Coordination and risk analysis of VMI supply chains with RFID technology

RFID technology is an important tool in modern supply chain management. This paper analytically studies the use of RFID in a two-echelon single-manufacturer single-retailer supply chain with the vendor managed inventory (VMI) scheme. First, the supply chain models under a retail replenishment problem with and without RFID are constructed. Second, both the levels of risk and the expected profits of the supply chains are explored. Third, measures which can coordinate the supply chains with and without RFID are proposed. Fourth, comparisons between the cases with and without RFID are made. This paper analytically illustrates several important managerial insights which include: (i) when the RFID tag cost is very small, employing the RFID technology yields an improved supply chain with both larger expected profit and smaller risk; (ii) there exist multiple return policies which can coordinate the supply chain with RFID and the respective upper and lower bounds are identified; (iii) it is beneficial for the manufacturer to take the initiative to share the retailer's cost of RFID implementation, and this action not only can help coordinate the supply chain but also lower the manufacturer's risk; and (iv) compared to the case without RFID, the return rate under the coordinating return policy for the case with RFID can be lower if the RFID tag cost is appropriately shared between the retailer and the manufacturer. These insights are important for both industrialists and academicians.