [5] to answer the following questions: What is the impact of RFID on loss prevention? What is the impact of RFID technology on the delivery process in a small-to-medium retailer store? How can RFID help to locate misplaced stock? How may the RFID reading rate be influenced by the physical characteristics of items? More precisely, the objective of this paper is to document the results of a proof of concept (PoC) that examines the impact of RFID on inventory control. The PoC consists of RFID simulations and re-engineered business processes that demonstrate whether the RFID technology can operate within the small-to-medium retail industry and illustrates the anticipated impact of RFID on business operations.

Section 2 presents related works. In section 3, the methodology used in this study, including all simulation of RFID enabled scenarios are presented. Finally, section 4 presents the discussion and conclusion.

Section II

Background and Context of the Study

The current study uses the proof of concept approach to assess the feasibility of RFID technology in a small-to-medium retail store. Most early studies on the feasibility of RFID technology have mostly been conducted using this approach or pilots projects (e.g. [11] [12] [13]). A proof of concept is used to illustrate whether a proposed system or application is likely to operate or function as expected [14]. Using, data from “Wal-Mart RFID-enabled stores” over a period of 29 weeks, the conclusion was reached that RFID-enabled stores were 63% more efficient in replenishing out-of-stocks than stores without RFID, thus leading to a reduction of out-of-stocks by 16% over that 29 week period [12]. In a more recent study, [15] examined data collected over a period of 23 weeks from eight test stores equipped with a new “RFID-based perpetual inventory adjustment tool” and a corresponding set of eight control stores (without RFID), and found that “RFID is making a difference. Understated perpetual inventory inaccuracy declined by about 13% in the test stores, relative to control stores, with no additional labour. Furthermore, manual adjustments declined in the test stores” (p. 55). Finally, the outcome of a study by [11], who used a PoC in a laboratory setting, was that process optimization can be achieved when the RFID technology is integrated in intra- and inter-organizational information systems applications. All these studies have been largely conducted in large firms, but very few of them are concerned with RFID adoption within small-to-medium firms.

Section III

Methodology

The research study documented in this paper involves a case examining a single small-to-medium retailer. A case study method has been employed as it is ideal for investigating contemporary events and is able to take into account a wide variety of evidence [16]. For this study data have been gathered through the collection of procedural documents, semistructured interviews and a participant observation. This paper presents the data collected from the semistructured interviews conducted with employees of the organization, as well as revealing the business process flows (through flowcharts) of the organization in order to determine whether RFID is a feasible automated data capture technology for small-to-medium retailers. An observational study was also conducted over a period of two weeks in 2007. A daily diary was kept by the participant and this data was analyzed together with full-length transcripts. A single small-to-medium hardware retailer is focused on in this paper in order to analyze and present inventory control practices.

3.1. Research design

As the main objective of the overall study is to improve our understanding of RFID impacts in the context of a small-to-medium retailer, the research design is clearly an exploratory research initiative. A case study method has been conducted as it is ideal for investigating contemporary events and is able to take into account a wide variety of evidence [16].

3.2. Research sites

The organization examined in this study is located on the south coast of New South Wales, approximately 128 kilometers from the centre of Sydney. The company employs ten staff including casuals and is classified as a small-to-medium hardware retailer. The current proprietors have operated the business since 2003. The premises of the retailer measures approximately 2000 square meters, with about 550 square meters of this area making up the internal shop floor. The shop floor is composed of four sheds, each with independent access. There are two small internal offices, one designed to deal with customer purchasing and point-of-sale (POS) transactions while the other is used by managers and bookkeepers for ordering, accounting and other administrative practices. The external perimeter of the organization is surrounded by an eight foot high barbed wire fence.

The retailer currently possesses between 400,000 worth of inventory which is kept on the premises. The inventory held by the organization is estimated to consist of 5000 product lines, which are provided by 110 active suppliers. Products and other inventory are stored or displayed before purchase inside the store or outside within the confines of the premises. Items and stock within the store are positioned based on the type of product as well as the supplier. Most items kept inside the store are also shelved on racks that measure 2.1m in height. The shop floor is divided into five separate areas that include general hardware, timber, gardening, cement and building supplies. Products stored outside are generally unaffected by environmental and weather conditions such as landscaping supplies, cement blocks, treated pine sleepers and sheets of steel reinforcing. Stock is usually delivered to the store packaged at pallet, crate, carton or item level.

The retailer provides many services to its customers primarily through the selling of hardware and other building related supplies. The organization provides a delivery service to its customers if they purchase products that are too large to be transported or products that they wish to be delivered on a certain day. Products are delivered to customers in one of the three vehicles the organization owns. A flat top truck is used for steel deliveries, a tip truck is used for landscaping supplies and a utility vehicle is used for general deliveries. The organization also has a front-end loader that it uses to load landscaping supplies on vehicles. The organization offers accounts for customers that purchase products frequently.

The retailer currently has limited Information Technology (IT) infrastructure and does not utilize a server, as the current operations of the business do not require a large volume storage device. The organization utilizes two desktop computers in their administration office that are primarily used to manage customer accounts through the software package MYOB Premier Version 10. At the end of each month, the organization uses the MYOB software to generate invoices which are sent out to account holding customers, requesting that they pay for the items they have purchased. The organization has another desktop computer which is used by employees to search a program that acts as an index of paint colors provided by different paint suppliers. All computers within the organization are able to access the Internet.

3.3. Data collection

For this study data have been gathered through the collection of procedural documents, semi-structured interviews and a participant observation. This paper presents the data collected from the semi-structured interviews conducted with employees of the organization, as well as revealing the business process flows (through flowcharts) of the organization in order to determine whether RFID is a feasible automated data capture technology for small-to-medium retailers. An observational study was also conducted over a period of two weeks in 2007. A daily diary was kept by the participant and this data was analyzed together with full-length transcripts. A single small-to-medium hardware retailer is focused on in this paper in order to analyze and present inventory control practices.

3.3.1. Interviews-interviewees

Insights into the current inventory control practices at the small-to-medium retailer are based on semi-structured interviews carried out on four employees of the organization. The roles and duties of these employees are documented in Table 1.

Table 1. EMPLOYEE ROLES AND DUTIES

Table 1. EMPLOYEE ROLES AND DUTIES

As can be seen from Table 1, employees of the organization have minimal job specialization, which reinforces [17] observations of small businesses. The proprietor/manager and proprietor/part-time manager are responsible for the overall running of the business whereas the store manager is specifically responsible for shop maintenance and management. The delivery truck driver is primarily responsible for making outbound deliveries. The store manager and delivery truck driver are answerable to both of the proprietor/managers.

3.3.2. Interview questions and the inventory cycle

Inventory control as defined by [18] involves “coordinating the purchasing, manufacturing and distribution functions to meet marketing needs”. Coordinating these functions requires many discrete activities including ordering stock or materials and shelving or putting it in the correct position so that customers have access to it. In this section, the inventory control process has been broken down so that the inventory practices of the small-to-medium retailer can be explored in greater detail. Figure 1 illustrates the inventory cycle. It should be noted that the inventory flow cycle is focused on the flow of raw materials to their finished state, while this inventory control cycle has been developed based on a retailer that sells finished goods (p. 21) [19].

Figure 1. The Inventory Cycle

Figure 1. The Inventory Cycle

 

As can be seen in Figure 1, customer demand triggers the ordering or re-ordering of stock. Stock then arrives at the retailer, where it is checked and sorted before being shelved in the correct position. Stock is then purchased by a customer and delivered by the retailer if necessary.

The inventory cycle demonstrated in Figure 1 was considered when developing questions for the semistructured interviews. The majority of the questions asked related to the six different processes that were identified in the inventory control cycle. There were a total of twenty-eight questions included in the original semi-structured interview protocol but additional probing sub-questions were asked where the respondent was able to expand their response due to their knowledge of operations. The questions covered the background of the company case, the role of the employee in the organization, questions related to the current mode of operation to gauge the current inventory control practices and set-up, and more speculative questions regarding the transition of the organization from a manual-based system to barcode and/or RFID. For instance the proprietor was asked:

Can you describe the process that you use to check that orders have been delivered with the correct contents?

  1. Do you keep any sort of record of how much stock you carry, either in physical or electronic form?
  2. How would you describe the theft prevention measures in your workplace?
  3. What triggers your organization to reorder or order stock?
  4. Are there any issues affecting your adoption of automated data capture technology?
  5. Do you think that RFID could be used within your business to improve inventory control?

The interview transcripts were analyzed using a qualitative approach and the findings were presented using a modular narrative style based on the steps in the inventory control cycle. The following sections summarize the findings of the semi-structured interviews.

3.3.3. Participant observation

A participant observation requires the researcher to become a direct participant in the social process being studied by becoming a member of an organization. The participant observation was carried out over a two week period with the intention of recording observations relating to the inventory control practices used within the small-to-medium retailer. This study utilizes an overt participant observation as members of the organization were already aware of the researcher's presence due to interviews being carried out at an earlier date. The overt approach was perceived to have had minimal influence on the behavior of the organization's members as they were informed that the purpose of the study was to examine inventory control practices of the retailer, not their personal behaviors. During the participant observation annotations and issues were documented through the use of a diary. Field notes were recorded during each day, and were formalized at the end of the day.

3.3.4. Procedural documentation

The small-to- medium retailer's procedural documents were used to complement the semi-structured interviews and participant observation. Documentary secondary data, such as an organization's communications, notes, and other policy and procedural documents have been examined.

Table 2. THE FOUR RFID-ENABLED SCENARIOS

Table 2. THE FOUR RFID-ENABLED SCENARIOS

Official documents, like procedural documents can be treated as unproblematic statements of how things are or were (p. 104) [20]. The procedural documents have been used as evidence to support the determination of the inventory control practices of the small-to-medium retailer. The interviews conducted, participant observation and the collection of procedural documents were combined to develop the business process flows of the organization. A narrative presentation is used to bring together participant observational data and interviewee responses.

3.4. Simulation of RFID-enabled scenarios

Eight simulations have been developed which are aimed at examining different aspects of inventory control and known RFID issues that have been documented in the literature. However, within the scope of this paper, we'll only present and discuss four RFID-enabled scenarios (Table 2): (i) RFID-enabled loss prevention, (ii) RFID-enabled delivery portal, (iii) RFID tag environment simulation and (iv) RFID-enabled locating misplaced stock.

The results of the simulations are documented qualitatively, discussing read rates as well as any other technical issues experienced in the following section.

3.4.1. RFID enabled-loss prevention simulation-method

Exhibit 1. An RFID armed entry/exit

Exhibit 1. An RFID armed entry/exit

A fixed RFID reader with one and then two antennas will be placed above or around the entry/exit of the store with the aim of identifying any tagged item or product that passes through the entry/exit. Items that have been tagged with RFID labels will be moved past the reader in order to determine if the tag is interrogated and identified successfully. The tagged product will be concealed by the participant carrying it so the effect of this can be gauged. Multiple items will also be carried out by the participant to test if the reader identifies multiple tagged items.

In the initial part of this simulation a fixed reader was set up with one antenna which was positioned above the entry/exit, 2.1 metres off the ground.

The antenna was orientated at a 45 degree angle, sloping inwards towards the interior of the store. The participant walked towards the entry/exit with an RFID tagged item held 1.5 meters off the ground. Five different items of stock were used in this simulation, each being RFID tagged in a different configuration. Two of the items had tags wrapped around them so the tag was overlapping itself, one item had its tag wrapped around it but was not overlapping, another item was labelled with a tag that was folded in half and the final item had a tag applied to it in a general flat configuration. The tagged items were passed through the RFID monitored entry/exit individually in plain view of the reader, then concealed under the jumper of the participant and finally all items were passed through the entry/exit simultaneously in a plastic basket.

The results revealed that items which had RFID tags wrapped around them and were overlapping could not be detected by the reader when passed through the entry/exit. It was also found that concealing items had an effect on whether they would read or not with a single concealed product being identified compared to the three tagged items which were identified when they were passed through the entry/exit in plain sight. Table 3 summarises the results of the simulation = read successfully, = not able to be read).

Figure 2. Configuration of the loss prevention portal

Figure 2. Configuration of the loss prevention portal

Once this simulation was carried out another antenna was attached to the fixed reader and a small portal was created to see whether it was more accurate to identify tagged products from side-on than from above. Figure 2 illustrates the configuration of the portal.

The participant once again walked through the doorway with items held 1.5 metres from the ground. The items that had RFID tags wrapped around so they overlapped were still not able to be read in this variation of the simulation, but three tagged items that had been concealed were identified compared to the one item identified in the previous variation. The range of the antennas was also tested with items being passed through the portal held above (1.8 metres from the ground) and below them (30 centimetres from the ground). The three tagged items that were identified initially were also read when they were passed above and below the antennas at the entry/exit to the store.

