Production and Operations Management

While several retailers have popularized RFID (RadioFrequency Identification) technology, recent surveys indicate that many firms are still skeptical about it. In addition to variable costs of investment due to RFID tags, firms adopting this technology face significant expenses in upfront fixed costs due to system integration, installation of equipment and so on. Allocation of benefits from this technology over supply chain partners has been a puzzling issue for practitioners. Considering both fixed and variable costs of RFID adoption, the authors find that a characterization of the incentives by an all-or-nothing scenario may lead to a partial representation of the problem. In fact, they show that arrangement of incentives of retailers and manufacturers to adopt the technology can result in win-win, lose-lose or win-lose scenarios depending on the value of unit tag price and the distribution of the fixed costs of investment over the retailer and the manufacturer. They show that vertically integrated supply chains can afford higher costs of investment than decentralized supply chains. Their research further indicates that firms with greater expectations in market demand have more incentives to adopt the technology whereas changes in the variance of the demand distribution may result in decisions in positive or negative directions.