RFID-enabled Supply Chain Process Redesign using

Simulation

Angeliki Karagiannaki and Katerina Pramatari

ELTRUN Research Center, Dept. of Management Science & Technology

University of Economics & Business, Athens, Greece

Abstract. Empowered by the possibility to automatically identify unique prod-

uct instances, the emerging Radio Frequency Identification (RFID) technology

is expected to revolutionize the supply chain processes. However, in view of the

numerous possible ways that RFID can be implemented within the processes,

the issue of supporting the process redesign based on a credible assessment be-

tween the current (as-is) and the future (to-be) processes has become a matter of

considerable concern and debate for both practitioners and academics alike. To

design RFID implementations in the supply chain using a robust dynamic anal-

ysis, we resort to discrete event simulation. As a result, based on a simulation

study, the two factors of object identification level and RFID labeling responsi-

bility are identified as key decision factors to design the RFID-enabled

processes.

1 Introduction

The dynamic character of today’s competitive environment forces supply chains to an

incessant reassessment of their existing processes. Within this context, the introduc-

tion of new Information and Communication Technologies (ICT) should be perceived

and positioned as a catalyst for better supply chain practices and not as a cost of a

business or as a voluntary responsibility. Nowadays, the emerging Radio Frequency

Identification (RFID) technology is expected to be the greatest of such technological

enhancements [13, 10].

RFID is a generic technology concept that refers to the use of radio waves to iden-

tify objects and, hence, embraces a new and important sector of mainstream ICT, the

so-called ‘object-associated’ or ‘object tracking’ or ‘item attendant’ ICT [12]. Empo-

wered by the possibility to automatically identify unique product instances, this tech-

nology gives a great set of improvement opportunities across different dimensions of

the supply chain (such as forecasting accuracy, inventory management, distribution

traceability processes etc.).

However, despite its promises and as with all novel technologies, it would appear

that a radical redesign of the supply chain processes is involved in order to achieve

improvements in their performance. Amidst this convention, before making major

infrastructure investments, such deployment should be considered as a large-scale

business process redesign project not to be overlooked or underrated. Rather, it should

Karagiannaki A. and Pramatari K.

RFID-enabled Supply Chain Process Redesign using Simulation.

DOI: 10.5220/0003040801140125

In Proceedings of the 4th International Workshop on RFID Technology - Concepts, Applications, Challenges (ICEIS 2010), page

ISBN: 978-989-8425-11-9

be supported of a credible assessment between the current (hereafter the ‘as-is sys-

tem’) and future (‘to-be’) views of the processes.

From a process redesign perspective, RFID technology is not solely regarded as an

agent of ‘substituting the existing processes’ whose purpose is self-evident. In fact,

there are numerous possible ways that the supply chain processes can be shaped in

order to incorporate the RFID technology. Such dimensionality of RFID implementa-

tions produces uncertainties and fears in upper management who wants to decide on a

particular RFID implementation based on a credible assessment between the current

and the possible future views of the supply chain processes [33]. The starting point for

this research is, therefore, an effort to assist companies in evaluating their current

position, identifying their RFID design choices and supporting their decision on mov-

ing to a particular RFID implementation.

To support such assessment, a wide range of modeling tools has been promoted.

However, the majority of process modeling tools use conventional techniques based

on functional decomposition or information engineering [37]. The static models gen-

erated by such approaches, while helpful in representing how the ‘as-is’ processes

work, are nevertheless limited in scope because they cannot support dynamic analysis

of the ‘to-be’ processes [3]. To support the dynamic structuring of the ‘to-be’ system,

we resort to discrete event simulation. Discrete event simulation can be an extremely

valuable, timely and cost-effective means to evaluate and design ex-ante alternative

RFID implementations without physically building, amending or interrupting the real

system.

Our research objective is, therefore, to support the RFID process redesign. Data

gathered through a case study of a retailers’ Distribution Center (DC) are used to

develop a simulation model and test the proposed hypotheses. Building upon research

conceptualizations, the research model examines the impacts of two design factors of

an RFID implementation: the level of object identification (pallet vs. case) and the

RFID labeling responsibility (in-house vs. outsource) on process performance (in

terms of labor utilisation, processing times, etc.). As such, we seek to contribute to the

body of operations management by mapping the way the RFID technology affects the

process redesign and identifying factors that are important for the successful RFID

implementation within processes. Our results have implications for how firms can

position the RFID technology within processes to reap performance benefits.

This paper is organized as follows. Section 2 offers a justification for the relev-

ance of the work. Section 3 goes through the key process redesign factors of a RFID

implementation. Section 4 describes the details of our conceptual model and hypo-

theses. Section 5 constitutes the main body of the simulation modeling. Finally, Sec-

tion 6 provides a number of conclusions and further research aims.