Table 3. LOSS PREVENTION SIMULATION RESULTS

Table 3. LOSS PREVENTION SIMULATION RESULTS

The results of this simulation revealed that RFID experienced poor to average read rates when implemented for loss prevention. It is perceived that if RFID was applied in the small-to-medium retailer for loss prevention purposes, theft may be reduced but the reliability of the technology could not be guaranteed; unless orientation issues are resolved and read rates are improved.

 

3.4.2. RFID-enabled delivery portal simulation-method

This simulation involves RFID tagged items being placed on a pallet then onto a delivery vehicle at the loading dock of the hardware store. A portal will be created at the loading dock, equipped with two antennas originating from an RFID reader which will be used to identify the products and stock that are moving in and out of the premises.

Exhibit 2. Tagged RFID products on pallet (top); the flat top truck being reversed into the loading dock (middle); the utility vehicle in the RFID portal (bottom)

Exhibit 2. Tagged RFID products on pallet (top); the flat top truck being reversed into the loading dock (middle); the utility vehicle in the RFID portal (bottom)

To test the RFID delivery portal, a flat top truck is reversed into the loading bay of the organisation. Seven products that are commonly delivered to or by the organisation are RFID tagged, including a wooden pallet which the items are placed on. The truck is reversed in and out of the loading bay on five occasions and the read rates are recorded each time.

Three of the tagged items including a piece of treated pine, a roll of foam joint and the pallet are successfully interrogated on each of the five times the truck is reversed.

A tagged piece of treated pine is also identified on the first and the last time the vehicle is backed into the loading dock.

The other three items on the truck are unable to be identified at all, most likely due to the back tray of the truck, sitting higher than the antenna (all the RFID tagged products on the truck were situated above the antenna).

Another vehicle, a utility that is used by the organisation to deliver products is then employed in the simulation with the same products and pallet being placed in the vehicle's tray. The tray of this vehicle is at a more suitable height for the RFID antennas, as it sits 80 centimetres off the ground. Exhibit 2 demonstrates the RFID portal with the utility vehicle reversed into the loading dock.

The read rates experienced when products were placed on the utility were far superior to those experienced when the flat top truck was employed, with read rates ranging from 71% to 100% of all items and products tagged. Table 4 reveals the read rates of the tagged items and products on the utility vehicle (= read successfully, = not able to be read). This simulation illustrated that if an RFID portal was constructed appropriately by considering the conditions and vehicle used by the small-to-medium retailer it could effectively monitor stock being delivered to the business and stock being delivered to customers of the business.

Table 4. READ RATES OF RFID TAGGED ITEMS ON THE UTILITY VEHICLE

Table 4. READ RATES OF RFID TAGGED ITEMS ON THE UTILITY VEHICLE

3.4.3. RFID tag environment simulation-method

This simulation involves trying to identify RFID tagged products of various compositions using the mobile RFID reader. Items composed of wood, metal, plastic, stone and those containing liquids were tagged and attempted to be read. Items left outside and exposed to the elements were also tagged and attempted to be read, along with other items that are stored in dirty manufacturing type environments.

Ten products composed of varying materials were RFID tagged and attempted to be read by the mobile RFID reader. The compositions of the ten items tagged varied greatly with some of them being made or packaged from metal, plastic, cardboard, paper, wood and stone. Some of the items such as the container of nails and the bag of cement were also dusty and dirty. The mobile RFID reader was used to make six attempts to read data from all of the tagged products individually. Table 5 reveals the results of the six attempts for each product (= read successfully, = not able to be read).

Exhibit 3. An RFID tagged treated pine sleeper (top); An RFID tagged pipe (bottom)

Exhibit 3. An RFID tagged treated pine sleeper (top); An RFID tagged pipe (bottom)

As can be seen in Table 5 all items could be read by the mobile reader, but objects made of metal took around 5 or 6 attempts to be read successfully. It should also be noted that dirty and dusty products were interrogated successfully by the reader on every attempt.

In order to further test the effect the environment had on the readability of tags, four items that were regularly kept outside were RFID tagged. These items included a treated pine sleeper, a stone paver, a bale of sugar cane mulch wrapped in plastic and a 6 metre length galvanised pipe (Exhibit 3).

Table 5. READ RATES OF THE ENVIRONMENT SIMULATION

Table 5. READ RATES OF THE ENVIRONMENT SIMULATION

After being tagged with RFID labels these items were left outside for five nights. It rained quite heavily over the time the items were left outside and upon examining the products and RFID tags after the fifth night had elapsed, they were saturated.

This however did not have any effect on the readability of tags, with all items being successfully identified in all six of the scans except for the metal item (the 6 metre length of galvanised pipe) which was only interrogated successfully on the sixth attempt.

To compare the robustness of RFID tags and barcodes, a cardboard box with a barcode imprinted on it in ink was also left outside over the same period as the RFID tagged items. Like the RFID tags and products the cardboard box was saturated after the fifth night outside. The barcode on the box was able to be scanned successfully, but when the researcher applied some friction to the barcode it was damaged. Once the barcode was damaged it could not be identified by the barcode reader. Unlike the barcode the RFID tags were not affected or damaged by friction in this simulation.

This simulation revealed that the readability of RFID tags was not affected when applied to products of varying compositions, except for products composed of metal which resulted in these products only being identified in about one out of six attempts. It was also revealed that RFID tags were able to function after being stored outdoors and exposed to the elements over five nights. To further test the robustness of RFID tags it is recommended that they are exposed to the same environmental conditions for longer periods of time in a future study.

3.4.4. RFID-enabled- locating misplaced stock simulation-method

An RFID tagged product will be positioned so that it can be read by an antenna attached to a fixed RFID reader. Once data have been read from the tagged item it will then be moved around the shop to another location so it is within range of another antenna. The results of this simulation will focus on the ‘tag reads’ at each of the antennas. After one tagged item has been tested the read rates of multiple items will be observed.

A fixed RFID reader was set up with two antennas situated 10 metres apart. RFID tagged items were initially positioned in front of an antenna then put on a trolley and moved outside the range of the antenna and into the range of a second antenna to simulate stock being misplaced within the retailer. Exhibit 4 shows RFID tagged products that have been moved past an antenna on a trolley.

Exhibit 4. RFID tagged cartons of nails within the read range of an antenna

Exhibit 4. RFID tagged cartons of nails within the read range of an antenna

A plastic 5 kilogram carton of galvanised bullet head nails was RFID tagged and moved from the read range of the first antenna to within the read range of the second antenna which resulted in it being detected by both antennas. Once a single RFID tagged carton was tested more were introduced to further examine the accuracy of the antennas. Table 6 illustrates the results of this simulation. It should be noted that in the table, tags which were identified by both antennas (at the first antenna prior to being ‘misplaced’ and or the second antenna after being ‘misplaced’) were recorded as being read successfully (✓=read successfully,= not able to be read).

Table 6. PRODUCTS IDENTIFIED IN THE LOCATING MISPLACED STOCK SIMULATION

Table 6. PRODUCTS IDENTIFIED IN THE LOCATING MISPLACED STOCK SIMULATION

The results revealed read rates ranging from 67% to 100% for the five tests conducted in this simulation. When products were placed on the trolley and transported between antennas they were placed in a random configuration which meant that the RFID tags applied to them were not presented to the reader in the same arrangement for each of the tagged cartons of nails.

It was noted that tagged cartons that were not detected when moved between antennas, had tags orientated perpendicular to them or had tags that were applied to the opposite side of products. Figure 3 illustrates where RFID tags were applied on products that were not identified by the antennas.

Figure 3. The position of RFID tags that were not identified

Figure 3. The position of RFID tags that were not identified

Apart from the orientation issues that were encountered, this simulation illustrated that RFID could be used within the small-to-medium retailer to monitor the positioning of products within the store. If RFID was employed in the store and appropriate backend software was developed it is highly likely that misplaced items that had been tagged within the store could be registered on the system, and found thereafter.

Section IV

Discussion and Conclusion

The simulations revealed that items with overlapping RFID tags wrapped around them could not be detected by the reader when they passed through the entry/exit. It was also found that concealing items had an effect on whether they would read or not with a single concealed product being identified, as compared to the three tagged items which were identified when passing through the entry/exit in plain sight. Moreover, the results showed that RFID experienced poor to average read rates when implemented for loss prevention. It is perceived that if RFID was applied in the small-to-medium retailer for loss prevention purposes, theft may be reduced but the reliability of the technology could not be guaranteed, unless orientation issues were resolved and the read rates improved. Also, if an RFID portal were constructed appropriately, taking into account the conditions and the vehicle used by the small-to-medium retailer, it could effectively monitor the stock being delivered to the business and the one delivered to the customers of the business. In addition, the study revealed that the readability of RFID tags was not affected when applied to products of varying compositions, except for metal products - which were identified only once on six attempts. Moreover, the RFID tags were able to function after being stored outdoors and exposed to the elements over five nights. These results provide strong support to previous studies on RFID technology [11], [12] and highlight the fact that RFID technology is mostly product driven, and therefore, the best performance of the system heavily depends on the type of product, the context of implementation, the level of tagging, etc.

Consequently, a scenario building, validation and demonstration of RFID-enabled process optimization is highly recommended prior to any large RFID technology deployment [13]. To our knowledge, this study is among the first studies to illustrate that RFID technology could be used within a small-to-medium retailer in real-life settings to monitor the positioning of products within the store, to help small-to-medium retailer prevent in-store stock losses, enhance delivery process and improve the process of locating misplaced stock within the store. Nevertheless, these findings are consistent with results of prior research by [15] at Wal-Mart stores, which are mainly large stores. Despite these encouraging results, further tests on the robustness of RFID tags should be conducted when they are exposed to the same environmental conditions for longer periods of time. Moreover, given that the more recent RFID tags have a tag reading accuracy of almost 100%, their use is highly recommended [21]. The study was conducted in a single store of a small-to-medium retailer situated almost at the last node of the retail supply chain, and therefore was not able to capture the network effects of RFID technology.

Therefore, further works need to be done to assess the impact of RFID technology at the supply chain level in a real-life setting and to develop different models of cost sharing between stakeholders involved in RFID-enabled projects.

References

1. S. Fosso Wamba, L. A. Lefebvre, Y. Bendavid, and É. Lefebvre, "Exploring the impact of RFID technology and the EPC network on mobile B2B eCommerce: a case study in the retail industry," International Journal of Production Economics (112:2), 2008, 614-629.

2. R. Roman and J. Donald, "Impact of RFID technology on supply chain management systems," in 19th Annual Conference of the National Advisory Committee on Computing Qualifications (NACCQ 2006) Wellington, New Zealand, 2006.

3. C. Loebbecke, J. Palmer, and C. Huyskens, "RFID's potential in the fashion industry: a case analysis," in 19th Bled eConference, eValues Bled, Slovenia, 2006.

4. C. Poirier and D. McCollum, RFID Strategic Implementation and ROI: a Practical Roadmap to Success. Florida: J. ROSS Publishing, 2006.

5. J. Curtin, R. J. Kauffman, and F. J. Riggins, "Making the most out of RFID technology: a research agenda for the study of the adoption, usage and impact of RFID," Information Technology and Management (8:2), 2007, 87-110.

6. N. Huber and K. Michael, "Minimizing product shrinkage across the supply chain using radio frequency identification: A case study on a major Australian retailer," in IEEE Computer Society of the Seventh International Conference on Mobile Business Toronto, Canada, 2007.

7. B. D. Renegar and K. Michael, "The RFID value proposition," in CollECTeR Iberoamérica Madrid, Spain, 2008.

8. F. J. Riggins and K. T. Slaughter, "The role of collective mental models in IOS adoption: opening the black box of rationality in RFID deployment," in Proceedings of the 39th Hawaii International Conference on System Sciences Hawaii, 2006.

9. S. Fosso Wamba and H. Boeck, "Enhancing information flow in a retail supply chain using RFID and the EPC network: a proof-of-concept approach," Journal of Theoretical and Applied Electronic Commerce Research (3:1), 2008, 92-105.

10. Z. Asif and M. Mandviwalla, "Integrating the supply chain with RFID: a technical and business analysis," Communications of the Association for Information Systems (15), 2005, 393-427.

11. Y. Bendavid, S. Fosso Wamba, and L. A. Lefebvre, "Proof of concept of an RFID-enabled supply chain in a B2B e-commerce environment," in The Eighth International Conference on Electronic Commerce (ICEC) Fredericton, New Brunswick, Canada, 2006, 564-568.

12. B. C. Hardgrave, M. Waller, and R. Miller, " Does RFID reduce out of stocks? a preliminary analysis," 2005.

13. S. Fosso Wamba, E. Lefebvre, Y. Bendavid, and L. A. Lefebvre, From automatic identification and data capture (AIDC) to "smart business process": a proof of concept integrating RFID: CRC Press, Taylor & Francis Group, 2008.

