Transportation Research Part E 45 (2009) 29–38

Contents lists available at ScienceDirect

Transportation Research Part E

journal homepage: www.elsevier.com/locate/tre

The impacts of Radio Frequency Identification (RFID) technology

on supply chain costs
Alp Ustundag a,*, Mehmet Tanyas b
a
Industrial Engineering Department, Istanbul Technical University, Macka 34367, Istanbul, Turkey
b
International Logistics Department, Okan University, Tuzla 34959, Istanbul, Turkey

a r t i c l e i n f o a b s t r a c t

Article history: Radio Frequency Identification (RFID) is regarded as a promising technology for the optimi-
Received 7 March 2008 zation of supply chain processes since it improves manufacturing and retail operations
Received in revised form 23 June 2008 from forecasting demand to planning, managing inventory, and distribution. This study
Accepted 5 September 2008
uses a simulation model to calculate the expected benefits of an integrated RFID system
on a three-echelon supply chain obtained through performance increases in efficiency,
accuracy, visibility, and security level. The study investigates how the product value, lead
time, and demand uncertainty affect the performance of the integrated RFID supply chain
Keywords:
Supply chain
in terms of cost factors at the echelon level.
Radio Frequency Identification (RFID) Ó 2008 Elsevier Ltd. All rights reserved.
Simulation model

1. Introduction

Radio Frequency Identification (RFID) systems have gained importance in the mobile and wireless communication tech-
nologies, and have influenced various industries. An increasing variety of enterprises are employing RFID to strengthen their
managers’ ability to enhance organizational change and to manage growth in an increasingly competitive environment
(Chao et al., 2007).
According to Mcfarlane and Sheffi (2003), an RFID-based Auto-ID system is made up of a unique identification number,
which is assigned to a particular item, an identity tag which is attached to the item with a chip capable of storing a unique
identification number, networked RFID readers and data processing systems that are capable of collecting signals from mul-
tiple tags at high speeds and of preprocessing this data, and one or more networked databases that store the product
information.
As costs in the semiconductor industry decrease and data communication standards improve, the use of RFID technology
has increased. The cumulative number of RFID tags sold over the last 60 years is 3.752 billion, with 27% sold in 2006 and 19%
in 2005. The market is expected to rise to $27.88 billion in 2017 (Das and Harrop, 2007).
RFID pilot projects have recently been carried out in various industries. The UK-based retailer Marks and Spencer plans to
extend its successful item level RFID tagging program from 42 to 120 stores by spring 2007, on the way to tagging all 350
million items of apparel sold yearly. Galeria Kaufhof, a division of Metro Group, launched RFID-based shopping services for
customers at its store in Essen, Germany. An entire floor of the department store was outfitted with Electronic Product Code
(EPC) RFID technology, enabling customers to use RFID enabled dressing rooms and displays and a smart mirror that had
previously been available only for demonstration purposes (Wessel, 2007). Airbus has already begun RFID projects. Since
2006, when the company started its phase-one deployment, it has saved millions of euros each year by cutting process cycle

* Corresponding author. Tel.: +90 532 296 54 54; fax: +90 212 240 72 60.
E-mail address: ustundaga@itu.edu.tr (A. Ustundag).

1366-5545/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.tre.2008.09.001
30 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38

times, eliminating paperwork, and reducing inventory (Wasserman, 2007). Deutsche Post World Net (DPWN) launched a
project to develop passive RFID tags incorporating a small, rewriteable display for use on mail containers. These D-RFID tags
will be used as part of an RFID application under development to track DPWN’s 6 million yellow shipping containers. The
company utilizes the crates to carry the 70 million letters that pass through its 84 distribution centers each day (Wessel,
2006). In an effort to reduce costs and improve patient safety and services, numerous hospitals and medical centers have
deployed RFID technologies to track high-value assets, patients, medical records, blood products, and beds.
This study investigates the influence of product value, lead time, and demand uncertainty on the benefits of RFID inte-
grated supply chains using a simulation model.

