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No. 08-06 MGT October 2008 No. 08-06 MGT October 2008 Document Transcript

  • WORKING PAPER No. 08-06 MGT October 2008 RFID Utilization and Information Sharing Impact Supply Chain Performance By Pamela J. Zelbst Sam Houston State University Kenneth W. Green, Jr. Sam Houston State University Victor E. Sower Sam Houston State University Gary Baker Sam Houston State University Copyright by Author 2008 The Working Papers series is published periodically by the Center for Business and Economic Development at Sam Houston State University, Huntsville, Texas. The series includes papers by members of the faculty of the College of Business Administration reporting on research progress. Copies are distributed to friends of the College of Business Administration. Additional copies may be obtained by contacting the Center for Business and Economic Development. 1
  • RFID Utilization and Information Sharing Impact Supply Chain Performance Abstract Purpose - A structural model that incorporates RFID technology utilization and supply chain information sharing as antecedents to supply chain performance is theorized and assessed. Design/methodology/approach - Data from a sample of 155 manufacturing sector and service sector organizations were collected and the model was assessed following a structural equation methodology. Findings - RFID technology utilization does not directly impact supply chain performance. Adoption of RFID technology, however, leads to improved information sharing among supply chain members which in turn leads to improved supply chain performance. Research limitations/implications – RFID technology utilization is in the introductory and growth stages of the technology utilization life cycle. Interpretation of the results should be tempered in light of this early stage of adoption. Practical implications – Practitioners can expect improved customer satisfaction through the implementation of RFID technology and the information sharing that the technology facilitates. Originality/value – The study offers empirical support for the adoption of RFID technology within an ERP context for the purpose of improving supply chain performance. 2
  • 1. Introduction According to Dos Santos and Smith (2008), the effective management of supply chains is one of the key areas for firms to gain a competitive advantage. From a strategic perspective, many organizations are adopting enterprise resource planning (ERP) systems as a part of their supply chain infrastructure. Previous research describes such information systems as critical to strategic fit within organizations (Morton and Hu, 2008). Data collection and automatic tracking systems such as Radio Frequency Identification (RFID), when utilized with ERP systems, facilitate information sharing throughout the supply chain which has the potential to enhanced supply chain performance. When successfully implemented, information sharing provides the necessary operational, tactical, and strategic information to supply chain partners on a real-time, synchronous basis utilizing the data capturing capabilities of technologies such as RFID. Generally, we propose that RFID technology utilization supports supply chain information sharing (SCIS) which in turn improves the overall performance of the entire supply chain. The focus of information sharing systems, such as an ERP system, has evolved from reducing internal inefficiencies to supporting the integration and coordination of inter- organizational business processes (Gattiker and Goodhue, 2005). Galbraith’s organizational information processing theory (OIPT) states that organizational performance is influenced by information processing needs, information processing capabilities, and by the fit between the two (Galbraith, 1973). We extend Galbraith’s OIPT to the supply chain level in this study examining the relationship between the use of RFID technology, the sharing of information among supply chain partners, and supply chain performance. The question becomes, does the seamless, real-time information (SCIS) emanating from RFID technology utilization improve supply chain performance as expected? We theorize a SCIS performance model that incorporates: 1) RFID utilization as related to SCIS and supply chain performance and 2) SCIS as related to supply chain performance. This model allows for the assessment of both the direct and indirect impact (through SCIS) of RFID technology utilization on supply chain performance. A review of the literature and discussion of the study hypotheses follow in the next section. A discussion of the methodology employed in the study is then presented followed by a description of the results of the scale assessment and the structural equation modeling results. Finally, a conclusions section, which incorporates discussions of the contributions of the study, 3 View slide