14. W. E. Solutions, "Appendix A: Glossary," 1996.

15. B. C. Hardgrave, J. Aloysius, and S. Goyal, "Does RFID improve inventory accuracy? a preliminary analysis," International Journal of RF Technologies: Research and Applications (11:1), 2009, 44-56.

16. R. K. Yin, Case Study Research: Design and Methods. Newbury Park, CA: Sage, 1994.

17. J. Diamond and G. Pintel, Retailing. Upper Saddle River: Prentice Hall, 1996.

18. T. Wild, Best Practice in Inventory Management. New York: John Wiley & Sons, 1997.

19. R. Tersine, Principles of Inventory and Material Management. Upper Saddle River: Prentice Hall, 1998.

20. P. Knight, Small-Scale Research. London: Sage, 2002.

21. M. H. M. News, "UHF Gen 2 RFID delivers 100% read accuracy for item tagging," 2009.

IEEE Keywords: Australia, Business process re-engineering, Hardware, Humans, Inventory control, Radio frequency, Radiofrequency identification, Supply chain management, Supply chains, Testing

INSPEC: optimisation, radiofrequency identification, retail data processing, small-to-medium enterprises, stock control, RFID-enabled inventory control optimization, delivery process, hardware retailer, participant observation, procedural documents, proof of concept approach, quasi experimental design, radio-frequency identification technology, semi structured interviews, small-to-medium retailer

Citation: Dane Hamilton, Katina Michael, Samuel Wamba, 2010, "RFID-Enabled Inventory Control Optimization: A Proof of Concept in a Small-to-Medium Retailer", 2010 43rd Hawaii International Conference on System Sciences (HICSS), Date of Conference: 5-8 Jan. 2010, DOI: 10.1109/HICSS.2010.473

How RFID can Minimize Product Shrinkage in the Supply Chain

Vendor Perceptions of How RFID can Minimize Product Shrinkage in the Retail Supply Chain

Abstract:

The objective of this paper is to investigate product shrinkage in the retail supply chain, and to consider how radio frequency identification (RFID) could act as a partial solution toward a retailer's loss prevention strategy. The research uses semi-structured interviews to collect data, and a qualitative content analysis to present the results. Given that the number of RFID deployments in the retail supply chain is limited, RFID vendors, resellers, and associations are instead used to gather the current value propositions. Representatives from nine Australian RFID vendors and associations were interviewed in August and September of 2006. The results indicate that RFID can be used to minimize losses in the supply chain significantly and particularly address product authentication issues. For RFID to be adopted as a loss prevention mechanism, however, organizations must have some visibility of what constitutes product shrinkage in their retail supply chain, and the resultant monetary losses ensuing. All too often, return on investment (ROI) calculations on the adoption of RFID in retail, is calculated only on known sources of product shrinkage, while unknown sources are unaccounted.

SECTION I. Introduction

This paper will determine the perceptions of RFID vendors and associations for the potential of RFID to minimize product shrinkage across the retail supply chain. Today, RFID is used for automatic toll collection on motor highways, tracking medicine vials in the pharmaceutical industry and accurately sorting luggage at international airports. However, the only application of anti-theft technology in major Australian retailers is Electronic Article Surveillance (EAS). Beyond the basic features of EAS, newer Generation-2 (Gen-2) RFID technologies facilitate the accurate tracking of goods across the supply chain giving the retailer unsurpassed ‘visibility’ of stock. Managing inventory using RFID offers a number of benefits that existing EAS and legacy barcode systems cannot achieve. Throughout this paper, employees from eleven different organizations offer their ideas and perceptions on various issues regarding RFID and product shrinkage. Real world examples are given on the application of RFID in industry to provide a grounded understanding for which lessons can be learned for the future adoption of the technology. An important question to be answered in this paper is; does RFID hold the potential to minimize product shrinkage across the retail supply chain?

SECTION II. Background of RFID Vendors and Associations

The unit of analysis for this part of the study is RFID Vendors and Associations. A total of nine organizations formed this group, each of which was represented by an individual employee. RFID vendors included technology providers, manufacturers, system integrators and resellers of hardware and software, and the associations group included an RFID association and an RFID standards body. Employees selected for the study covered a broad range of expertise in the field of RFID. Employees involved in the study primarily included staff with managerial positions. However, technical staff, sales staff and consultants also took part in the study.

SECTION III. Methodology

The research was conducted using semi-structured interviews with RFID vendors in the Australian market. Ten different vendors and Associations were interviewed.

A. Interviewees

  1. RFID Vendor 1 Business Development Manager
  2. RFID Vendor 2 Systems Engineer
  3. RFID Vendor 3 Managing Director
  4. RFID Vendor 4 VP Marketing & Business Development
  5. RFID Vendor 5 Managing Director
  6. RFID Vendor 6 Managing Director
  7. RFID Vendor 7 National Sales Manager
  8. RFID Association
  9. RFID Consultant
  10. RFID Standards Standards Development Coordinator

B. Questions

  • Determine the interviewee's job title and their role and responsibilities

  • Gain an understanding of their experience in their given industry

  • Gain an understanding of their experience with RFID technology

  • Identify the contributing factors to product shrinkage in retail

  • Identify items that constitute product shrinkage

  • Identify areas where product shrinkage occurs in the supply chain

  • Specify where product shrinkage occurs in the supply chain

  • Identify characteristics of the organization's customer-base

  • Discover the main drivers to adopt an RFID system

  • Discover the benefits of RFID as part of a retail supply chain

  • Discover the barriers to RFID adoption in the Australian retail industry

  • Investigate the possibility for RFID to minimize product shrinkage

  • Determine the advantages that Gen-2 RFID systems have over the well-established barcode (legacy systems) perceived by the retailer

  • Identify standards used by the organization

  • Ascertain the organization's view on source-tagging from the supplier

  • Learn how RFID can be used with additional technologies

  • Discover other perceived benefits of RFID besides minimizing product shrinkage

SECTION IV. RFID Vendor Perceptions of Product Shrinkage

loss prevention.jpg

When defining product shrinkage RFID Vendor (1) explained that it varies between industries, but generally it includes; lost, stolen (theft) and damaged goods. When asked about product shrinkage a typical response included these three sources. RFID Vendor (4) emphasized that “theft is the predominant contributor to product shrinkage.” It was also interesting to discover that some vendors were unaware of all the sources that contribute to product shrinkage. This suggests the possibility that vendors are oblivious to the problems encountered by retailers; organizations which could represent a large portion of their customer base.

Nonetheless, the Systems Engineer (RFID Vendor 2) was well informed on sources that contribute to product shrinkage, as he had previously worked in the retail industry. He provided a detailed understanding of the contributing sources to product shrinkage including:

theft, damaged goods, overdue items, past due date items. Since I got into IT, I have been doing a lot in the supply chain, so there is obviously damage within transit, misrouted or otherwise lost goods throughout the supply chain, incorrect numbers shipped, over shipped, under stocked, all that kind of stuff constitutes product shrinkage (RFID Vendor 2).

When the Managing Director (RFID Vendor 3) was asked what product shrinkage was he simply replied “[a]nything that represents a loss of a physical asset.” A physical asset in the retail industry generally covers consumer-based products and the reusable pallets and containers which carry them. Physical assets can be unaccounted for at any point across the supply chain. RFID Vendor (3) further explained that main contributors to product shrinkage have not been accurately determined:

I don't know and I don't believe anybody knows. I tried to get figures out of the New South Wales Police on fraud, they didn't know; the New South Wales Retailers Association, they didn't know… the real issue is there hasn't really been a way to measure it. And one of the things that RFID can do is actually assist you in measuring it.

The most significant part of this quote resides in the fact that there is no way to measure product shrinkage. RFID Vendor (3) may have recognized RFID as a technology which can be used to accurately measure the contributing sources of product shrinkage, yet in what ways can RFID minimize product shrinkage?

SECTION V. Minimizing Product Shrinkage Using RFID

Figure 1 RFID as a means to minimize product shrinkage

RFID technologies were considered by most RFID vendors and associations as a solution to product shrinkage in the retail industry. As proposed by RFID Vendor (2) the main drivers for the adoption of RFID in the retail industry is the technologies potential to minimize shrinkage and to improve supply chain efficiencies. Not all the benefits of RFID within a retail environment have been realized by vendors. There are a number of techniques and applications that give this technology the ability to minimize product shrinkage across the retail supply chain (Figure 1).

A. Visibility

It was discovered that one of the main drivers pushing RFID in the industry was its ability to provide visibility across the entire supply chain. Visibility is described as an organization's ability to accurately track and observe the movements of products across the supply chain [1][2]. As stated by RFID Vendor (6), “[t]he whole thing's about getting visibility in the supply chain”. Gaining visibility across the supply chain allows a retailer to collect accurate information to support the decision making process [3]. Furthermore, the visibility of products throughout the supply chain process increases the likelihood that a product will reach its destination; the customer. RFID Vendor (4) offered a scenario to demonstrate this theory: “[1] et's say you build 100 items, so if RFID saves shrinkage you'll have 100 items to sell. If you know where the 100 items are you can actually sell those 100 items and allows you to hold less stock.” This example illustrates the basic, yet fundamental concept of visibility provided by an RFID solution. Further supporting this idea, Garfinkel and Rosenberg [4], also recognizes the reality, that if a retailer cannot find a product, they cannot sell it. If a retailer has the ability to find and pinpoint the exact location of its products, it can potentially minimize:

  1. warehouse discrepancies;

  2. theft; and

  3. misplaced and lost products.

It is important to realize that these three factors are major contributors to product shrinkage in the retail industry. The automatic identification (auto-ID) of products using RFID has the potential to accurately manage stock across the retail supply chain, effectively reducing the chances of misrouted or misplaced products.

1) Warehouse Discrepancies

The continuous demand from customers in the retail industry requires a constant flow of goods from the point of manufacture to the retail outlet. Retailers must successfully coordinate timely and effective responses to customer demand. As suggested by Pisello [5], RFID can support this process by validating the accuracy of deliveries and shipments. Inaccuracies which occur in a retail supply chain are commonly called discrepancies. A discrepancy represents any form of an inaccuracy in a delivery. For example, a retail outlet may order 1000 products from the warehouse and only receive 980 products. Due to the large number of cartons, the back-dock attendant is not required to scan each individual box using a barcode scanner. Thus, 20 cartons are unaccounted for and subsequently, a discrepancy occurs. As suggested by the RFID consultant from the RFID Association:

[a] retailer wants to minimize mistakes. When you are at the dock and you receive your deliveries you have to check ever single item on the pallet, right? Well how about you just scan the pallet and the pallet itself will just tell you what's inside. So you don't need to undo the pallet at all.

Apart from its ability to minimize human intervention and labor costs, RFID can automatically identify products as they leave a delivery vehicle. Tagged products that pass by a number of RFID antennas in a gateway arrangement can be automatically counted. During this process, warehouse personnel can be alerted to any errors that may occur and finally verify a delivery ready for dispatch. Using RFID, a retailer has the ability to minimize warehouse discrepancies by accurately confirming a delivery vehicle's load. It is anticipated that reducing errors in preparing and receiving deliveries from the distribution centre to the retail outlet will result in a reduction in overall product shrinkage levels.

2) Theft

The application of Electronic Article Surveillance (EAS) technology has been widely embraced by retailers as an antitheft mechanism. EAS is a closed-loop system with the sole purpose to deter thieves (RFID Vendor 2). Furthermore, RFID Vendor (3) agreed that EAS is not a total solution but a deterrent. To “get a total solution you actually need to track everything from the point of manufacture, you need to tag it at the point of manufacture… and then integrate it throughout the entire supply chain” (RFID Vendor 3). Gen-2 RFID technologies offer advantages that surpass a simple EAS antitheft configuration.

As stated by RFID Vendor (7) using RFID to combat sources of shrinkage “you've got the ability to keep track of products in and out of the store.” Using RFID to actively monitor products in a retail outlet can potentially assist in preventing theft [4]. In this particular application a retailer can detect abnormal behavior, such as twenty razor blade packages being removed from the shelf at once [6]. Using a notification system, employees could be alerted to watch the individual who removed the products ensuring that the products are paid for before the shopper leaves the store [6]. Monitoring products using RFID coupled with a notification system in a supermarket is not the only instance were RFID can provide visibility by actively tracking products.

3) Misplaced and Lost Products

Products can also be monitored using RFID throughout the entire retail supply chain. Firstly, the definitions of misplaced and lost products within a retail setting are to be defined. Products that have been ‘misplaced’ have generally been moved to a misallocated section of a warehouse or retail outlet. However, if a product is not located within a certain timeframe, its status is said to be ‘lost’ or unaccounted for. Unrecovered products are typically assumed to be lost and as a result are added towards the total of unknown product shrinkage.