2 Related Studies

To be cognizant of how this work contributes to existing studies, this section draws

upon literature concerning RFID technology in operations management and, more

specifically, the application of simulation in supporting the design of RFID-enabled

operations.

Simulation models are regularly adopted in supply chain management, in form of

the traditional discrete-event models or system dynamics or agent-based ones. The

prevalent use of wireless automatic and real-time information technology in supply

chain processes has increased the need for this powerful tool. High initial capital costs

of such systems can produce uncertainties in upper management who want to actually

“see” how changes will affect the performance of the processes prior to making any

investment. Simulation can provide them with a platform to validate the effectiveness

or ineffectiveness of an altered system without physically building, amending or inter-

rupting the real one [46].

Since the technical problems associated with implementing RFID have mostly

been resolved, the managerial issues emerge as critical [2]. In this regard, the contri-

butions dedicated solely to the implementation of RFID within supply chain manage-

ment can be categorized into three domains.

The first one includes qualitative studies that discuss general issues related to

RFID technology. They can be considered as conceptual papers that describe the

evolution of RFID, illustrate its benefits and pitfalls and provide a roadmap for its

implementation by reviewing its success factors and impediments both in general and

within specific industries [49, 39, 2, 24, 54, 45, 16, 4, 40].

The second domain includes papers that demonstrate the value of RFID based on

empirical evidence (i.e. case studies, pilot projects). For instance, Karkkainen (2003)

discusses the potential benefits of RFID for retailers based, on a trial conducted at

Sainsbury’s, while Hardgrave and Miller (2006) study the impact of RFID on the

‘out-of-stock’ problem at Wal-Mart. Loebbecke (2007) examines an RFID project

involving two leading European firms, department store chain ‘Kaufhof’ and fashion

manufacturer ‘Gerry Weber’. Other examples are the series of white papers published

by the Auto-ID Labs (e.g. [14]).

Finally, although research on the impact of RFID on supply chains using analyti-

cal approaches has proliferated significantly over the last few years [36], it is still at

an early stage. Moreover, such papers examine RFID potential impacts in a wide

range of contexts. For instance, Lee et al. (2004) used a simulation model to quantify

the indirect benefits provided by RFID in inventory reduction and service level im-

provement in a manufacturer-retailer supply chain environment. Similarly, Fleisch

and Tellkamp (2005) examine the relationship between inventory inaccuracy and

performance by simulating a three echelon retail supply chain with one product. Fur-

ther developments in this direction are provided by Doerr et al. (2006) who provide an

analysis of the costs and benefits of fielding RFID technology for the management of

ordnance inventory by combining a multi-criteria tool for the valuation of qualitative

factors with a Monte-Carlo simulation of anticipated financial factors. Wang et al.

(2008) focus on the analysis of simulated impact of the radio frequency identification

(RFID) system on the inventory replenishment of the thin film transistor liquid crystal

display (TFT-LCD) supply chain in Taiwan.

Our review on the publications about RFID technology in operations management

illustrates that there is a growing body of literature that gives a quantitative assess-

ment of the deployment of RFID in supply chain processes. However, the research

area related to decision making in order to identify important factors regarding the

RFID implementation within processes has not been addressed. Only one publication

explicitly tries to assist in RFID implementation design by proposing a model-based

reference model [9]. As a result, this paper tries to contribute to the domain of re-

search that is about designing the RFID-enabled processes that lead to certain perfor-

mance (Figure 1). Integrating simulation modelling in such a decision-making can

assist not only in extracting realistic RFID implementations but also in evaluating

them at the shortest processing time and the lowest operating cost.

Fig. 1. The impact of RFID in operations management.

3 Conceptualising a RFID Implementation

Implementing RFID is not as straight forward as implementing an off-the-shelf solu-

tion (Asif and Mandviwalla, 2005). There are numerous possible ways that the

processes can be redesigned in order to incorporate the RFID technology. As a result

and in order to guide our research, a RFID implementation is defined as “any possible

way to integrate the RFID technology within its processes” or “the RFID process

redesign” or “the RFID-enabled processes”. However, there is no clear cut answer

which RFID process redesign is the best transition. The aim of this section is to con-

ceptualize the major factors that define a RFID implementation. Based on a combina-

torial composition of previous works on RFID design and implementation (see section

2) and on empirical evidence from case studies with pilots, we identify that: when an

organisation intends to invest in RFID technology and in order to design the new

processes (to-be), one should focus on the following three key factors (Table 1):

• Functional Level: represents what process elements (activities) are being rede-

signed by the introduction of RFID

• Object Identification Level: represents what objects are being passed through

the redesigned processes

• RFID labeling responsibility: represents who has the responsibility to attach the

RFID tags to the objects

The list of these factors does not claim to be exhaustive. It is rather intended to di-

rect attention towards some of the important aspects that companies should take into

account when implementing RFID.