  • limitations of the study, suggestions for future related research, and implications for practicing managers is provided. 2. Literature review and hypotheses 2.1 Theoretical foundation Effective supply chain management has been identified as a key determinant of an organization’s competitive advantage (White, Johnson, and Wilson, 2008; Dos Santos and Smith, 2008). Highly interdependent organizations benefit substantially from the integration that SCIS allows (Gattiker and Goodhue, 2005). According to Kent and Mentzer (2003) the adoption of technologies that enhance information sharing can positively influence the relationships between supply chain members. SCIS is enhanced by the adoption of RFID technologies and should provide a method of balancing and improving supply chain performance. We argue that RFID technology utilization facilitates the dissemination of information to supply chain members resulting in improved supply chain performance. 2.1.1 RFID technology utilization RFID technology utilization reflects the degree to which manufacturers have adopted RFID technology to track all types of inventory through organizational and supply chain processes (Green et al., 2008b). According to White, Johnson and Wilson (2008) companies integrating RFID into ERP systems are likely to experience improved supply chain performance. Although RFID technology has been around since the use of aircraft transponders in World War II, the business uses of the technology are relatively new (Gaughan, 2005). RFID technology enhances tracking ability allowing for traceability of inventories (raw material, work-in-process, finished goods) as they progress through the supply chain to ultimate customers (Lee and Park, 2008; Asif and Mandviwalla, 2005; Angeles, 2005; Srivastava, 2004). Angeles (2005) argues that RFID technology is a supply chain focused, rather than an organizationally focused, technology because of the ability to track resources throughout the extended supply chain. In addition, Asif and Mandviwalla (2005), Angeles (2005), Narsing (2005), and Srivastava (2004) all argue that the adoption of RFID technology can and should enhance supply chain productivity. Much of the research on RFID technology has focused on organizations becoming more efficient (Uckun, Karaesmen, Savas, 2008). The cost of technology has been the focus of much discussion (Wang, Liu and Wang, 2008). However, examining the use of the technology from an infrastructure perspective the focus should be effectiveness of the system for enhancing 4 View slide
  • supply chain performance. Extrapolating from these researchers’ findings, it stands to reason, that for RFID technology to enhance supply chain performance, SCIS must be in place to disseminate the information in real-time throughout the supply chain. 2.1.2 Supply Chain Information Sharing SCIS requires that organizations within supply chains mutually and openly share information with both suppliers and customers (Mentzer, DeWitt, Keebler, Soonhong, Nix, Smith, and Zacharia, 2001; Vokurka and Lummus, 2000; Morash and Clinton, 1997). RFID facilitates the information sharing infrastructure’s ability to capture real-time information across the entire supply chain thus allowing for improved supply chain performance. According to Seymour, Lambert-Porter and Willuweit (2008, p. 42), “modern supply chains often have numerous problems often attributed to a lack of accurate and integrated data.” These authors identify RFID as the most important supply chain management technology that has been proposed as a potential solution. The seamless, real-time information provided by RFID technology in tandem with a system for information sharing such as ERP supports the provision of quality information to supply chain partners in the right form, in the right place, and at the right time. Customer demand for information is no longer required to work its way from the customer sequentially through multiple information systems from retailers, to wholesalers, to manufacturers, to suppliers resulting in time delays and distortion (Cigolini, Cozzi, and Perona, 2004). The utilization of RFID technology allows for the capture of customer information directly into the supply chain database, without human intervention, making it accessible by all members of the supply chain. RFID-enhanced information sharing facilitates the dissemination of information among supply chain partners for the purpose of improving satisfaction of the ultimate customers of the supply chain. We term this ability to share information across the supply chain as supply chain information sharing (SCIS). SCIS is defined as the ability to generate and synchronously share information among manufacturers, suppliers, and customers on a real-time basis throughout the extended supply chain (Green et al., 2007; Wisner, 2003; Olhager, 2002; Rajagopal, 2002; Vokurka and Lummus, 2000). 2.1.3 Supply Chain Performance Supply chain performance focuses on the ability of the supply chain to satisfy the needs of the ultimate customers of the supply chain. Supply chain members should focus on the performance 5