2. Literature review

Several researchers have examined the impact of RFID technology on inventory and supply chain management. In general,
literature containing an analytical assessment of RFID technology is fairly limited; the research studies have mainly focused
on the inventory function and the effect of taking inventory discrepancies into account. However, some studies have concen-
trated on cost-benefit analyses of RFID implementation.
Several RFID researchers focusing on inventory management have dealt with the effect of inventory errors on supply
chain performance, and investigated the effect on performance factors of decreasing inventory inaccuracy using RFID tech-
nology. In this context, Delanuay et al. (2007) classified the errors causing inventory discrepancies in supply chains and de-
fined four types of errors. The first is permanent shrinkage in the physical stock due to theft, obsolescence, or breakage. The
second is misplacement, which is temporary shrinkage in the physical stock that can be replaced after every counting or after
every period. The others are the randomness of the supplier yield and the transaction type. The random yield of the supplier
is a permanent loss or surplus in the physical inventory due to supplier errors, and transaction type errors affect the infor-
mation system differently than the first three errors, which modify the physical inventory.
Most studies in this area have used the simulation method to measure the effects of inventory inaccuracy on supply chain
performance. Kang and Gershwin, 2005 used simulations to emphasize the problem of shrinkage in physical inventory that may
increase lost sales because of items being unexpectedly out of stock. They found that with an error rate of theft as small as 1% of
the average demand, the disturbance led to 17% of demand lost. Fleisch and Tellkamp (2005) examined the relationship be-
tween inventory inaccuracy and performance in a retail supply chain, considering more error types than the previous study.
They simulated a three-echelon supply chain with one product in which end-customer demand is exchanged between the
echelons, and studied how incorrect deliveries, misplacement, theft, and unsaleable goods affect inventory inaccuracy, the
out-of-stock level, and the costs related to inventory inaccuracy. The results of the study showed that inaccuracies caused
by theft appear to have the biggest impact on supply chain performance compared to inaccuracies caused by unsaleable goods
or low process quality. They proposed using RFID technology to reduce the impact of inventory inaccuracy. Lee et al. (2004) used
simulations to study the effects of inventory accuracy on inventory reduction and level improvement in a three-echelon supply
chain considering the (s,S) policy decisions, unlike other studies. They found that using RFID technology, average inventory held
decreased by 16%, and total back orders decreased by 22% when the (s,S) policy decisions are made with accurate inventory
information. Wang et al. (2007) carried out a simulation to evaluate the impact of an RFID system on inventory replenishment
of the TFT-LCD supply chain in Taiwan. The results indicated that the RFID-enabled pull-based supply chain could effectively
achieve a 6.19% decrease in the total inventory cost and a 7.60% increase in the inventory turnover rate. Some researchers
have also dealt with the optimization of inventory systems considering data inaccuracies. Rekik et al. (2008) optimized an
inventory management model by considering a single period Newsvendor problem with inaccuracies in the inventory. They
compared three approaches. In the first approach, the retailer is unaware of errors in the store. In the second approach, the
retailer is aware of the errors and optimizes its operations by taking this issue into account. The third approach deals with
the case where the retailer deploys an advanced automatic identification technology such as RFID to eliminate errors.
A few studies have focused on cost-benefit analyses of RFID systems. Kok et al. (2008) compared the cases with and with-
out RFID in terms of costs. In this study, an analytical model was built which calculated the break-even prices of an RFID tag.
It was shown that these break-even prices are closely related to the value of the lost items, the shrinkage fraction, and the
remaining shrinkage after implementation. Bottani and Rizzi (2008) quantitatively assessed the impact of RFID technology
and EPC systems on the main processes of the Fast Moving Consumer Goods (FMCG) supply chain. A three-echelon supply
chain was examined, composed of manufacturers, distributors, and retailers using FMCG. A feasibility study was carried out
using the data from a questionnaire survey. Results of the feasibility study showed that RFID and EPC implementation was
still not profitable for all echelons examined. Although RFID adoption with pallet level tagging provided positive revenues for
all supply chain players, case level tagging produced negative economic results. Doerr et al. (2006) combined a multi-criteria
tool for the valuation of qualitative factors with a Monte–Carlo simulation of anticipated financial factors to analyze the costs
and benefits of RFID investment.
In this paper, the relationship between RFID benefit factors and supply chain cost factors is determined in an integrated
structure. Accordingly, a model is developed to measure the impact of RFID technology on supply chain cost factors. Using
simulations, the cost savings through the increased performance of the supply chain are analyzed. The motivation of this
paper is the lack of analysis in the literature of how the product value, lead time, and demand uncertainty factors affect
the performance of an RFID integrated supply chain in terms of cost factors at the echelon level. As seen in the literature,
 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38 31