Owing to the wide number of RFID implementations, the description of all possi-

ble to-be transitions cannot be fully reported in the paper. Thus, to explain better the

term RFID implementation, we detail as an example two RFID implementations with-

in a DC’s operations, whose scheme is shown in Figure 2. In the first implementation,

the processes of put-away, picking and shipping are redesigned to incorporate the

RFID technology whereas in the second one only the processes of receiving and ship-

ping are redesigned. Moreover, in the first implementation, the identification is done

Table 1. RFID Process Redesign Factors.

Fig. 2. Example of two possible RFID implementations within a DC’s operations.

on case level whereas in the second is done on pallet level. Finally, in the first imple-

mentation, the organisation itself has the responsibility to attach the RFID tags whe-

reas in the second, the RFID labeling is outsourced to the upstream side of the supply

chain.

4 Conceptual Model and Research Hypotheses

In order to really understand the process-driven value of RFID technology, it is not

sufficient to show a correlation between employing the technology and increased

process performance. Instead, there is a need to understand how the inherent characte-

ristics of the technology translate into increased performance – this means explaining

the mechanisms that lead to certain outputs (Christensen, 2003). Therefore, the start-

ing point for the examination of the impact of RFID technology on process perfor-

mance is an analysis of the process redesign factors of a RFID implementation. This

section presents a conceptual model that can help to understand the impact of RFID

process redesign factors on process performance. As such, this paper incorporates the

notion that these factors can influence the process performance. The research model is

RFID Process Redesign Factors Description

Functional level

represents what process elements (activities) are being

supported by the introduction of RFID

Object Identification level

represents what objects are being passed through the

RFID enabled processes

RFID labeling responsibility

represents who has the responsibility to attach the

RFID tags to the objects

depicted in Figure 3. It takes the two process redesign factors of a RFID implementa-

tion presented in the previous section into account. The model suggests that the value

of RFID is influenced by the RFID process redesign factors. Depending on the level

of these factors, the impact on process performance can vary. For example, the

amount of time a DC can save in the receiving process tends to be higher when the

upstream side of the supply chain has the responsibility to attach the RFID tags to the

objects. However, if a DC incorporates the new RFID labeling process may not be

able to reap certain benefits.

Fig. 3. Research model for the impact of RFID process redesign factors on the process perfor-

mance.

Object Identification Level

The process performance of the RFID-enabled processes would depend upon the level

of object identification. This choice makes case-level tagging versus pallet-level tag-

ging an important process redesign issue. A number of contributions that examine

RFID technology based on empirical evidence [26, 22, 35] and a series of white pa-

pers published by the Auto-ID Labs (e.g. [14] confirm that the level of tagging can

influence the value of RFID.

H1: Object Identification Level has an impact on process performance.

RFID Labeling Responsibility

In order to implement the RFID technology, one echelon of the supply chain should

take the responsibility of introducing the new process of RFID labeling. Implicitly,

this assumption is also prevalent in the work by on the impact of real-time communi-

cation on inventory management.

H2: RFID labeling responsibility has an impact on process performance.

Object Identification Level and RFID Labeling Responsibility Complementarity

Combining the object identification level with RFID labeling responsibility will influ-

ence the process performance. Hence, we propose that:

H3: The interaction between object identification level with RFID labeling responsi-

bility has an impact on process performance.

Selection of Process Performance Measures and the Value of RFID

It is almost impossible to measure process performance in a single metric, and there is

an abundance of performance indicators. Even if one only looks specifically at supply

chain performance, there is no generally agreed set of metrics. The SCOR model

provides an overview of relevant performance measures at different levels. The selec-

tion of the process performance measure can influence whether or not RFID technol-

ogy is assumed to increase supply chain performance. This can be illustrated with the

example of manual counting in the receiving process: A performance indicator that

directly measures the task, e.g. the time for counting a pallet, is likely to show an

improvement. A more aggregated performance measure, e.g. the total time spent in

the receiving process, might not show an improvement as the gains in the execution of

one task may not reduce the total effort, but simply increase organizational slack

(Brynjolfsson, 1993). Finally, a performance measure that recognizes both inputs and

outputs might fail to show an improvement when the cost of the new process (e.g. the

cost for RFID tags) outweighs the benefits (e.g. a reduction in the time spent in the

receiving process). The following table summarises the key performance indicators

used to test the hypotheses.

Table 2. Key Performance Indicators.

Performance Measure

Labor Utilisation

Receiving + Shipping Labor Utilisation (%)

Storing + Picking Labor Utilisation (%)

System Benchmarks

Cycle time Days from birth to death

Time Savings

Time waiting for unloading/storing/loading Queuing Time

Time from truck arrival to products’ scanning (A) Processing + Queuing Time

Time from products’ scanning to products’ storing (B) Processing + Queuing Time

Time from truck arrival to products’ storing (A+B) Processing + Queuing Time

5 The Simulation Model

5.1 Simulating the Current Processes (without RFID)

Four processes are spotted in the warehouse, namely receiving, storage, picking and

shipping. Conceptual Modeling involves a non-software specific description of the

model content and the DC’s components of the as-is simulation model (Table 3).

