The Risk Analysis Of RFID Technology Application In Supply Chain

One of the most important issues in supply chain management is the accuracy of inventory information. However, the inaccuracy of inventory information is still a common problem in the retail stores. With the development of radio frequency identification (RFID) technology, the application of RFID to improve supply chain inventory management has become the hot topics. In recent years, the most investigations on RFID application are based on the risk-neutral assumption, without the considerations of the impact of the decision makers' risk preferences on the corresponding decisions. Although, the application of new technology will improve the inventory information, at the same time, it also brings a series of effects on the risks faced by decision makers. Therefore, the traditional analysis in the risk-neutral case will not applicable for decision-makers with different risk preferences. In view of this, it is necessary to analyze the risk of RFID application in supply chain. The thesis attempts to analyze the impacts of the risk preferences on the strategies of RFID application and the corresponding impacts of RFID adoption on the supply chain coordination mechanism.This thesis investigates the RFID application in a supply chain, which consists of a risk-neutral manufacturer and a risk-averse retailer, to improve the inventory accuracy. The analysis focuses on the impact of risk attitudes on RFID adoption and the impact of RFID adoption on the supply chain coordination performance. A Stackelberg game model with risk constraint is used for capturing this issue. The retailer's risk is measured by central semi-deviation model. It is pointed out that the risk attitude is the important factor of making decision, and the sharing of cost and risk is an important role in the supply chain coordination mechanism.In particular, this thesis firstly extends the newsvendor model with risk constraint consideration to investigate how to use RFID to effectively eliminate the misplacement problems in a retail store. By considering both fixed setup cost and the tag cost, the analysis focuses on the impact of risk attitudes on RFID adoption. It is found that RFID technology may increase the retailer's expected profit, but also increases the manager's risk. The maximum value of tag cost and fixed cost that the manager can afford are given. In addition, it is pointed out that, the critical cost will be decreased if the retailer is more risk-averse. In other words, the more risk-averse is, the more caution the retailer is to invest in the new technology. So, it reveals that the risk analysis is an important issue on RFID investigation.Subsequently, considering a decentralized supply chain which consists of a risk-neutral manufacturer and a risk-averse retailer, the optimal wholesale price and order quantity under the wholesale price contract are proposed respectively in both with and without RFID cases. Under the assumption that the fixed cost is shared between the agents, the maximum costs that the agents can afford are given respectively. It is found that the critical costs of the agents are not aligned in general. In order to induce the retailer to adopt RFID, the manufacturer must assume more fixed cost if the retailer is more risk-averse. The optimal cost sharing policy is solved to align the agents'critical costs.The thesis further investigates the supply chain coordination contracts. The traditional revenue sharing contract and buy-back contract are both discussed. Under the risk constraint, the necessary and sufficient conditions for supply chain coordination are given. Then, with a numerical study, it is found that the both contracts may not always coordinate the supply chain in different risk attitudes. In light of this, a new risk sharing contract is proposed to achieve the coordination. The coordination conditions are solved. With the comparison between the case without RFID and the case with RFID, it is observed that, under the revenue sharing contract, the agents'incentives of RFID adoption will be perfectly aligned and independent of the risk attitudes, if the revenue sharing ratio equals the fixed cost sharing ratio. Under the risk sharing contract, an interesting finding is that the agents'incentives will be independent of the risk attitudes if the retailer is risk-averse enough.Lastly, the thesis describes a design of the RFID application system in the NO.1 warehouse in Wuhan tobacco industry to show the benefits of RFID technology. By comparison the warehouse performance in the case with and with RFID, it is proved that RFID can greatly improve the inventory accuracy and brings more benefits. Further more, the program of "entire-pallet transportation" in the tobacco industry is discussed. The difficulties and solutions for "entire-pallet transportation" arc also analyzed. In particular, the cost sharing policy, that how to increase the agents'incentives of RFID adoption, is discussed. Finally, a few lessons learned are proposed for reference.