most previous studies have focused on the effect of inventory errors on supply chain performance. Therefore, an experimen-
tal design was conducted to analyze the effects of the chosen independent factors using the proposed simulation model, and
the results are discussed comprehensively.

3. RFID and supply chain cost factors

A supply chain refers to the flow of physical goods and associated information from the source to the consumer. Key sup-
ply chain activities include production planning, purchasing, materials management, distribution, customer service, and
sales forecasting. Integration of supply chain activities and the technologies to accomplish this integration have become
competitive necessities in most industries (Patterson et al., 2003). Radio frequency identification ‘‘smart tags” support the
promise of an intelligent supply chain by allowing for container, pallet, or item level tracking of products.
This study aims to examine the impacts of RFID technology on supply chain cost factors. The benefit and supply chain cost
factors are determined and integrated in the proposed model. In Fig. 1, the relationship between RFID benefit and supply
chain cost factors is presented in an integrated structure.
Mannel (2006) defined the supply chain cost factors as labor, inventory holding, lost sales, and theft costs. In this paper,
order cost is also taken into consideration as a cost factor. Singer (2003) defined the four benefit factors of RFID technology as
operational efficiency, accuracy, visibility, and security; these are also used in our model. As shown in Fig. 1, increased auto-
mation boosts operational efficiency and decreases labor costs. The rising level of accuracy, visibility, and security increases
the product availability by narrowing the gap between physical and system inventory (Mannel, 2006). Consequently, the
average inventory level is decreased, the costs of labor, inventory holding, and lost sales are decreased, but the order cost
is increased. In addition to this, theft costs are diminished due to the increased security level. Normally, customer satisfac-
tion and the expected sales revenue are increased through the usage of RFID, but this factor is not considered in this study. In
order to clearly understand the impact of RFID on supply chains, the relationship between the factors associated with quan-
titative parameters should be defined accurately so that the benefits can be measured (Ustundag and Tanyas, 2007).

4. Simulation model

In our research, the supply chain is made up of a pull-based system composed of manufacturer, distributor, and retailer.
Depending on customer demand, the retailer places orders with the distributor, which triggers the distributor to order from
the manufacturer. In this sense, as the information flows from retailer to manufacturer, the products flow in the reverse
direction (Fig. 2).
Five fundamental logistic processes are considered for each member of the supply chain to evaluate the impact of RFID:
receiving, put away, inventory counting, picking, and shipping. The data used in the simulation are derived from a retail textile
supply chain in Turkey planning to integrate an RFID system in its warehouses. As each product will have an RFID label, the
entry and exit doors of the warehouses will be equipped with RFID gates. Thus, the bulk reading will be realized in the receiv-
ing and shipping operations. Hand-held RFID terminals will be used in the put away, inventory counting, and picking oper-
ations. At the retailer side, the inventory on the shelves in the front-sales and back-stocking areas will be considered
together. One of the objectives of RFID integration is to diminish the gap between physical and system inventory on the whole
supply chain occurring due to misplacement, damage, shipping, and theft errors. The expected benefits will be measured
through the changes of the values of the cost factors illustrated in Fig. 1. It is expected that the error rates and process costs
will be decreased due to the integration of RFID systems. The process flow of the simulation model is illustrated in Fig. 3.