  • of the entire supply chain. The adoption of technologies, such as information sharing enhanced by RFID utilization, enhances supply chain members’ abilities to respond to changes in the environment (Kincaide, Vass, and Cassill, 2001). Chopra and Meindl (2004) argue that supply chain performance is optimized only when an ‘inter-organizational, inter-functional’ strategic approach is adopted by all partners operating within the supply chain. Strategies that strengthen the competitive position of the supply chain such as the adoption of technologies to enhance information sharing serve to directly impact supply chain performance. 2.2 Theoretical model and hypotheses We theorize a model with RFID technology utilization both directly and indirectly, through supply chain information sharing, positively impacting supply chain performance. The model incorporates three hypotheses and is presented in Figure 1. -------------------------------- Insert Figure 1 about here -------------------------------- RFID utilization allows for the traceability of resources and is an obvious vehicle for facilitating supply chain performance. Not surprisingly, a survey by Patterson, Grimm, and Corsi (2004) found that a significantly higher percentage of responding manufacturers reporting a “somewhat positive” impact from implementing supply chain technologies. Therefore, it would seem logical to propose that: H1: RFID technology utilization positively impacts supply chain performance. Patterson et al. (2004) emphasize the importance of information sharing when stating “better information exchange between supply chain partners is perhaps the key advantage of an integrated supply chain.” Extrapolating from the studies by Green et al. (2008b) and Vijayaraman and Osyk (2006), firms have expectations that utilization of RFID technology within a SCIS context will benefit the overall supply chain. This study seeks to determine whether this expectation is realized by examining hypothesis 2: H2: RFID technology utilization positively impacts SCIS. As early as 1993, a survey study by Armistead and Mapes (1993) found an encouraging link between performance and integration factors that are designed to share information through a supply network or value chain. Managers are charged with and held accountable for improving the performance of the organizational entity for which they are directly responsible. Within a 6
  • supply chain context, however, organizational managers must adopt an external focus and must consider the impact of organizational strategies on supply chain partners. Chopra and Meindl (2004) argue that supply chain performance is optimized only when an ‘inter-organizational, inter-functional’ strategic approach is adopted by all partners operating within the supply chain. Optimization at the supply chain level maximizes the supply chain surplus available for sharing by all supply chain partners. SCIS strengthens the competitive position of the supply chain and serves to directly enhance supply chain performance. Based upon this theoretical justification and empirical support, hypothesis three is stated as follows: H3: SCIS positively impacts supply chain performance. 3. Methodology 3.1 Data collection process Data were collected via an on-line data service during the summer of 2008. Of the 300 individuals who accessed the survey, 155 completed the RFID technology utilization, supply chain information sharing, and supply chain performance scales. Ninety-eight of the respondents represent firms in the manufacturing sector, and the remaining 57 represent firms in the services sector. Respondents have been in their current positions for 6.2 years and work for firms with an average of 11,492 employees. Two-thirds of the respondents hold managerial or supervisory positions and one third are in operational-level positions. 3.2 Measurement scales The theorized model (Figure 1) includes RFID technology utilization, supply chain information sharing, and supply chain performance constructs. RFID technology utilization reflects the degree to which an organization has adopted RFID technology to manage inventory flows through its logistics processes (Green et al., 2008b). It is measured using a multi-item scale previously developed and assessed by Green et al. (2008b). SCIS reflects the ability to synchronously share real-time information among supply chain partners and is measured with a multi-item scale previously developed and assessed by Green, Whitten, and Inman (2007). Supply chain performance reflects the ability of the supply chain to satisfy the needs of the ultimate customer of the supply chain, and is measured using a scale previously developed and assessed by Green, Whitten, and Inman (2008a). The study scales are presented in Table 1. ------------------------------- Insert Table 1 about here ------------------------------- 7