A product that is believed to be out of stock or unavailable does not necessarily occur because products have been sold or stolen; products are also commonly misplaced. RFID can assist by tracking and tracing products at any point across the supply chain. According to RFID Vendor (1), a retailer using RFID has the ability to “track and trace a particular product at item-level through the whole supply chain process.” If a retailer can accurately monitor stock throughout the supply chain products are less likely to go missing in the first place.

B. Authentication

RFID can also offer value by minimizing product shrinkage in its ability to rapidly authenticate a tagged object. A retailer can take advantage of this feature by scrutinizing tagged products at any point across the supply chain. Authentication can be used to locate defective products during recalls, detect possible acts of fraud and identify counterfeit products.

1) Recalls

Product recalls are considered to be one of the primary motivators to adopt RFID. According to RFID Vendor (1), “product recalls cost millions and millions of dollars”. Products in the retail industry (especially food products) need to comply with certain safety criteria. If these criteria are not met products are assumed to be defective and unfit for consumption. When a product line is recalled large quantities of stock need to be identified, gathered and disposed of. Unfortunately, not all goods identified in this process are actually defective. In fact, extortion attempts against large corporations which target popular products in most cases do not pose a threat to the consumer. However, in this situation the manufacturer or retailer has no alternative but to dispose of the majority, if not all products that are said to be defective.

The ability to authenticate a product using RFID can minimize the overall impact of product recalls and extortion attempts. RFID is gaining much momentum in the pharmaceutical industry as a tool to manage recalls (RFID Vendor 1) [7]. Using an RFID scanning device retail employees can accurately locate a desired product and establish whether it is subject to recall. From a safety perspective, the pharmaceutical and retail industries together rely on the overall quality of their products. The pharmaceutical industry may be investing in RFID technologies to minimize the impact of product recalls, but why have we not seen Australian retailers adopt RFID to minimize this issue as well?

2) Fraud

In the retail industry, fraud includes refunding products to an alternative store (other than the place of purchase) to receive a higher return. As described by RFID Vendor (3) retail fraud also involves the act of placing foreign barcodes on products as to ensure that they scan at a lower price. As a barcode can essentially be an adhesive label, barcodes are easy to reproduce (RFID Vendor 3) and fastened over a product's original barcode. As described by RFID Vendor (3), “nine times out of ten the checkout person wouldn't know.” However, barcode fraud can also occur at any point across the supply chain. For instance, a third party supplier may dishonestly alter barcodes on a number of products included in a large delivery and being unaware of this a retailer could accept the delivery.

RFID can assist by authenticating a product's point of origin. If a product can be identified and confirmed as previously owned by a retailer, the products' value has a better chance of being retained by the retailer and not lost due to fraud. The issue of fraud is closely related to illegitimate product reproductions.

3) Counterfeits

The authenticity of goods is a great concern in the pharmaceutical industry (RFID Vendor, 1–4; Heinrich 2005). According to Heinrich [8], “[t]he Food and Drug Administration (FDA) mandate for pharmaceutical manufacturers to use RFID-tagged pill bottles was driven by the desired to eliminate the estimated 2 to 7 percent (approximately [US]$30 billion) of counterfeit drugs sold each year.” RFID is capable of the mass serialization to track and trace individually tagged products. Serial numbers is a fundamental requirement for a successful anti-counterfeit solution [6]. In the retail industry the application of RFID for anti-counterfeiting purposes is most likely to include clothing and other high-end products.

Electronics, designer clothing brands and other high value items, often targeted by fraudsters, are ideal items for anti-counterfeit technologies. The Benetton Group initiative in the United States required clothing items to be embedded with an RFID tag to detect counterfeit products (RFID Vendor 7). In this application, clothes can be assumed counterfeit if the garment is found without a tag or the tag contains an invalid item code [9]. In this particular case, RFID holds the potential to combat criminal operations. In addition, it can reduce the distribution of goods throughout the ‘grey market’ and ultimately, prevent the sale of counterfeit products to consumers. The anti-counterfeiting capability of RFID can minimize product shrinkage by eliminating the possibility of a retailer unknowingly investing in counterfeit products.

C. Automation

Fischer and Green [10] identify “bad checks” as an activity that contributes to loss experienced by retailers. Checking products using a barcode system involves manually scanning a product's barcode at any point across the supply chain. A bad check occurs when a product fails to be recognized, due to human intervention or a barcode error. However, RFID offers the potential to minimize these errors.

The Electronic Product Code (EPC) standard for data storage on an RFID tag is designed for the automatic identification of products across the retail supply chain. An EPC code identifies the manufacturer, product category and the individual item [11] [12]. Automatic identification of such data is designed to reduce errors incurred by human intervention.

1) Human Error

RFID facilitates automatic inventory auditing [13]. Auditing, more commonly known in retail as stock take is the process of determining stock levels. Stock take generally involves the use of barcode scanners to identify products, which are then manually counted by hand. Miscalculated products are most likely linked to human errors which then add to overall product shrinkage levels (RFID Vendor 6). However, stocktaking can be completed quickly and accurately using an RFID enabled handheld scanner [13]. Using the EPC convention for data storage a product can be individually identified and the total number of products recorded. According to RFID Vendor (2), RFID can streamline supply chain processes and remove the necessity for personnel to assist with tedious operations; “zero human intervention operation” (OHIO). A system which requires minimal physical manipulation of stock level data is just one benefit of RFID adoption within a retail environment. However, reducing errors due to human intervention is not the only benefit where RFID can minimize product shrinkage.

D. Auxiliary Applications

In a retail environment products are generally spoiled if they are: damaged, broken, unsealed, exposed to incorrect temperatures or out of date. Products that have been spoiled are commonly discarded and hence, contribute to large quantities of product shrinkage. RFID can minimize product shrinkage using the following auxiliary features.

1) Damaged Products

An interesting issue raised by the RFID Association was RFID's ability to gather information about a product and categorize it accordingly. For example, a retailer could implement an RFID reader to record damaged stock at the opening of a waste deposit. The retailer would then be able to keep an accurate record of damaged goods. In this application RFID does not reduce damaged stock, but it does record it. As suggested by the RFID Association:

They might not be able to fix the problem, but they are going to categorize it; this is stolen, this is broken and then they could get rebates from their suppliers. If they have information about where and why the product is part of shrinkage, then maybe they can get dollars back.

If a retailer can record damage products they can claim for credit through insurance or through other formal agreements with their suppliers. This information could also be made available to manufacturers interested in a regularly damaged product. Improvements could be made to a particular product or its packaging to resist certain elements on its way to the retail outlet and onto the shelf.

In addition, as suggested by RFID Vendor (2) transporting goods using RFID simply removes the human interaction as products are scanned automatically. Minimal handling of stock by personnel results in a further reduction in the likelihood that products are accidentally dropped or mishandled. “The big cost for most retailers is the amount of handling that occurs at the manufacturer through distribution centre to the retail store” (RFID Vendor 7). A retailer can further reduce spoilage of products by closely monitoring temperature.

2) Temperature

In the retail industry, it is imperative that perishable products remain within a fixed temperature range across the entire supply chain. Perishable products in-transit are vulnerable to incorrect temperature exposure. For example, frozen seafood awaiting dispatch at a distribution centre may be unintentionally left in direct sunlight for an extended period of time. In addition, large prime movers (delivery vehicles) travel great distances and take multiple routes during transportation. During this process, products are vulnerable to fluctuating temperatures.

According to RFID Vendor (2), a temperature sensor can be attached as an additional device on an RFID tag. Sensors can monitor temperature levels in real-time [14] or at various intervals. Tags for this purpose can be attached to a shipping container, a vehicle or an individual product. As RFID tags can function at temperatures ranging from −40°C to 204°C [4], they are suitable for cold and frozen storage and logistics. It is in this particular application that RFID tags can eliminate or reduce product spoilage [15].

In the not too distant future RFID tags will offer seamless product temperature records from point of manufacture to the time of purchase [14]. Using this form of RFID application both the retailer and the customer can be reassured of a product's temperature throughout the entire supply chain process.

3) Expiration Date and Stock Rotation

Monitoring expiration dates of a retailer's complete inventory list is a challenging task. Currently, products that are found to be expired are disposed of. According to Symbol Technologies [2], RFID can be used by a retailer to monitor product expiration. If a retailer can immediately determine when a product is due to expire, products can be strategically placed or re-priced for quick sales.

Existing technology utilized by retailers does not allow data such as expiration dates to be monitored. Advances in RFID could ensure the retailer is constantly aware of products that are approaching expiration. Employees could be notified in real-time if the product should be moved to the front of the shelf. This would drastically reduce the human intervention required in recognizing items that are soon to expire.

A product's expiration date is closely linked to the practice of stock rotation in retail. Stock rotation involves the routine of physically moving products from the back of the shelf to the first row on display to the customer. This basic routine plays a role in minimizing product shrinkage.

 

Figure 2. The cascading effect of product shrinkage

SECTION VI. Conclusion

The RFID vendors and associations involved in this study acknowledged the potential of RFID to minimize product shrinkage across the supply chain. In most cases the interviewees were aware of the issue of product shrinkage, yet they were unaware of its main contributing factors. This unfamiliarity suggests that their knowledge of their customer base (consisting of retailers) is not as extensive as expected. It was discovered that one of the main drivers pushing the adoption of RFID in the retail industry was its ability to provide ‘visibility’ of stock, improve efficiencies and potentially minimize product shrinkage across the supply chain. Visibility was a key finding to the prevention of warehouse discrepancies, theft and the likelihood of products being misplaced or lost (figure 2). The technology's capacity to authenticate products during recalls, acts of fraud and in identifying counterfeits was also found to be of benefit. The automation of supply chain processes recognized RFID as being a means to dramatically minimize human errors. Finally, RFID's auxiliary features allow a retailer to minimize loss by recording products as ‘known damaged’, maintaining correct temperatures in storage and during transportation, manage the expiration dates of products and rotate stock effectively. All these characteristics were recognized by RFID vendors and associations, accompanied by supporting academic papers and trade sources, as being characteristics of RFID with a potential to minimize product shrinkage across the retail supply chain. It is expected that the adoption of RFID for visibility throughout the supply chain, would in most cases, reveal a far greater detail and size of product shrinkage occurring than most loss prevention managers are currently estimating.

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2. "Understanding Gen-2: What is it How will you Benefit and Criteria for Vendor Assessment", White Paper, pp. 1-8, Jan 2006.
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15. What is RFID used for?.
 

Keywords

radiofrequency identification, Supply chains, Marketing management, Engineering management, Australia, Standards organizations, Marketing and sales, Pharmaceutical technology, Standards development, Pulp manufacturing, supply chain management, RFID, retailing, return on investment, vendor perceptions, product shrinkage, retail supply chain, radio frequency identification, retailer loss prevention strategy, Australian RFID vendors, product authentication, monetary losses, vendors

Citation: Nicholas Huber and Katina Michael, 2007, "Vendor Perceptions of How RFID can Minimize Product Shrinkage in the Retail Supply Chain", RFID Eurasia, 2007 1st Annual, 5-6 Sept. 2007, Istanbul, Turkey, 10.1109/RFIDEURASIA.2007.4368121

 

Barriers to RFID Adoption in the Supply Chain

Abstract

This paper will explore the interplay between the retailer's dilemma of product shrinkage and the solutions advocated by RFID vendors and associations to minimise product shrinkage. RFID as an emerging technology holds the potential to fulfil the needs of stakeholders in the supply chain.

Section I.

Introduction

This paper will explore the interplay between the retailer's dilemma of product shrinkage and the solutions advocated by RFID vendors and associations to minimise product shrinkage. RFID as an emerging technology holds the potential to fulfil the needs of stakeholders in the supply chain. The recent ratification of Generation-2 (Gen-2) RFID and the Electronic Product Code (EPC) standard developed by Global Standards One (GS1) has greatly influenced the adoption of RFID in certain industries. Despite these current standards supporting the technology, there still remain a number of challenges that prevent RFID appealing to the retail industry. These challenges involve overcoming barriers and inhibitors to the adoption of RFID implementation for the tracking of goods, especially at carton-level and item-level. An important point raised by the retailer's Delicatessen Manager is that “[i]t's hard to keep track of how many items we have in the supermarket.” If so, then why have we not seen a more effective supply chain management (SCM) solution in the Australian retail industry, such as RFID?

Section II.