_
Oper. Efficiency

Labor Cost
_ +
Accuracy
+ Avg. Inventory Level Inv. Holding Cost
+
_

Product Availibility Order Cost

Visibility + _
_

Lost Sales Quantity Lost Sales Cost

+
Security
+
_
Theft Cost

Fig. 1. Supply chain cost factors.

32 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38

Information flow

Producer Distributor Retailer Customer

Product flow

Fig. 2. Supply chain.

The Economic Order Quantity (EOQ) method is used as the inventory model through the supply chain. The inventory
replenishment point is determined depending on the lead time and average demand. The model calculates the changes of
the values of the costs of labor, inventory holding, orders, lost sales, and theft for an integrated RFID system (Eq. (1); Mannel,
2006):
C total ¼ C labor þ C inv þ C order þ C lost sales þ C theft : ð1Þ
In this model of an RFID integrated system, it is assumed that the process costs will be lowered and misplacement (a),
incomplete shipment (d), theft (c) rates will take on the value of zero, and the damaged product rate (b) will not change.
Normally, due to the error rates, a gap occurs between the physical and system inventory (Fleisch and Tellkamp, 2005). Daily
closing system inventory (I) is calculated by adding the difference between the daily opening system inventory and customer
demand (D) to daily incoming items (Q) from the supplier (Eq. (2)). Physical inventory is calculated in the same way, con-
sidering the error rates (Eq. (3)). As orders are placed depending on the system inventory level, lost sales occur depending on
the physical inventory level. At the end of each month, inventory is counted and the data are corrected; thus, the system and
physical inventories become equivalent (Fleisch and Tellkamp, 2005):

Isystem
i ¼ Ii1  Di þ Q i ð2Þ
Iphysical
i ¼ Ii1  Di þ Q i  ½1  ða þ b þ c þ dÞ: ð3Þ
Receiving, put away, inventory counting, picking, and shipping processes are considered when calculating the change in la-
bor costs. Each total process cost is computed considering the average process cost per item (cprocess) and the quantity of pro-
cessed products (N) (Eqs. (4) and (5)):
C labor ¼ þC receivng þ C put away þ C inv þ C picking þ C shipping ð4Þ
C receiving ¼ creceiving  Nreceiving : ð5Þ
The total inventory holding cost is calculated considering the item inventory holding cost (cinv) and physical inventory level
including misplaced and damaged product quantities (Eq. (6)):
X
C inv ¼ cinv  bIphysical
i þ Q i  ða þ bÞc: ð6Þ

The total lost sales cost is determined considering the item lost sales cost (clost_sales) and physical inventory level (Eq. (7)):
X
C lost sales ¼ clost sales  maxð0; Di  Iphysical
i1  Q i Þ: ð7Þ

The total order cost is calculated using the frequency of order n(Q), and finally the total theft cost is determined using the
product value (P) (Eqs. (8) and (9)):
C order ¼ corder  nðQ Þ ð8Þ
X
C theft ¼ P  ðQ i  cÞ: ð9Þ

The benefit of an RFID integrated system is determined by calculating the changes of the values of the total cost factors for
each member of the supply chain.

5. Experimental design and research hypotheses

A number of parameters need to be estimated when building a simulation model. In this study, end-customer demand
was independently and identically normally distributed, with a daily average of 1000 items. The error rates and process costs
 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38 33

Fig. 3. Simulation model process flow.

per item were derived from the data of a retail textile company in Turkey that annually handles 400,000 products in its
warehouses (Table 1). The expected benefits to the labor force of RFID implementation were determined by the results of
34 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38

Table 1
Error rates of non-RFID and RFID integrated systems

Error rates a (misplacement, %) b (damaged, %) c (theft, %) d (incomplete shipment, %)