  • Non-response bias was assessed by comparing the responses of early and late respondents using a common approach described by Lambert and Harrington (1990). Ninety-nine of the study respondents were categorized as early respondents and 56 were categorized as late respondents based on whether they responded to the initial or follow-up request to participate. A comparison of the means of the demographic variables (years in current position and total number of employees in organization) and for the individual item means was conducted using one-way ANOVA. The comparisons resulted in non-significant differences indicating that the concerns related to non-response bias are minimized. Podsakoff, MacKenzie, Lee, and Podsakoff (2003) recommend using Harman's one- factor test to assess for common method bias. Substantial bias is indicated when either a single factor or one ‘general’ factor explains a majority of the total variance (Podsakoff et al. 2003). Results of the factor analysis identify three factors combining to account for 80% of the total variance with the first factor accounting for only 28% of the variance. Taking direction from Mossholder, Bennett, Kemery, and Wesolowski (1998), a single factor confirmatory factor analysis was also completed as an additional test for common method bias. This analysis with all items loading on one factor does not fit the data well with a relative chi-square value of 24.45, an NNFI of .816, a CFI of .831, and a RMSEA of .390. This indicates that common method bias is not a significant concern. 4. Results 4.1 Measurement scale assessment Garver and Mentzer (1999) recommend computing Cronbach's coefficient alpha to assess scale reliability, with alpha values greater than or equal to 0.70 indicating sufficient reliability. Alpha scores for all of the measurement scales exceed the .70 level. Alpha values for RFID technology utilization, supply chain information sharing, and supply chain performance are .982, .965, and .967, respectively. All scales exhibit sufficient reliability with coefficient alpha values greater than the .80 criterion recommended by Nunnally and Bernstein (1994) for basic research. Garver and Mentzer (1999) recommend reviewing the magnitude of the parameter estimates for the individual measurement items to assess convergent validity. A strong condition of validity is indicated when the estimates are statistically significant and greater than or equal to 8
  • .70. All estimates exceed the recommended .70 level and are statistically significant at the .01 level. The estimates and associated t-values are displayed in Table 2. ------------------------------- Insert Table 2 about here ------------------------------- Discriminant validity was assessed using a chi-square difference test for each pair of scales under consideration, with a statistically significant difference in chi-squares indicating validity (Garver and Mentzer, 1999; Ahire, Golhar, and Waller, 1996; Gerbing and Anderson, 1988). The pairs of scales were subjected to chi-square difference tests with each pairing producing a statistically significant difference. Koufteros (1999) recommends that the individual scales be incorporated together in a measurement model and that this model be subjected to confirmatory factor analysis and that relative chi-square, non-normed fit index (NNFI), and comparative fit index (CFI) values be used to assess fit. Relative chi-square values of less than 2.00 and NNFI and CFI values greater than .90 indicate reasonable fit (Koufteros, 1999). Results of the analysis indicate that the measurement model fits the data well with a relative chi-square value of 1.48, an NNFI of .99, and a CFI of .99. 4.2 Descriptive statistics and correlations Scale item values were averaged to obtain summary variables for RFID technology utilization, supply chain information sharing, and supply chain performance. Descriptive statistics and correlations for the summary variables are presented in Table 3. Summary variable means for RFID technology utilization, supply chain information sharing, and supply chain performance are 2.61, 4.69, and 4.85, respectively. The relatively low mean for RFID technology utilization reflects the growth stage status of technology utilization. RFID technology utilization is positively related to supply chain information sharing with a correlation coefficient of .277 significant at the .01 level. RFID technology utilization is positively correlated with supply chain performance with a correlation coefficient of .190 significant at the .05 level. Supply chain information sharing is positively and significantly correlated with supply chain performance with a correlation coefficient of .670 significant at the .01 level. 9
  • ------------------------------- Insert Table 3 about here ------------------------------- 4.3 Structural equation modeling results The structural model is displayed in Figure 2. The model fits the data relatively well with a relative chi-square of 1.48, RMSEA of 0.06, NNFI of 0.99, and CFI of .99. The results support hypotheses two and three but do not support hypothesis one. The path from RFID technology utilization to supply chain performance (hypotheses 1) is non-significant with a standardized coefficient of -.01 and an associated t-value of -.18. The path from RFID technology utilization to supply chain information sharing (hypotheses 2) is positive and significant at the .01 level with a standardized coefficient of .32 and an associated t-value of 3.93. The path from supply chain information sharing to supply chain performance (hypothesis 3) is positive and significant at the .01 level with a standardized coefficient of .72 and associated t-value of 8.36. -------------------------------- Insert Figure 2 about here -------------------------------- This study indicates that RFID technology utilization does not directly impact supply chain performance. RFID technology utilization impacts supply chain information sharing which impacts supply chain performance. RFID technology utilization, therefore, indirectly impacts supply chain performance through supply chain information sharing. 