RFID: The Emerging Technology

Rivalry among businesses leads to the relentless pursuit of competitive advantage. According to research conducted by [1], across all industries 28 percent of organisations are planning to experiment with RFID technologies within the next two years. This interest in RFID technology suggests that it could also be used by retailers for strategic advantage. Consider Michael Porter's [2] theory that well established organisations are in the best position to integrate new technologies with SCM by leveraging existing assets (legacy barcode systems) to further support their investments. In this light, retailers willing to minimise product shrinkage, now have the ability to do so by complementing existing legacy barcode systems and other supply chain processes with RFID. Today, retailers and manufacturers are using RFID technologies to manage their supply chains. U.S. based companies such as Wal-Mart, Tesco, Target, Proctor and Gamble, and Gillette have implemented RFID technologies across their supply chains. According to the RFID vendors and associations involved in this study, RFID is currently used by Chinese and Korean airports, pharmaceutical industries and casino and gambling industries. RFID is a reality in these industries by the support of Gen-2 RFID standard of tag and EPCGlobal for data storage. However, even with the proliferation of RFID across a diverse spectrum of industries, it is yet to engage the Australian retail industry.

Section III.

Methodology

Interview transcripts were combined and then analysed using the Leximancer content analysis software. The program is designed to automatically detect concepts in interview transcripts and create an analysis report or concept map (Figure 1). This map illustrates the interaction between concepts and provides an overview of how concepts relate to one another. The size of a circle which encapsulates a particular concept represents the relative importance of a concept and overlapping circles characterise association or closely allied concepts.

Figure 1. Leximancer Concept Map

Figure 1. Leximancer Concept Map

The concept map for this study was used to create themes for further discussion topics (Table 1). A total of six major concepts were discovered within the interview transcripts, each ofwhich forms part of this paper.

Table 1. Discussion themes created from the concept map

Table 1. Discussion themes created from the concept map

A. RFID Interviewees

RFID Vendor: 1 Business Development Manager

RFID Vendor 2: Systems Engineer

RFID Vendor 3: Managing Director

RFID Vendor 4: VP Marketing & Business Development

RFID Vendor 5: Managing Director

RFID Vendor 6: Managing Director

RFID Vendor 7: National Sales Manager

RFID Association

RFID Consultant

RFID Standards Standards Development Coordinator

 

Section IV.

Barriers To Adoption

There are a number of challenges that are currently restraining the proliferation of RFID in the retail industry as a SCM solution and as a means to minimise product shrinkage. These barriers to adoption were identified as cost, lack of awareness, immaturity of RFID technology and differing perceptions of product shrinkage and RFID.

A. Cost

This study revealed through supporting evidence that RFID is currently too expensive to be implemented by a retailer. The retailer's existing application of EAS tags to certain products is cost driven by the unit price or product lines deemed to be high-theft targets. According to the retailer's Loss Prevention Manager (1), cost prohibits the investment of newer generations of RFID at this stage. Although the technology has improved dramatically over the past decade, the cost of various RFID components remains a significant inhibitor to its adoption. It was agreed on by both the retailer and the RFID vendors and associations that cost was the most dominant barrier to the integration of RFID in a retail setting. In addition, RFID was dismissed as a possible SCM solution on most occasions solely based on this factor. As recognised by the Business Development Manager from RFID Vendor (1): “I think it'll take a fairly low cost tag and cost effective reader for them to implement an RFID system… the manufacturers of the technology are doing their best and investing a great amount of money into improving the technology. I think it's only going to get better and it's only going to get more cost effective, which means eventually it will be implemented.”

RFID readers and tags were found to be costly outlays in an RFID implementation. However, RFID tags in a supply chain solution require constant replenishment. RFID readers on the other hand have an initial outlay, but in most cases require little maintenance. A large scale operation, such as integrating RFID within a retail supply chain, requires a large number of RFID tags. Consequently, it was discovered that tags represented the larger expense of the two. The Systems Engineer from RFID Vendor (2) claimed: “[i]t's the tag cost that does sting, especially when you're comparing it to things like barcodes.” The price of an RFID tag is relative to the law of economies of scale. Economies of scale refers to the decreased per unit cost as output increases [3]. In other words, when RFID tags can be produced on a larger scale with less input costs economies of scale are thus achieved. The latest silicon technology and other advancements in RFID are to influence production volumes due to the lower costs of such materials (RFID Vendor 4). As illustrated in Figure 2, as the price of RFID tags fall and become more affordable, the adoption of RFID will increase. As predicted by RFID Vendor (2) “the magic number in the industry is 10 cents a tag” and retailers are more likely to see a return on investment with an RFID solution that is consistently cost effective. Nonetheless, the technology relies on other components rather than readers and tags alone.

Figure 2. RFID adoption model (cost vs production volume) Adapted (Kleist et al. 2006, p. 39 [4]; Lahiri 2006, p. 230 [5])

Figure 2. RFID adoption model (cost vs production volume) Adapted (Kleist et al. 2006, p. 39 [4]; Lahiri 2006, p. 230 [5])

It is most likely that an RFID solution for a retail supply chain would need to integrate a middleware application.

Middleware was also found to be an expensive component of an RFID system. As suggested by RFID Vendor (4): “you might need to get a middleware company involved like IBM or SAP and that's where your large costs are.” Many vendors were providers of hardware-based solutions and relied on a third party to integrate middleware and the communication between RFID tags and a Warehouse Management System (RFID Vendor 2). It was therefore confirmed that the overall costs involved in an RFID implementation are a barrier to its adoption. The technology may exist to build an RFID solution for a retail supply chain, yet it all comes down to developing business cases (RFID Vendor 3) and improving the general awareness of the technology in the industry.

B. Lack of Awareness

Another commonly occurring concept was ‘think’ which represents the lack of awareness of RFID technology. It was found that the overall awareness of Gen-2 RFID within the retailer studied was generally low. Loss Prevention staff members had a reasonable understanding but failed to recognise the true potential of RFID as a retail SCM solution and an effective loss prevention mechanism. This lack of awareness requires information sources to be directed at retailers to instigate a solution.

The RFID Association involved in the study was a nonprofit organisation, solely established to increase awareness of RFID through communication and forming a knowledge base. An interesting point raised by the RFID Consultant was that RFID “brings different knowledge into the same room” (RFID Association). This suggests that integrating RFID across the supply chain may require more than just the retailer and an RFID vendor. Perhaps other parties need to be involved such as; standards bodies, government departments, product manufacturers, logistics companies, wireless and other innovative technology providers. Forming business consortiums may instigate an alternative driver for RFID.

Table 2. Australian Demonstrator Project [6]

Table 2. Australian Demonstrator Project [6]

As quoted by RFID Vendor (1), “there really has to be a business case, and I think people really need to understand that”. So far, the Australian retail industry has only witnessed the Australian Demonstrator Project, chiefly conducted by Global Standards One (GS1) and the Commonwealth Scientific and Industrial Research Organisation (CSIRO) [6]. The study involved numerous participants (Table 2). As part of a pilot study, these participants set out to discover the benefits of RFID in a retail supply chain environment. The project formed a business case with a principal finding that internal knowledge and the use of standards is essential to a successful RFID implementation [6]. The study also advised that it is important that retailers in search of similar solutions investigate their own business challenges [6]. This could be made possible by forming consortiums and establishing a common goal through forming agreements or industry compliance mandates. A business challenge identified through the research in this thesis was product shrinkage; the retailer's dilemma.

C. Immature Technology

To be become a well established and accepted technology, like barcodes, RFID needs further development. As acknowledged by RFID Vendor (4) retailer's have “got some pretty good systems that have matured over time and it would be difficult to see where RFID could actually improve those systems.” In this instance, the vendor is referring to legacy barcode systems. RFID Vendor (1) also supported this theory: “retailers have invested an immense amount of money in moving their products from their distribution centres out to their stores and they do that quite well in this point in time.” RFID has a long way to go before its proliferation industry wide.

The suppliers of RFID equipment are also limited. For example, the Managing Director of RFID Vendor (5) claimed that his company is the only manufacturer in Australia for ultra long-range active tags. Using advanced battery management technology, similar to that of mobile phones, this type of tag has a battery life of seven to eight years (RFID Vendor 5). As a leading edge technology only recently available to the Australian market, suggests that these tags would most likely be expensive. This is yet another inhibitor to the adoption of RFID.

When asked whether RFID was hype or reality, the RFID Standards Body claimed that it is “somewhere in between”. In the case of Wal-Mart in the United States RFID is a reality (RFID Standards Body). However, in Australia, even though we consider RFID a reality, there are only fifteen major deployments including toll-ways on motor highways (RFID Standards Body). Conversely, RFID Vendor (5) responded: “It's a reality, definitely a reality… there's very, very few people that are actually providing solutions. There are a lot of people that are supplying tags, readers, technology and what have you. But you go and approach them and ask them how to solve a particular problem, they'll go huh? You'll have to go see an integrator to do that. Where are these integrators? So, unfortunately in that regard the industry is in its infancy.

It's only some of the big players that are only interested in the multi billion dollar deals with the likes of the Department of Defence and Wal-Mart, that are really getting into this. Down at the normal level, there are very few players that provide an actual solution. We're one of the few that do.”

In this light, RFID may well be a reality, yet in an Australian context it is still considered to be in its infancy. The barriers to entry expand even further when considering user perceptions of the technology. As this thesis is concerned with product shrinkage as a means to minimise product shrinkage, it was relevant to discover the differing views of product shrinkage and RFID.

Section V.

The Convergence of RFID and Legacy Systems

Australian retailers have invested large amounts of time and capital into refining their existing legacy barcodes systems. What was highlighted by numerous RFID vendors and associations involved in the study, is the inevitable convergence of RFID and barcode systems, suggesting that both technologies be integrated into the retail supply chain.

Figure 3. Dis(advantages) of Barcode and RFID

Figure 3. Dis(advantages) of Barcode and RFID

Interestingly, The Managing Director (RFID Vendor 6) mentioned that he would be very surprised if bar code systems were ever phased out completely. The future potential for barcodes to operate in conjunction with RFID as a backup system was also envisaged (RFID Vendors 3–6). The RFID Consultant from the RFID Association also stressed the importance of smart labels. A smart label is an adhesive label with a barcode and an RFID tag (Figure 3). This technology is designed to support cross-compatibility between barcode and RFID systems within a supply chain configuration. Dual compatibility of smart labels has required the development of a new standard for data storage.

Technology standards also need to converge if RFID and barcodes are to coexist. The Standards Development Coordinator from the RFID Standards Body was asked about the convergence of UPC, EAN and EPC standards. He explained that EAN and UPC form part of the EPC standard which is known as tag data standards (RFID Standards Body). Uniting barcodes and RFID using smart labels and tag data standards faciliates a transition period from a combined barcode and RFID solution, to RFID only. However, RFID Vendor (6) predicted an ‘RFID only’ solution for a retail supply chain to be highly unlikely. The levels at which RFID tags are to be applied to products and other assets across the retail supply chain is also significant.