Non-RFID 2 0.2 0.5 0.3
RFID 0 0.2 0 0

Table 2
Process costs and expected benefits of an RFID integrated system

Warehouse processes Receiving Put away Inventory counting Picking Shipping

Cost per item (USD/item) 0.015 0.03 0.015 0.06 0.03
RFID expected benefit ratio in labor force (just due to automation) 50% 30% 95% 40% 50%

a questionnaire given to logistics experts in the company (Table 2). The same parameter values were used for the process
costs of the warehouses of the retailer, distributor, and manufacturer. The lost sales cost per item was determined as the
profit margin (5%) of the product. The cost of each order was $40 US. In order to calculate the inventory holding cost, the
annual interest rate was chosen to be 5%.
Different levels of the independent factors of product value, demand uncertainty, and lead time are given in Table 3. Using
the simulation model, the impacts of the independent factors on the cost savings for the integrated RFID supply chain were
measured.
In this study, eight research hypotheses were developed to evaluate the impact of RFID on supply chain cost factors. The
first group of hypotheses was developed to measure the impact of product value on the integrated RFID supply chain. It is
expected that the total supply chain cost savings will be increased by a rising product value. This increase will be predom-
inantly based on the theft and lost sales cost savings due to the increase of the unit cost (Kang and Gershwin, 2005). Since
RFID can passively track the movement of an individual object, it can be used in a manner similar to Sensormatic and other
loss prevention technologies to help reduce theft (Singer, 2003). Eliminating inventory inaccuracy can reduce supply chain
costs, in addition to reduce the level of lost sales (Fleisch and Tellkamp, 2005). Despite the decrease in the inventory level in
the supply chain, the inventory cost savings will also be increased due to the rising product value. The total cost savings of
the retailer will be higher than the savings of the distributor and manufacturer due to the decrease in lost sales. The product
value factor will affect the lost sales cost savings much more than the rising level of lead time and demand uncertainty, be-
cause the total supply chain costs are much more dependent on the unit cost of the product. In this context, the first group of
hypotheses is the following:

 Hypothesis 1.1: A rising product value increases the total cost savings for the integrated RFID supply chain.
 Hypothesis 1.2: A rising product value increases the lost sales cost savings for the integrated RFID supply chain.
 Hypothesis 1.3: A rising product value increases the total cost savings of the retailer more than the cost savings of the dis-
tributor and manufacturer.
 Hypothesis 1.4: In the integrated RFID supply chain, product value has more influence over total cost savings than lead time
and demand uncertainty.

The second group of hypotheses was developed to measure the impact of lead time on the RFID integrated supply chain.
As greater lead times are most likely to incur lost sales (Cheong et al., 2004), it is expected that the total retailer cost savings
will be decreased by the increased lead time due to the decrease of lost sales cost savings. Through the increase of the inven-
tory level in the supply chain, the total inventory and process cost savings will be increased, so labor cost savings will be
increased through RFID implementation. This leads to the second group of hypotheses:

 Hypothesis 2.1: The increase in lead time decreases the total cost savings of the retailer of adopting an RFID integrated sup-
ply chain.
 Hypothesis 2.2: The increase in lead time increases the labor force cost savings of adopting an RFID integrated supply chain.

Table 3
The independent factor levels

Independent factors Level 1 Level 2 Level 3

Product value ($) 5 15 80
Demand uncertainty 10% 30% 50%
Lead time (day) 2 4 6
 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38 35

The third group of hypotheses was developed to measure the impact of demand uncertainty on RFID integrated supply
chains. As lost sales can potentially be quite high when demand is highly variable (Bordley et al., 1999), it is expected that
the total supply chain cost savings will be decreased through the rising demand uncertainty due to the increased lost sales.
The decrease in cost savings will be noticed at each level of the supply chain. This leads to the third group of hypotheses:

 Hypothesis 3.1: The increase in demand uncertainty decreases the total cost savings at each level in the RFID integrated
supply chain.
 Hypothesis 3.2: The increase in demand uncertainty decreases the total lost sales cost savings of the RFID integrated supply
chain.

