Impact of RFID technology on economic order quantity models

Abstract

RFID has been adopted by many organizations in recent years. The existing inventory models — commonly used for reordering the products by the retailer — have been well studied for non-RFID implementations. In this paper, we modify these models to consider RFID implementations. The problem we address in this paper is how RFID implementations can affect the production models. RFID implementations incur additional costs, which is a disadvantage for organizations involved in the supply chain. However, the advantage of RFID is that it can make the supply chain continuously visible thus reducing the production lead times to zero or almost negligible. The key question we address is, if RFID technology is implemented, should the organization move to a different production model to reap the benefits of RFID implementations? This paper discusses the conditions under which an RFID implementation is beneficial compared to a non-RFID implementation for existing inventory models. We argue that, in most cases, changes to an organization's inventory model is required for an RFID implementation to be beneficial. We present detailed mathematical expressions and illustrate them with examples to support our claims.