5. Conclusions Information sharing enhanced by RFID utilization allows for better response to changes in the needs of the ultimate customers of the supply chain. To affect such responsiveness, timely information must be made available to all supply chain partners that support the linking and alignment of the manufacturing, purchasing, marketing, and logistics processes throughout the supply chain. The ability to generate and synchronously supply real-time information throughout the supply chain depends upon the ability to efficiently capture data as products and services move through the supply chain to ultimate customers. Bar coding technology has supported the necessary data collection for many years. RFID technology is being adopted to improve data collection capability throughout the supply chain. In effect, the utilization of RFID technology more efficiently feeds data to the ERP information engines. 10
  • We theorized a model in which an organization’s degree of RFID technology utilization would both directly and indirectly, through its enhanced ability to share information with its supply chain partners, enhance the performance of its supply chain. Findings indicate that RFID technology utilization does not directly impact supply chain performance as hypothesized. RFID technology indirectly impacts supply chain performance through supply chain information sharing. It appears, then, that the adoption of RFID technology improves an organization’s ability to provide the data necessary for ERP systems to generate and disperse timely information throughout the supply chain. The ability to share this real-time information synchronously with partners leads to improved supply chain performance. More succinctly, RFID technology utilization enhances information sharing which improves the supply chain’s ability to satisfy ultimate customers. 5.1 Limitations of the study Data for the study were collected during the summer of 2008. At this time, RFID technology utilization is still in the introductory stage of the technology utilization life cycle. Interpretation of the results should be tempered in light of this early stage of adoption. Also, there is concern that single respondents representing single entities within extended supply chains may not have the necessary organizational and supply chain perspectives to respond to items related to performance of the overall supply chain. Much more elaborate data collection methodologies are necessary to identify and secure responses from individuals representing entities throughout supply chains. 5.2 Future research Because RFID technology utilization is in the early stage of adoption, continued investigation into the impact of the technology on organizational and supply chain performance is necessary as the RFID story unfolds. Most of the research to this point relates to potential improvements in efficiencies related to technology adoption. We hint at the technology’s potential for improving an organization’s ability to better satisfy its immediate and ultimate customers. RFID technology has revenue enhancing potential as well as cost saving capabilities. We believe that future research should focus on this potential for the technology to provide enhanced services that support efforts to better satisfy ultimate customers and better respond to changes in customer demand. 11
  • OIPT suggests the efficiencies resulting from highly integrated supply information sharing will fit some partnerships better than others. The characteristics of interdependence and differentiation are important in evaluating the level of fit. Partnerships where one party is highly dependent upon another, may benefit substantially. Other partnerships where trading partners have increased availability or alternative trading partners may not realize the same benefits from SCIS. Additional research is necessary to distinguish the types of partnerships more likely to benefit from information sharing. From a data collection standpoint, we recommend that consideration be given to collecting data from multiple points throughout supply chains to better determine the effects of RFID technology as to how it may differently impact supply chain partners. We understand that this is a relatively difficult approach that will extend the time necessary to bring research results to publication and that the number of matching responses will be limited when such an approach is adopted. 5.3 Managerial implications RFID technology has potential for both cost savings and revenue enhancement. It appears, however, that for RFID technology to positively impact supply chain performance, and that reflects the ability of the supply chain to satisfy ultimate customers at a relatively low cost, the technology must be coupled with established ERP systems. Where ERP systems are in place and functioning well, managers can expect the implementation of RFID technology to lead to more satisfied customers. 12
