Impacts of RFID implementation on cost structure in networked manufacturing

Abstract

Radio frequency identification (RFID) presents the key innovative solution to automatically capture and track the movement of material items throughout an entire supply chain. In this article, we explore influences of RFID technology implementation on cost and profit efficiencies. For this purpose a mathematical model of supply chain cost structure and functions was created to analyse the impacts. The model, which has also been verified through a case study approach, is aimed to examine the economical impact of RFID implementation at an automotive original equipment manufacturer and its suppliers. To analyse the impact of the traceability system using RFID technology, a cost reduction parameter will be used. Since in automotive supply chains the functional dependence of individual parts is changing in the upstream and downstream supply chain, only certain parts will be calculated with their complete functions and relations. IntroductionCompanies are practically always dependent on competition in the market. Presently, and in the future, sustainable competitive advantage will be dominated by competition between entire supply chains, not just between manufacturing firms. In this context, there is increasing need for creation of networked manufacturing systems that can respond promptly to changes in market demand. Especially, the automotive industry is often facing intense competition and price pressures due to turbulences in the financial markets. In this connection, automotive supply chain management (SCM) systems are more and more focused on cost-optimal network structures. A solution to handle this problem is offered by using Radio Frequency Identification (RFID) technology, which is considered a powerful driver of positive changes in SCM. With the rapidly decreasing price of the RFID tag, its adoption in SCM is increasing dramatically (Irani et al. 2010). Nowadays, we can find many successful application examples of RFID technology in different industry environments including the automotive industry. However, it is also a matter of discussion as to why the deployment of RFID technology has been slower than expected. According to Ngai (2010) it was caused by several factors including the global financial crisis that slowed the implementation of RFID systems in many companies due to high costs of adoption and lack of required expertise.This article is concerned with analysing the economic impacts of RFID implementation at an automotive original equipment manufacturer and its suppliers. Its main scope is to present a mathematical model of supply chain cost structure and to compare obtained results from its theoretical testing with results based on a case study approach. The paper is structured as follows; Section 2 presents a summary of the research background and motivation; in Section 3, a methodology that was used is outlined; then a testing of mathematical models describing so-called standard Supply Chain (SC) and Just in Sequence-(JIS)-based SC is presented; and finally, essential findings of the work are sum...

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