Table 4
ANOVA Tukey Test for product value

Dependent factor (I) Product value (J) Product value Mean P (Sig)
Total cost savings 5 15 41,730 0.00
80 443,096 0.00
15 5 41,730 0.00
80 401,366 0.00
80 5 443,096 0.00
15 401,366 0.00
Lost sales cost savings 5 15 12,365 0.00
80 181,339 0.00
15 5 12,365 0.00
80 168,975 0.00
80 5 181,339 0.00
15 168,975 0.00

Table 5
ANOVA Tukey Test for product value for the retailer, distributor, and manufacturer

Dependent factor (I) Product value (J) Product value Mean P (Sig)
Retailer cost savings 5 15 34,794 0.00
80 343,091 0.00
15 5 34,794 0.00
80 308,297 0.00
80 5 343,091 0.00
15 308,297 0.00
Distributor cost savings 5 15 3645 0.09
80 48,684 0.00
15 5 3645 0.09
80 45,039 0.00
80 5 48,684 0.00
15 45,039 0.00
Manufacturer
cost savings 5 15 3291 0.06
80 51,321 0.00
15 5 3291 0.06
80 48,030 0.00
80 5 51,321 0.00
15 48,030 0.00

Table 6
Two way ANOVA for all independent factors

Dependent factor: average total cost savings F P (Sig) Partial eta squared
Product value 97,934 0.00 0.97
Lead time 444 0.00 0.12
Demand uncertainty 2486 0.00 0.43
Product value  lead time 1112 0.00 0.40
Product value  demand uncertainty 2613 0.00 0.61
Lead time  demand uncertainty 722 0.00 0.30
Product value  lead time  demand uncertainty 643 0.00 0.43
36 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38

6. Evaluation of the simulation results

The simulations to examine the impacts of RFID technology on the supply chain were carried out using the commercial
software Crystal Ball Version 7.2.1. The independent factors of product value, lead time, and demand uncertainty were used
in 27 (3  3  3) combinations. Additionally, the simulations were run 250 times for each combination to minimize the pos-

Table 7
ANOVA Tukey Test for lead time for the retailer, distributor, and manufacturer

Dependent factor (I) Lead time (J) Lead time Mean P (Sig)
Retailer cost savings 2 4 49,967 0.00
6 71,525 0.00
4 2 49,967 0.00
6 21,558 0.00
6 2 71,525 0.00
4 21,558 0.00
Distributor cost savings 2 4 43,258 0.00
6 54,213 0.00
4 2 43,258 0.00
6 10,955 0.00
6 2 54,213 0.00
4 10,955 0.00
Manufacturer cost savings 2 4 36,746 0.00
6 44,068 0.00
4 2 36,746 0.00
6 7322 0.00
6 2 44,068 0.00
4 7322 0.00

Table 8
ANOVA Tukey Test for lead time

Dependent factor (I) Lead time (J) Lead time Mean P (Sig)
Total cost savings 2 4 23,161 0.00
6 27,595 0.00
4 2 23,161 0.00
6 4433 0.47
6 2 27,595 0.00
4 4433 0.47
Total labor cost savings 2 4 4163 0.00
6 5374 0.00
4 2 4163 0.00
6 1211 0.00
6 2 5374 0.00
4 1211 0.00

Table 9
ANOVA Tukey Test for demand uncertainty for the retailer, distributor, and manufacturer

Dependent factor (I) Demand uncertainty (J) Demand uncertainty Mean P (Sig)
Retailer cost savings 10 30 12,450 0.04
50 26,676 0.00
30 10 12,450 0.04
50 14,226 0.01
50 10 26,676 0.00
30 14,226 0.01
Distributor cost savings 10 30 21,519 0.00
50 26,704 0.00
30 10 21,519 0.00
50 5185 0.01
50 10 26,704 0.00
30 5185 0.01
Manufacturer cost savings 10 30 17,974 0.00
50 22,932 0.00
30 10 17,974 0.00
50 4959 0.01
50 10 22,932 0.00
30 4959 0.01
 A. Ustundag, M. Tanyas / Transportation Research Part E 45 (2009) 29–38 37