Figure 4. The Barcode and RFID Adoption Lifecycle

Figure 4. The Barcode and RFID Adoption Lifecycle

A. Level of Tagging

RFID tags can be applied to objects at various levels. The three main levels include: item-level, carton-level, pallet-level and container-level (RFID Vendors 1–7; [7]). The most appropriate level of tracking depends on the application and the industry vertical in which a solution is to be implemented (RFID Vendor 2). According to the RFID Standards Body, the most realistic application for a retailer at this stage is carton-level or pallet-level tracking. This type of tracking monitors individual cartons or groups of cartons on a pallet. Other than the inhibitor of cost previously mentioned, item-level tracking is presented with a number of problems including read ranges and the complexity of integration throughout the entire supply chain (RFID Vendor 2; RFID Standards Body). However, the Vice President of Marketing and Business Development (RFID Vendor 4), suggested that item-level tracking is definitely an enabling technology in areas such as; access control and asset tracking but, “it doesn't make sense to put them on cans of beans or on clothes where barcodes are suitable.” Comparison of Characteristics BARCODES RFID Cost Relatively cheap, as the technology is quite mature. Expensive, although costs are expected to drop significantly as uptake increases and economies of scale are created. Ease of Use Simple and easy to use with little or no training required. The removal of human intervention and the level of automation negates any operating difficulties Ongoing Innovations Although barcodes are a mature technology, there are still continual innovations in the technology such as mobile phone barcode scanners and multimedia messaging service (MMS) barcode tickets such as “mobi-ticket”. RFID development is at a relatively immature state which means new applications are continually emerging. Reliability and Accuracy Barcodes are quite reliable and accurate, but are subject to operator mistakes and environmental hindrances. Some initial read reliability and accuracy issues have been discovered through pilots, however these are being solved as the technology matures. The technical nature of RFID and lack of human involvements means that theoretically its reliability and accuracy will be extremely high. Line-of-sight Barcodes are limited by line-of-sight optical scanning. Consequently, objects often have to be manually manipulated through human intervention. The radio nature of RFID means tags can be scanned remotely through packaging. It also leads to simultaneous reading where large numbers of items can be scanned within seconds. Information and Data Properties Traditional barcode symbologies only hold a minimal amount of information. Symbology innovations like two-dimensional (2D) and reduced space symbology (RSS) allow more information to be stored. Their uptake has been limited. Tags can typically hold as little or as much information as required by users, although this is limited by cost. Tags will allow for each individual item in the supply chain to be uniquely identified. In addition to this, tags can be updated as they move along the supply chain creating an audit trail. Environmental Considerations Asset Tracking Inventory Tracking A significant limitation of barcodes is the environment. As barcodes have to be in view of scanners they are subject to damage, weather and other stresses associated with movement across the supply chain. Barcodes can be used to track assets, enabling businesses to monitor the use of many investments such as tools. Limited inventory tracking is available; however, barcodes can generally only specify what type of product an item is, limiting its effectiveness. RFID tags can be very durable with some tags withstanding harsh chemical and extremely high temperatures. They are not subject to weather, nor are they typically damaged by rough handling, as they are stored inside packaging with the product. RFID tags allow organisations to track their assts as they are used. Tags can be attached to returnable items such as beer kegs to help maximise their use. The individual tracking of objects as they move along the supply chain is easy with RFID. The information on tags can also specify a product's expiry date. Inventory Management and Visibility Inventory control is one of the primary reasons for using barcodes in SCM. They provide better visibility, allow management systems to better forecast demands, and manage stock on hand, utilising practices such as just in time inventory management. Once fully deployed, RFID would provide organisations with an accurate picture of inventory levels in real-time. This allows management systems to act with enhanced knowledge and monitor all inventory details to maximise efficiency. Quality Control and Recall Management The inability to track unique items across the supply chain means that recalls and quality control cannot be very accurate. Individual item level management allows organisations to undertake stringent quality control practices and make very specific recalls when required. Tags can also monitor shock and temperature levels to ensure the quality of the end product. Level of Visibility The requirement of manual scanning at many SCM phases limits the availability and timeliness of information. Non-line-of-sight properties allow the continual monitoring of objects, which equates to real-time visibility. Security Barcodes provide limited or no security capabilities. Information rich, always-on tags give organisations the ability to constantly monitor tagged objects. Should an item go missing in the supply chain, systems can immediately initiate the appropriate response. Tags can also authenticate products to ensure they are not counterfeit. Error Reduction Compared to manual data entry, barcodes can reduce errors significantly. However as the scanning of barcodes is a physical process, human error can creep into the process with staff forgetting to scan items. RFID is highly automated and when setup correctly can achieve near perfect read rates. Automation removes the need for human manipulation, further lowering errors. Cost Savings Barcodes can help companies improve inventory management and efficiency; however, the physical scanning requirement of barcodes means that a large labour component is required. Once fully integrated into the supply chain, RFID could substantially lower operating costs and improve efficiency, reducing problems such as out-of-stock occurrences. Labour Considerations Provides a reduction compared to manual data entry, although scanning items still requires a sizable labour contingent. Automation directly eliminates a substantial labour component from SCM. As the technology becomes more pervasive, further labour reduction could be achieved through things like automated checkouts and smart shelves. Deployment Considerations Aside from environmental factors, there are few deployment considerations as the technology is inexpensive and widely used. Radio interference can prove to be a major issue in deployment, requiring numerous pilots and testing. The cost of RFID deployment and training are some other considerations. Established Barcodes are highly developed and are the standard in auto-ID SCM technology. It will be around for quite some time. RFID has a limited number of deployments in SCM. Despite this, recent mandates from leading companies mean that in the near future the technology will be used extensively. Privacy Concerns The barcodes inability to track individual items limits consumer privacy concerns. Tags are information rich and as they are quite durable, they can remain active for the lifetime of many products. The pervasive ‘always-on’ nature of the technology has caused concern among many privacy advocates.

A. RFID Source-tagging

Retailers drive their EAS source-tagging initiative by forming agreements with their suppliers. This initiative currently focuses on EAS anti-theft tags that are applied at point of manufacture and play a minor role in SCM processes. A high-end product may come source-tagged, but the tag's only function is to operate at store entry and exit points solely as an anti-theft mechanism. Consequently, the retailer's Store Trading Manager claimed that EAS does not minimise product shrinkage to a significant level. The enhanced functionality of Gen-2 RFID technology holds the potential to improve business decision making, especially when including all players in a retail supply chain.

Preliminary EAS agreements between suppliers and retailers may create the foundations for future agreements for an RFID enabled supply chain. This topic is closely linked to the notion that awareness and the formation of consortiums play a large role in the tagging of products at the point of manufacture. It was recommended by all RFID vendors and associations involved in this research that a successful RFID implementation requires the participation of all parties involved in a retail supply chain.

Section VI.

Integrating RFID Across the Entire Supply Chain

The levels at which products are to be tagged for distribution across the supply chain needs to be determined for the implementation of an RFID solution. When considering item-level tagging RFID Vendor (4) proposed the following: “[t]he whole benefit of barcodes wasn't established until everything had a barcode on it. So if you're going into a retailer and say I'll tag all the expensive stuff, but I won't tag all the cheap stuff, then they're not really utilising the benefits of RFID, you really have to tag everything, because otherwise you've got to have two systems. A system for the products that are tagged and one for the products that aren't tagged.” This quote suggests that stakeholders of a retail supply chain need to apply tags at item-level to utilise the full potential of RFID. Furthermore, RFID needs to be implemented across the entire supply chain to function in this manner and “[t]hat's where the real effort comes in” assured the Systems Engineer (RFID Vendor 2). Setting up a system at a distribution centre with over thirty truck bays can be extremely complicated (RFID Vendor 2). From a hardware perspective, testing and fine-tuning RFID solutions regularly encounters issues such as cross-over, multiple reads and other types of read errors (RFID Vendor 2). The task becomes “hugely complicated if we're talking about a full supply chain” (RFID Vendor 2).

Section VII.

Conclusion

This paper discussed the current issues surrounding RFID as an emerging technology for a SCM solution and as part of a loss prevention strategy for a retailer. Primary themes discussed the barriers to RFID adoption encompassing the costs involved in a solution, lack of awareness, RFID as an immature technology and the differing perceptions of product shrinkage and RFID. As each barrier to entry was examined, reciprocal relationships were found to exist between the retailer and RFID vendors and associations involved in this study. Investments made by retailers in legacy systems, was found to influence the convergence of RFID and barcodes supported by smart labels and tag data standards. With the various levels of RFID tagging available, it was determined that both pallet-level and carton-level tracking were most appropriate for an Australian retail application. Building upon business cases like the Australian Demonstrator Project and forming consortiums was found as a primary instigator to the future deployments of RFID. Source-tagging products at the point of manufacture was also supported by both the retailer and RFID vendors and associations as a means to minimise product shrinkage at various point across the supply chain, other than point of sale. These types of initiatives are likely to reinforce the overall success of an RFID SCM solution as part of a loss prevention strategy. Finally, it was discovered that the incorporation of retail supply chain stakeholders is critical to the overall effectiveness at which an RFID solution can function in order to minimise product shrinkage.

References

1. C. Bass, "Enterprise Solutions Mean Always Having New Opportunities to Add Value Outlook Point of View", 2003, [online] Available: http://www.accenture.com/NR/rdonlyres/8E86C567-F811-4B6F-B80DAD37D12E9446/0/enterprise_solutions_usltr.pdf.

2. E.M. Porter, "Strategy and the Internet Harvard Business Review", vol. 79, no. 3, pp. 62-79, 2001.

3. D. Besanko, D. Dranove, Schaefer, S. Shanley, "Economics of Strategy" in , Chichester:John Wiley, 2004.

4. R.A. Kleist, T.A. Chapman, D.A. Sakai, B.S. Jarvis, "RFID Labeling: Smart Labeling Concepts and Applications for the Consumer Packaged Goods Supply Chain" in , Irvine:Printronix Inc., pp. 39, 2005.

5. S. Lahiri, "RFID Sourcebook" in Pearson Education, Upper Saddle River:IBM Press, pp. 230, 2006.

6. "EPC Network Australian Demonstrator Project Report", Global Standards One Australia, 2006, [online] Available: http://www.gs1au.org/assets/documents/info/case_studies/case_epc_demo.pdf.

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IEEE Keywords: Radiofrequency identification, Supply chains, Pharmaceutical technology, Supply chain management,Australia, Code standards, Standards development, Information systems, Investments, Manufacturing

INSPEC: supply chain management, radiofrequency identification, product shrinkage, radiofrequency identification, supply chain management

Citation:  Nicholas Huber, Katina Michael, Luke McCathie, Barriers to RFID Adoption in the Supply Chain, 1st Annual RFID Eurasia, 2007, Date of Conference: 5-6 Sept. 2007, Conference Location: Istanbul, Turkey, DOI: 10.1109/RFIDEURASIA.2007.4368128

 

Minimizing Product Shrinkage across the Supply Chain using Radio Frequency Identification

Abstract

This paper identifies the contributing factors of product shrinkage and investigates the current state of anti-theft technology as part of the loss prevention strategy for a major Australian retailer. Using a case study approach a total of eleven interviews were conducted with employees of the retailer to identify factors contributing to product shrinkage and ways to overcome these through the use of radio frequency identification (RFID) technology. Known sources of product shrinkage included: warehouse discrepancies, internal and external theft, product recalls, shop return fraud, extortion, human and system error, poor stock control, poor rotation of stock, misplaced product items, lost products, product spoilage and damage. Each of the retailer's stores, in the chain of approximately 700, loses about 350000 Australian dollars to product shrinkage every six months. This paper argues that RFID would act as a partial solution toward the minimization of the retailer's product shrinkage and provide greater visibility throughout the supply chain.

Section 1. Introduction

This paper will determine the contributing factors of product shrinkage and investigate the current state of electronic identification as part of a loss prevention strategy in a case study of an Australian retailer. The main method of data collection for the case study was using interviews. In total, eleven interviews were conducted with members of the retailer's Loss Prevention Department, and managers of departments within retail outlets in two regions of New South Wales in Australia. The retailer is currently using barcode systems to identify products, and electronic article surveillance (EAS) as an anti-theft technology. As a key driver to the existence of a loss prevention strategy, product shrinkage and sources which comprise it were identified. Radio frequency identification (RFID) is then proposed as a partial solution to minimize the retailer's product shrinkage. This paper aims to explore how RFID could replace EAS given its superior functionality.

Section 2. Background of the retailer

The grocery retailer chosen for the case is one of Australia's leading supermarket chains, with approximately 270 stores in New South Wales and over 700 Australia wide. Supported by thousands of suppliers, the retailer has over 42,000 product lines on sale to consumers. Product lines include both Australian made consumer goods and internationally imported goods. Goods on sale by the retailer consist of long-life foods (e.g. confectionary, canned fruit, condiments), perishable foods (e.g. vegetables, bread, frozen meals) and general merchandise (e.g. electrical appliances, cosmetics, liquor). Over 100,000 staff members across Australia work together to get products into stores and on displays, which are then purchased by over 13 million customers each week.

Section 3. Methodology

Product shrinkage

Product shrinkage

The research was conducted using eleven semistructured interviews with employees from Loss Prevention, and various departments within five retail stores. All the interviews were conducted in August and September of 2006. The interviewees had the following job descriptions: Loss Prevention Manager (1), Loss Prevention Investigator, Loss Prevention Manager (2), Liquor Manager, Grocery Manager, Store Services Manager, Store Trading Manager, Store Manager, Delicatessen Manager, Night-fill Captain, and Customer Implementation Executive. Employees within Loss Prevention work as a team to ensure policies and procedures are adhered to at a store level (figure 1). Product shrinkage is considered to be the general indicator of how well a store's loss prevention strategy is performing, or how well it has been executed. Furthermore, the primary motivator of loss prevention is to reduce product shrinkage. As stated by the Loss Prevention Manager (2): “[The Retail Organization] has been fairly focused on shrinkage for the last 5 years.” The interviews were transcribed and then analyzed using the Leximancer computer assisted qualitative data analysis software (CAQDAS). As a tool used to extract main concepts from documents, the researcher was able to use these concepts in the creation of themes to be addressed in the narrative.

Section 4. The retailer's legacy systems

The retailer currently uses barcodes for the automatic identification of products across the supply chain, and EAS for anti-theft purposes as part of a loss prevention strategy. Both systems have distinct functions and operate independently of one another. Barcodes provide a way to record damaged products and identify targeted areas, whereas EAS is used to deter thieves.