Model Coding

The computer modeling was implemented using the standard version of SIMUL8

simulation software (Figure 4).

5.2 Simulating the RFID-enabled Processes

This step was about deciding which experiments worth analyzing using simulation.

Selecting a design is an art, as well as a science [43]. The RFID process redesign

Table 3. Model Content.

Products

Include within the Entities Component.

Flow through the warehouse that triggers the processes of receiving and

put-away.

Orders

Include within the Entities Component.

Flow through the warehouse that triggers the processes of picking and

shipping.

Operatives

Include within the Resources Component.

Resources responsible for unloading, scanning, checking, storage, re-

trieval and loading of the products. All resources need to be modeled to

give full statistics on queues and resource utilisation.

- Receiving & Put-away

- Picking & Shipping

Include within the Workflow & Policies Component.

- unloading, checking, scanning and relabeling

- retrieval, scanning and checking time

Scanning errors

Include within the Workflow& Policies Component.

Misreads because of unlabeled products and covered or damaged bar-

codes result in rejected products that must be carried out manually, with

the expected delay of the process.

Queues for:

- Unloading/loading

- scanning-in and -out

- checking-in and -out

Include within the Workflow & Policies Component.

Include as buffers in between steps in a process or as storage areas for

inventory.

Need to be modeled to give full statistics on queues and resource utilisa-

tion

Traveling times

Include within the Configuration Component

Based on the trucks’ speed that is 12,5 km/hr

Scale

Include within the Configuration Component

Design of the layout based on a 1:200 scale

Fig. 4. Print screen of the distribution center model.

factors are our experimental factors that differentiate the RFID experiments. As a

result, the objectives of this step were to identify the total conditions under which the

‘to-be’ model can be run and, hence, designing the RFID simulation experiments.

Figure 5 depicts two indicative experiments.

In order to test the research hypotheses, the following experimental design pro-

vided the appropriate experiments that we had to run using the simulation model (Ta-

ble 4). In the first experiment the identification is done on pallet level and the process

of RFID labeling is deployed in-house. In the second experiment, the identification is

done on pallet level, however, the process of RFID labeling is outsourced. In the third

experiment the identification is done on pallet level, however only 20% of the up-

Table 4. RFID implementations experimental design.

Fig. 5. The total RFID implementations (to-be).

stream side attaches RFID tags to objects, the remainder of products are tagged in-

house.

5 Conclusions

One of the top ICT trends for supply chain process performance is that of RFID tech-

nology. In fact, there are numerous possible ways that the supply chain processes can

be shaped in order to incorporate the RFID technology, each bringing its own bene-

fits, as well as requirements in process redesign. It is unclear which implementation

should be used in what particular situation and, furthermore, a complete list of these

RFID implementations has not been reported in literature up to now. Such dimensio-

nality in RFID implementations produces uncertainties in upper management who

want to actually ‘see’ how to assess the benefits that a given design may bring to the

business processes prior to making any investment. As with all novel technologies,

terms such as ‘eye-ball the data’ and ‘make some initial decisions based on intuition,

experience and judgment’ are typical. Lee and Ozer (2007) used the term “credibility

gap” to describe the problem to support the design of RFID implementations based on

a credible assessment of current and RFID-enabled processes. Integrating simulation

modelling in such a decision-making can assist not only in extracting RFID imple-

mentations but also in evaluating them at the shortest processing time and the lowest

operating cost.

The required operational decisions for designing RFID implementations are still

insufficiently addressed topics in the literature, especially with regards to simulation

modelling. In this paper, drawing on theoretical constructs relevant to RFID imple-

mentation, we have proposed two important process redesign factors that, when com-

bined, allow for reaching informed conclusions regarding the likely transition from

the ‘as-is’ model of the present supply chain processes to the ‘to-be’ views foreseen

for their future structure and workings. The importance of these factors is demonstrat-

ed through a simulation case-study within a DC’s operations. Based on the knowledge

gained through the simulation study, the two factors of process redesign: object iden-

tification level and level of RFID labeling can be regarded as key decision factors to

design the RFID-enabled processes.

However, the work presented in this paper is a preliminary effort to design, in a

systematic way, alternative RFID implementations and use them as experiments in

order to simulate the impact of RFID. Further work is required. The simulation model

should be applied in other cases and incorporate even more experiments before/after

RFID is deployed. Finally, in order to capture the financial aspect of the RFID dep-

loyment, a cost-benefit analysis can be easily integrated with the simulation model to

poise the various advantages that the RFID technology promises.

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