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  • Table 1 Measurement Scales RFID utilization (alpha = .982) Please indicate the extent to which agree or disagree with each statement (1= strongly disagree, 7 = strongly agree). 1. We currently use RFID technology to manage inventory flows through our manufacturing processes. 2. Our suppliers are required to provide products to us that facilitate RFID tracking. 3. Our customers require us to provide products to them that facilitate RFID tracking. 4. We use RFID technology to manage raw material inventory levels. 5. We use RFID technology to manage WIP inventory levels. 6. We use RFID technology to manage FG inventory levels. 7. Our current RFID technology facilitates tracking at the item level. 8. Our current RFID technology facilitates tracking at the bulk (i.e. pallet) level. 9. We plan to expand the use of RFID technology over the next several years to manage inventory flows through our manufacturing processes. Supply chain information sharing (alpha = .965) Please indicate the extent to which agree or disagree with each statement (1= strongly disagree, 7=strongly agree). 1. We are able to more quickly respond to customer needs by sharing information with our suppliers. 2. Information flows seamlessly between the suppliers, manufacturers and customers in our supply chain. 3. We openly share information with our suppliers and customers. 4. Our suppliers and customers openly share information with us. 5. The information shared by participants (suppliers, manufacturers and customers) in our supply chain is available on a real-time basis. 6. Our customers make inventory and sales information visible to us on a real-time basis. 7. Visibility of customer inventory and sales information has allowed us to quickly replenish customer' inventories with precise quantities at precise locations at precise times. 8. Information distortion is minimized throughout our supply chain through quick, frequent and accurate information transfer among supply chain members. 9. As a part of our supply chain management efforts, we have worked to develop an information system that is compatible with the systems of our suppliers and customers. Supply Chain Performance (alpha = .967) Please indicate the extent to which you agree with each statement as the statement relates to your organization’s primary supply chain(1= strongly disagree, 7 = strongly agree). 1. This organization’s primary supply chain has the ability to deliver zero-defect products to final customers. 2. This organization’s primary supply chain has the ability to deliver value-added services to final customers. 3. This organization’s primary supply chain has the ability to eliminate late, damaged and incomplete orders to final customers. 4. This organization’s primary supply chain has the ability to quickly respond to and solve problems of the final customers. 5. This organization’s primary supply chain has the ability to deliver products precisely on-time to 17
  • final customers. 6. This organization’s primary supply chain has the ability to deliver precise quantities to final customers. 7. This organization’s primary supply chain has the ability to deliver shipments of variable size on a frequent basis to final customers. 8. This organization’s primary supply chain has the ability to deliver small lot sizes and shipping case sizes to final customers. 9. This organization’s primary supply chain has the ability to minimize total product cost to final customers. 10. This organization’s primary supply chain has the ability to minimize all types of waste throughout the supply chain. 11. This organization’s primary supply chain has the ability to minimize channel safety stock throughout the supply chain. 18
  • Table 2 Standardized Estimates and Associated t-values for Measurement Model Items Standardized Item Estimate t-value RFID1 .88 13.79 RFID2 .90 14.34 RFID3 .89 14.09 RFID4 .91 14.56 RFID5 .93 15.13 RFID6 .94 15.48 RFID7 .94 15.41 RFID8 .90 14.49 RFID9 .82 12.46 SCIS1 .84 12.86 SCIS2 .84 12.94 SCIS3 .86 13.32 SCIS4 .82 12.35 SCIS5 .89 14.07 SCIS6 .87 13.53 SCIS7 .79 11.59 SCIS8 .86 13.36 SCIS9 .87 13.63 SCP1 .79 11.75 SCP2 .81 12.13 SCP3 .83 12.64 SCP4 .90 14.36 SCP5 .87 13.47 SCP6 .84 12.90 SCP7 .86 13.28 SCP8 .78 11.49 SCP9 .85 12.98 SCP10 .82 12.29 SCP11 .84 12.86 19
  • Table 3 Descriptive Statistics and Correlations (n = 155) A. Descriptive Statistics Variable Mean Std. Dev. RFID Technology Utilization (RFID) 2.61 1.74 Supply Chain Information Sharing (SCIS) 4.69 1.24 Supply Chain Performance (SCP) 4.85 1.26 B. Correlations Variables RFID SCIS SCP RFID Technology Utilization (RFID) 1 Supply Chain Information Sharing (SCIS) .277** 1 Supply Chain Performance (SCP) .190* .670** 1 ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed). 20
  • Supply Chain Performance H1: (+) RFID H3: (+) H2: (+) Supply Chain Information Figure 1 RFID-SCIS Performance Model with Hypotheses 21
  • Supply Chain Performance -.01 (-.18) RFID .72 (8.36**) .32 (3.93**) Supply Chain Information Figure 2 RFID-SCI Performance Model with Standardized Coefficients and (t-values) Relative Chi-Square = 1.48; NNFI = .99; CFI = .99; RMSEA = .06 (** significant at .01 level) 22