Table 10
ANOVA Tukey test for demand uncertainty

Dependent factor (I) Demand uncertainty (J) Demand uncertainty Mean P (Sig)
Total cost savings 10 30 51,943 0.00
50 76,313 0.00
30 10 5943 0.00
50 24,370 0.00
50 10 76,313 0.00
30 24,370 0.00
Lost sales cost savings 10 30 49,151 0.00
50 71,254 0.00
30 10 49,151 0.00
50 22,103 0.00
50 10 71,254 0.00
30 22,103 0.00

sible errors arising from the random variables. In the simulation model, cost differences between the RFID and non-RFID sys-
tems were examined on a supply chain consisting of retailer, distributor, and manufacturer over a 360-day period. ANOVA
analysis was performed to examine the results of the simulation model using SPSS.
According to the results of a Tukey test of ANOVA post-hoc analysis shown in Table 4, the rising level of product value
increases the total cost savings and the total lost sales cost savings in the integrated RFID supply chain, thus supporting
Hypotheses 1.1 and 1.2. However, the total cost savings to the retailer are higher than those for the distributor and manu-
facturer, so the rising product value increases the total cost savings to the retailer more than to the manufacturer and dis-
tributor, according to the results of the Tukey Test shown in Table 5. This supports Hypothesis 1.3.
As shown in Table 6, the calculated values of partial eta squared of product value factor, demand uncertainty, and lead
time factor are 0.97, 0.43, and 0.12, respectively. This confirms Hypothesis 1.4.
According to the results of the Tukey test shown in Table 7, increasing lead time decreases the total cost savings to the
retailer in the integrated RFID supply chain, supporting Hypothesis 2.1. However, the total cost savings to the manufacturer
and distributor increase with rising lead time, so lead time does not have any meaningful impact on total cost savings,
according to Table 8. In addition, the rising inventory level increases the total inventory holding cost savings as well as
the labor cost savings. Table 8 also shows that the labor cost savings increase with increasing lead time, which supports
Hypothesis 2.2.
Supporting Hypothesis 3.1, the rising level of demand uncertainty decreases the total cost savings at each level of the
integrated RFID supply chain, according to the results of the Tukey test in Table 9. The total lost sales cost savings are also
decreased due to the increase in lost sales according to the results of the Tukey test in the ANOVA analysis in Table 10, which
supports Hypothesis 3.2.

7. Conclusion

The most cutting edge technology for supply chain integrity and traceability is the Radio Frequency Identification (RFID)
system (Kumar and Budin, 2006). Recent advances in RFID have enabled its early adoption in many commercial applications,
such as supply chain management, logistics, and transportation. Company executives expect that RFID will improve effi-
ciency, accuracy, visibility, and security performance in the supply chain. Thus, it is very important to accurately measure
the benefits of RFID implementation.
The purpose of this research is to contribute to the literature on RFID by investigating how the factors of product value,
lead time, and demand uncertainty affect the performance of an integrated RFID supply chain in terms of cost factors at the
echelon level. Using a simulation model, the expected benefits obtained from an RFID integrated supply chain were calcu-
lated considering the factors of lost sales, theft, inventory, order, and labor costs. It is shown here that the factors of product
value and demand uncertainty have a considerable influence on the expected benefits of RFID integrated systems. Increasing
product value increases the total supply chain cost savings, and the increased demand uncertainty decreases the supply
chain cost savings. The results also indicated that each member of the supply chain does not benefit equally from RFID inte-
gration. The retailer has the highest cost savings, and the lost sales cost factor has a high impact on the integrated RFID sup-
ply chain. The increase in the cost savings for the distributor and manufacturer are almost equal to the product value
increases. Increasing lead time decreases the total supply chain cost savings of the retailer. The decrease in the cost savings
for the retailer, distributor and manufacturer are almost equal to the demand uncertainty increases.
In a future study, the proposed model will be improved to consider customer satisfaction and sales revenue as benefit
factors, and the model will be applied to different applications.

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