Item-Level RFID in the Retail Supply Chain

Analyzing the proliferation of item-level RFID, recent studies have identified the cost sharing of the technology as a gating issue. Various qualitative studies have predicted that conflict will arise, in particular in decentralized supply chains, from the fact that the benefits and the costs resulting from item-level RFID are not symmetrically distributed among supply chain partners. To contribute to a better understanding of this situation, we consider a supply chain with one manufacturer and one retailer. Within the context of this retail supply chain, we present analytic models of the benefits of item-level RFID to both supply chain partners. We examine both the case of a dominant manufacturer as well as the case of a dominant retailer, and we analyze the results of an introduction of item-level RFID to such a supply chain depending on these market power characteristics. Under each scenario, we show how the cost of item-level RFID should be allocated among supply chain partners such that supply chain profit is optimized.