4.1 Barcode for product identification

The retailer's barcode system is primarily used to identify products in a variety of daily activities. One of these activities, closely related to loss prevention, is its ability to help keep track of damaged goods. For instance, damaged products can be scanned and automatically declared as ‘damaged goods’, electronically recorded and then disposed of. This process notifies the automatic stock ordering system that products are damaged and need to be re-ordered, thus helping to maintain product availability in the retail outlet. Barcodes can assist in minimizing product shrinkage by recording damaged products but exist primarily to semi-automate supply chain operations. When the Night-fill Captain of one of the retailer's leading stores was asked if barcodes play a role in minimizing product shrinkage, he responded: “[i]t makes you aware of it. It doesn't actually deter or prevent it in any way. It gives you more knowledge of what's going on and where the targeted areas might be.” In other words, stock which has been misplaced or stolen is not readily identified by retail staff As supported by the Loss Prevention Investigator: “[b]arcoding really has no impact. All it does is identify that we have lost something by scanning it at the end of the day.” Furthermore, these targeted areas are usually brought to the retailer's attention once a store has been targeted by a thief or when stock fails to arrive from the distribution centre. It is in this light that barcodes offer knowledge through recording goods as damaged or by identifying targeted areas. As a result, barcodes play a minor role in a loss prevention strategy. EAS however, plays a more active role in loss prevention as an effective deterrent against theft.

4.2 Electronic article surveillance as a theft deterrent at the retail outlet

The retail organization currently utilizes EAS as part of its loss prevention strategy. The system's primary activity is to reduce theft within supermarkets and liquor stores. According to Lahiri (2006), EAS tags are generally unaffected by magnets and are available in various sizes to be applied [1]. The retailer uses a combination of adhesive and reusable EAS tags which are strategically fitted to certain products.

EAS antennas, also known as gateways, are installed at store entrances and exits (Figure 2). When a product with an active tag passes through a gateway, an alarm sounds to notify staff of possible theft. For the retailer's particular application, EAS tags are attached to products at the item-level. Tagged products generally include high theft lines and high dollar value items. Not all products were found to be tagged, in fact, most products were not secured by the EAS system. As expressed by the Loss Prevention Manager (1):

it's what we deem to be high-theft lines and obviously what our stores are recording as known stolen as well. So you look at the high-theft lines as well as the most attractive lines, some of it is going to be cost driven just by the unit price, in terms of what we put an EAS tag on. The retailer is currently testing new reusable EAS tags designed to be attached to liquor bottles.
Figure 2. EAS tag and EAS gates in a liquor store

Figure 2. EAS tag and EAS gates in a liquor store

Instead of using an adhesive tag, which is easily removed or a tag which is concealed within a packet, reusable tags are encased in high density plastic and manually fitted to products. Attached to the neck of a bottle with a zip locking mechanism, this new type of tag is removed by staff with a decoupling device at point of sale. As revealed by the Loss Prevention Manager (2): “[w]e are running trials at the moment on new tags in our liquor departments in five stores. They have been extremely successful, as they have minimized product shrinkage across our range of spirits by 62%, which is a great result.” Other than the obvious benefit of the tag's ability to be reused, this type of EAS tag has a number of other benefits. The tags are difficult to remove by hand, tagged products ‘standout’ and regularly deter thieves. “Many times I have seen people walk into a store and be overwhelmed by the EAS tagging” explained the Sydney-based liquor manager. The use of reusable tags by the retailer may help to minimize product shrinkage by deterring thieves, however, additional labor is required by retail employees to manually apply and remove tags.

Products bearing adhesive or concealed tags within a product's packaging are either tagged in-store manually by retail employees or source-tagged from the supplier. As revealed by the Store Trading Manager: “ …we have a specific list that we have got to stick to. A lot of the stock actually comes in pre-tagged now.” Source-tagged products provide the only example where EAS is used across the supply chain. However, by the same token, those tags remain idle until they come in contact with an EAS antenna or tag deactivator. As suggested by the Loss Prevention Manager (1), with the help of a recently designated Source Tag Manager the retailer is attempting to extend the ‘source-tagged list’ and push suppliers to tag products at the point of manufacture. Essentially, suppliers then take part in the overall process of applying EAS tags to products which will definitely reduce some overhead costs for the retailer. However despite this, it was found that the retailer's EAS system had a number of inefficiencies.

The retailer's thoughts on the overall performance of the system varied. One of the main questions relating to EAS was whether the technology was considered a deterrent or a total solution. All employees agreed that it was definitely a deterrent and it would be hard to find a total solution. As supported by the Loss Prevention Investigator: “[l]ook as a deterrent, yes. As I said before it's not the be-all and end-all. There's certainly some new stuff coming out.” As part of a loss prevention strategy, EAS was believed to be a deterrent on many occasions. When the Loss Prevention Manager (1) was asked for his opinion, he also said that it was a deterrent: “I wouldn't say it's a total solution. I suppose with any loss prevention initiative or procedure, there are thousands of bricks in the wall and EAS is one of those.” To further support the responses of the loss prevention staff, Lahiri also suggests that RFID is an “effective deterrent against theft” [2]. To be an effective anti-theft solution within a retail environment an EAS system is required to operate consistently and meet the demands of customer traffic. During initial testing phases of EAS systems some time ago, tests were conducted between two major brands. The Loss Prevention Manager (2) was asked whether he was happy with the overall performance of the EAS system: “Not really … I thought ‘X’ performed better than ‘Y’. But unfortunately we have invested in the ‘Y’ system.” This suggests that a retailer may not always consider an EAS system's level of performance a high priority. Other factors, such as the cost of a system may also have a direct effect on the retailer's willingness to invest in an anti-theft solution.

In one particular case, the way in which the system was installed revealed some drawbacks of the technology. When the Liquor Manager from one of the retailer's leading liquor stores was asked if he was happy with the overall performance of the system, he revealed “our gates leading out of our shop into the centre are too far apart, so there is a gap in the middle that can be exploited if you walk down the middle.” He believed that incorrect measurements had been made during the installation of the EAS system and as a result, he was unhappy with the overall performance of the system. An additional view which also supports a negative outlook on EAS was the way in which it can be exploited even when it has been correctly installed and functioning the way it was intended. According to the Loss Prevention Investigator:

Some of the practices of professional thieves and even people that associate with certain people within a community know how to beat EAS systems. The EAS tagging that we have can be ‘beaten’, three or four main ways and good crooks or people that associate with people that target our stores would know those ways of doing it.

This highlights the fact that an EAS system can be exploited by people who know about the technology. It was also understood by the Night-fill Captain that: “people are aware that EAS is out there, people know about it, so they can work around it.” Poor work practices at store level also contribute to the ineffectiveness of EAS. “Store practices have an effect. Double tagging, bending tags past 90 degrees, putting tags behind metal, those sorts of things all detract from the system,” explained the Loss Prevention Investigator. EAS tags are generally damaged because they are applied manually by hand, hence it is important to realize that retail employees play an active role in overall workings of an EAS system.

The Store Trading Manager highlighted the fact that the EAS system requires staff members to work as part of the system. Apart from manually attaching tags to products, staff members must react to the EAS alarm system and act accordingly. She said “I don't think the culture's there for it…” Occasionally staff members at point of sale do not respond to the alarm system appropriately. Employees either fail to respond to an alarm, or when a customer activates the alarm the employee assumes that they did not deactivate a tag and allow the customer to leave the store. In this typical scenario, the employee has not taken into account the possibility that the customer may in fact have a packet of batteries in their bag. The Store Trading Manager claimed that the EAS gates are not monitored properly and responding to the system's alarm is not always enforced by staff supervisors.

Retail employees agreed that EAS plays an important role in their loss prevention strategy. According to the Grocery Manager “at the moment, it's the best it can be.” If the EAS system is operating at an optimum level and in the way in which it was designed, it raises much concern when reflecting back on some of the short comings of the system. The retailer's EAS system may play an active role in minimizing product shrinkage at point of sale, but what about across the entire retail supply chain?

Section 5. Product shrinkage

To ensure stock levels are maintained in-store, an efficient supply chain is required to provide an uninterrupted supply of products for shelf replenishment. However, it is far from unusual to come across an empty shelf in a supermarket. On many occasions, this empty shelf can be directly linked to theft or unsupplied stock due to warehouse discrepancies, both of which contribute to product shrinkage — the retailer's dilemma. When Loss Prevention Manager (2) was asked whether product shrinkage was a major concern to his organization he replied: “[i]t's a huge problem, especially from distribution centre to retail outlet.” This concern reinforces the importance of this issue to the retailer and is fundamental to this study. But from a retailer's perspective, what actually constitutes product shrinkage?

5.1 Factors contributing to shrinkage

From the retailer's perspective, product shrinkage is broken into two main categories: known and unknown. “Loss Prevention Investigator: At the end of each half of the financial year we record an unknown shrinkage which is obviously the difference between our bookstock and our physical counts at stock take times. So there are two separate figures. ǀ Interviewer: So there is known and unknown? ǀ Loss Prevention Investigator: Yes.” The contributing factors of known shrinkage are calculated progressively throughout the financial year by the retailer. For example, the retailer may calculate that 75% of stock was lost due to warehouse discrepancies, 20% due to internal theft and 5% due to other sources. Whereas, the figure found for unknown shrinkage is calculated only twice a year by stock take and can be contributed to by any number of sources. It is significant that unknown sources were the largest contributor to product shrinkage (Store Manager; Store Services Manager).

According to the retailer's Grocery Manager of a supermarket in Sydney's south, product shrinkage is “damaged stock, theft, warehouse discrepancies, paper work errors; not checking stock correctly off invoices, recalled stock and withdrawn stock.” In the retail industry, poor stock control across the supply chain covers misrouted and unsupplied products due the common occurrence known as a warehouse discrepancy. More specifically, it was discovered that warehouse discrepancies were the largest contributor to product shrinkage. “Through experience I would say warehouse discrepancies, that's the biggest one,” explained the Store Trading Manager. A warehouse discrepancy was described as the difference in what the retailer is charged for, and what they actually receive from the warehouse or supplier (Loss Prevention Manager (1); Store Trading Manager). The Grocery Manager further supported this by stating: “[t]he main contributor is warehouse discrepancies and number two would be theft.” In this instance, it was discovered that the two main contributors to product shrinkage were warehouse discrepancies and internal and external theft. Warehouse discrepancies are largely a procedural based problem, as thoroughly explained by the Loss Prevention Manager (1):

Look there's a couple of thoughts on it. There has been some research done in the States, they tend to do most of the loss prevention type research. They tend to think that internal theft is probably the bigger contributor. I don't know if that would be the case, certainly external theft in [region] that I look after, the main core chunk of Sydney from eastern suburbs out to the western suburbs certainly external theft I think plays a bigger part than the actual internal theft. So you've got your internal paperwork errors and procedural errors which result in loss. You've got internal theft and certainly external theft and they're probably the three drivers for shrinkage. But certainly I can say within [region] external theft would probably play the predominant role. But if you look at it on a national basis procedures would probably tend to take over.

From this extract it was therefore discovered that the three main contributors to product shrinkage could be recognized in order of the severity in which they contribute as: (i) warehouse discrepancies (errors due to procedures); (ii) external theft; and (iii) internal theft. In a recent study conducted by the National Retail Security Survey, it was discovered that internal theft caused 46 percent and shoplifting caused 32 percent. This study takes an opposing stance compared to that of the Loss Prevention Manager (1) although external theft encompasses more than shoplifting alone. Figure 3 illustrates the breakdown of known and unknown sources to product shrinkage.

Figure 3. Contributing factors to product shrinkage

Figure 3. Contributing factors to product shrinkage

5.2 What products commonly constitute shrinkage?

Both high-end products and a variety of other products were found to contribute to product shrinkage. These included: batteries, razor blades, liquor and products from the health and beauty range. Table 1 summarizes the main types of products (including brand names) that were identified by all interviewees as items that constitute product shrinkage.

Table 1. Products and associated brands often named as contributing to product shrinkage by the retailer

Table 1. Products and associated brands often named as contributing to product shrinkage by the retailer

To support theories upheld by the retailer, similar results were found by the Food Marketing Institute in 2003. It was also discovered that items with a high resale value and items that are easily concealed could go missing at any point across the retail supply chain. The Night-fill Captain of one of the Sydney-based stores said: “[b]asically, it's anything they can get their hands on. If the consumer wants something they'll take it. The size is a variable; it doesn't really matter if they can sneak out of the store they'll get it out. People are pushing trolleys of stock, mountains stock out through liquor, with observant staff catching them, so size isn't really a factor.” However, what are the primary factors that have a direct influence on the possibility of a product being transported to the wrong store or the unknown disappearance of a particular product?

Section 6. Product shrinkage in the supply chain-a process, technology or people problem?

Contributing sources to product shrinkage are considered to originate from a process, technology or people problem. These three factors collectively create the foundation for product shrinkage and its regular occurrence in the retail industry. When the Loss Prevention Manager (1) was asked whether product shrinkage was a process problem, technology problem or people problem, he responded: “[a]ll three would contribute to it in some way.” The following retail based examples in Table 2 are to provide a context in which the three can be understood.

Table 2. Retail-based Examples of Process, Technology and People Problems in the Supply Chain

Table 2. Retail-based Examples of Process, Technology and People Problems in the Supply Chain

When the Loss Prevention Investigator was asked about his opinion on these three factors affecting product shrinkage, he replied:

I think it encompasses all of it. We certainly have some processes that need to be looked at. The way that our DC [distribution center] is structured, the way that they ship items from there certainly needs to be looked at and will be over a period of time. Obviously, to take out the human side of it would certainly help because unfortunately humans make mistakes and that does certainly cause some errors. The other side of it is theft which is very much a human side of it, people walking in and just stealing from us. And also poor practices in-stores also contribute where we don't follow our processes and procedures.

It was revealed in this case that both processes and people were a primary influence to the many sources of product shrinkage. The retailer was concerned about the processes involved at the distribution centre when organizing the transportation of goods across the retail supply chain. In addition, human error, poor practices in-store and theft were recognized as being contributors to the problem of product shrinkage.

The Store Services Manager also identified the issue of poor procedures when receiving goods at the back-dock as a process problem. “[T]here is no way that you can physically scan every item that comes in on the load. There's no way.” Employees involved in the study were asked when their superiors begin to ask questions about loss. As emphasized by the Store Trading Manager, based on previous audits a product shrinkage figure is predicted for each individual store: “[s]o if it's over that, then they will definitely come in and investigate and usually the first thing they look at is systems and procedures in the store. If they're not right then it's automatically the store's responsibility to get it right.” It was certainly recognized that procedures, closely connected to processes are critical in minimizing product shrinkage levels. These three factors may influence product shrinkage levels, but whereabouts does it occur across the retail supply chain?

Section 7. Where does product shrinkage occur?

Stores within each of the retailer's regions receive goods from both company owned warehouses and third party suppliers. Company owned warehouses consist of one regional distribution center (RDC) and five local distribution centers (DC). An RDC may supply products to hundreds of retail outlets, whereas a DC will only deliver goods to a designated region. The majority of stock is supplied from company owned distribution centers, yet interestingly there are more third party suppliers. Third party suppliers are external to the retailer and are known as direct suppliers. The retailer engages in hundreds of transactions with suppliers daily. All stock is ordered using an automatic stock ordering system. It was estimated by the Store Manager that approximately 200 transactions are made daily between his store and its suppliers. The Loss Prevention Manager (1) stated that a “continuous electronic barrage of orders” is required to keep retail outlets fully stocked in order to satisfy customer demands. Coordinating these orders across the entire retail supply chain and scheduling deliveries is an enormous task performed by the retailer using its warehouse and logistics services. During this process, product shrinkage occurs at various points, whether it be at the distribution centre, in-transit, or when a delivery is received by a back-dock attendant at a retail outlet. When the Loss Prevention Manager (1) was asked where most product shrinkage occurs across the retail supply chain he replied:

Look we are aware that you can have theft issues with truck drivers. Truck seals aren't put on, we know stock can go missing. We have had instances where drivers have been caught. I suppose our processes are not conducive to checking, so you're relying on what the DC says that they send you, is in fact what you are receiving. So if you have a store that has 10 palettes of stock delivered from a DC, unless we pick-up at store level the fact that we're missing something and it's pretty hard if you've got 10 palettes of stock, night-fill come in and fill it. Unless you do a line-by-line check, how do you know what's missing? And certainly the stores put in an order for X-amount we're trusting that that store will get X-amount, if they don't, a lot of that tends to go uncaptured. If you look at the case of say [Cold-Storage Logistics Company] which is one of our external suppliers, they warehouse it and distribute our cold stock, but there's massive issues with them. It's not uncommon for a load to come in several thousand dollars short. Do we pickup on that fact? No, we don't. Because it comes in, it goes into a cool room and then night-fill or then your perishable people will come through and fill, it's pretty hard to pickup on the fact that you're short on a line, it might be a couple of days down the track and you might say where's that? You then go through and make your stock adjustments so [automatic stock ordering system] will then reorder it, but by that time it's too late to put in a discrepancy. Big problems with [Cold Storage Logistics Company], the sooner that comes in-house so we get some better control of it the better.

Issues raised here by the Loss Prevention Manager are critical when recognizing the contributing factors of product shrinkage. Contributing factors across the retail supply chain include: (i) internal/external theft by vehicle drivers; (ii) assuming deliveries are correct; (iii) not realizing deliveries are missing stock; (iv) being too late to notify the automatic stock ordering system of a discrepancy; and (v) problems with direct suppliers e.g. the retailer's direct supplier of cold goods. These factors reveal that product shrinkage occurs at various points across the supply chain. The Liquor Manager also believes when an order made by the automatic stock ordering system is picked at the warehouse, the incorrect amount or type of product is often dispatched. Inconvenient and time consuming tasks, such as the process of having to return an incorrect order, are then necessary. Incorrect orders may require additional labor intensive tasks to be performed, however, there are more serious consequences that accompany product shrinkage.

7.1 The consequences of product shrinkage

There are a number of consequences that are directly related to product shrinkage. The primary consequence of product shrinkage is financial loss. When asked how much stock is lost over a period of 12 months, the Loss Prevention Manager (1) replied: “its millions of dollars in unknown shrinkage.” Product shrinkage is a relentless force in the retail industry and the loss it causes is extremely high. When the Loss Prevention Investigator was asked how much stock is lost, he said: “[s]ome stores will lose as little as 350,000 in six months.” In the Store Trading Manager's experience, unknown product shrinkage totaled $360,000 for a period of six months. Apart from the direct financial loss incurred other forms of loss involve additional costs (e.g. EAS systems, loss prevention staff), additional labor (e.g. security guards, manually applying EAS tags), and out of stocks (e.g. empty shelves effects sales levels and customer satisfaction). According to the Grocery Manager, due to theft alone prices can rise up to 15 percent ultimately affecting customers. If products can be accurately tracked across the supply chain it is anticipated that it will have a direct effect on product shrinkage.

Section 8. Tracking products across the supply chain

The retailer currently tracks products across the retail supply chain using a combination of barcodes and manual paper work procedures. When asked how products were tracked from distribution centre to retail outlet, the Store Trading Manager replied: “there's that big void in the middle where an order goes onto the load list and we can check it line-by-line if we want, but we just don't have the man power. It's not a standard thing that you check a load list line-by-line and given that here they get 30 to 35 pallets a night.” As this employee suggests, it is unfeasible to count each individual carton of a large delivery using existing procedures.

The distribution centre coordinates the largest deliveries to be transported to the retail outlet. Currently, employees rely on the DC to select the desired goods and ship them accordingly. The current system has the ability to track products to a certain extent, but acknowledged by the Grocery Manager “it's not 100% accurate, probably because they're expecting people at the warehouse to do it correctly.” As the DC is responsible for other discrepancies, it can be assumed that other procedures carried out at the same site are also heavily flawed. Deliveries may arrive at a store's back-dock missing a number of products, so how are products monitored during transportation?

The retailer uses Global Positioning Systems (GPS) as a means to track vehicles across the supply chain. Using a pre-planned route, GPS-enabled trucks are tracked from the distribution centre to the retail outlet. The system is designed to provide the geographical position of the truck during the transportation of goods. However, GPS does not provide information regarding the status of goods onboard. A number of voids exist across the retail supply chain where products fail to be accurately tracked. When asked if products were tracked across the supply chain, the Loss Prevention Manager (1) said: “[p]roducts aren't tracked. If you're talking about electronic tracking or things like that, then no.” In this response, the Loss Prevention Manager (1) is referring to new RFID systems designed to track products across the supply chain.

Section 9. The retailer's perceptions of RFID

Employees of the retailer were asked if they were aware of the latest RFID systems and their benefits. It was found that employees involved in the study had a positive outlook on new RFID technologies yet were unaware of the technologies' commonly reported primary benefits. Loss prevention employees had a far better understanding of the technology than managers from other departments. As explained by the Loss Prevention Manager (1): “I have a basic understanding. There are all sorts of things product tracking, inventory management, there's a whole range of things.” Furthermore, he explained:

I haven't done any research in it, there would be a whole range of things. There'd be all sorts of cost benefits there I would assume in inventory management right down to even, we may even be able to know the product size and weights in terms of transport we'd be able to work out to the nearest cubic centimeter how much stock we can fit on a truck. Whether we are being over charged in transport costs, for weight or pallet space or size, they'd probably be a whole range of hidden benefits there that you probably haven't even thought of before.

It was interesting to discover that loss prevention managers focused on secondary benefits of the technology. Rather than its ability to provide total visibility of stock across the supply chain and ultimately a means to minimize product shrinkage, employees concentrated on some of the benefits it could bring to point of sale. For example, the Loss Prevention Manager (1) recognized that “you can put X-amount of stock in a trolley with RFID that are all tagged, pass it through some antennas and you know exactly what went out of the store and if it was paid for.”

The Store Trading Manager claimed to have little knowledge of RFID as a technology with the ability to track products across the supply chain. However, she declared that it would definitely benefit the retailer as it would “probably reduce our shrinkage by a huge amount, not to mention the time spent actually adjusting the stock on hand because there have been miss-picks and things haven't gone right.” In this instance, the Store Trading Manager not only suggests that RFID is likely to minimize product shrinkage, but also the manual procedures. The Store Services Manager also had an appreciation for the technologies' ability to minimize manual procedures at store level. She claimed that less labor would be required when manually stamping products with the store stamp as a new RFID system would require suppliers to do it at the product's point of manufacture. She also believed that if the retailer was to implement an RFID system that its imperative that suppliers also be part of the overall system as “[i]t would be of no benefit otherwise.” The Store Services Manager believed that if such a system was introduced, their suppliers would most likely comply: “[t]he suppliers usually do come into line with any new systems that we are bringing in so I couldn't see that there would be a problem.” She also highlighted the fact that RFID tagging would most probably have an effect on the total price of a product, but she believed that this increase could be counteracted if product shrinkage was kept to a minimum.

An organization willing to adopt a new RFID system must be able to see potential for a return on investment (ROI). When the Loss Prevention Manager (1) was asked whether he thought the retailer would ever be interested in investing in an RFID solution he responded: “[t]here's always that cost versus benefit exercise and if the sums are right, then yes.” As identified by Global Standards One, in the case study called the Australian Demonstrator Project (which claimed to be Australia's first case study), it was revealed that it is “necessary to estimate the potential benefit that will come from deploying RFID and improving the business process using the data that the system provides” [2]. It is in this light, that testing an RFID system is highly recommended prior to total rollout as it assists in building an expected ROI.

Section 10. Conclusion

It was discovered that the retail organization currently utilizes two technologies as part of a loss prevention strategy; a barcode auto-ID system and an EAS anti-theft system. Operating independently, it was revealed that both technologies possess a number of limitations which consequently present adverse challenges to the retailer. The barcode system can record damaged products and detect targeted products or areas, yet the technology plays a minor role as part of the retailer's loss prevention strategy. Even though the retailer was currently testing a new EAS system throughout five liquor stores, the technology was still considered a deterrent rather than a total solution. It was also discovered that professional thieves avoid triggering the alarm using a variety of methods and staff members regularly neglect standard procedures readily relied on by the EAS system. These inadequacies expose a weakness in the retailer's loss prevention strategy as a result effecting product shrinkage levels. Made up by contributing sources, the two main categories of product shrinkage identified were known and unknown, with unknown representing a larger value of the two. Contributing factors to product shrinkage were found to come from a diverse range of sources and through various activities. Warehouse discrepancies and theft were identified as the two highest sources of product shrinkage. Whether it involved a standard company procedure or an illegal activity, it was found that during most of these events provisions were lacking to effectively counteract these activities. It was verified, particularly by loss prevention staff members that all sources originated from the combination of three factors; process, technology and people. Furthermore, the loss prevention department claimed that product shrinkage across the supply chain was one of the department's main challenges, especially when transferring goods from distribution centers to retail outlets. This dilemma necessitates an alternative solution be found to minimize product shrinkage across the retail supply chain.

References

1. S. Lahiri, RFID Sourcebook, Upper Saddle River:IBM Press, Pearson Education, pp. 77, 2006.

2. Australia (2006) EPC Network Australian Demonstrator Project Report, September 2006.

IEEE Keywords: Supply chains, Radiofrequency identification, Australia, Marketing and sales, Information systems, Humans, Error correction, Control systems, Merchandise, Electrical products

INSPEC: supply chain management, business data processing, fraud, radiofrequency identification, stock control, RFID, product shrinkage across minimization, supply chain, major Australian retailer, anti-theft technology, loss prevention, radio frequency identification technology, internal theft, external theft, shop return fraud, poor stock control, poor stock rotation, lost products, product spoilage

Citation: Nick Huber, Katina Michael, 2007, "Minimizing Product Shrinkage across the Supply Chain using Radio Frequency Identification: a Case Study on a Major Australian Retailer", ICMB 2007. International Conference on the Management of Mobile Business, 2007, 9-11 July 2007, DOI: 10.1109/ICMB.2007.43