Using System Dynamics to assess the impact of RFID technology on retail operations

Using System Dynamics to assess the impact of RFID technology on retail operations

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Article ID: iaor201110600
Volume: 135
Issue: 1
Start Page Number: 333
End Page Number: 344
Publication Date: Jan 2012
Journal: International Journal of Production Economics
Authors: , , ,
Keywords: system dynamics, business process modelling, radio frequency identification (RFID)
Abstract:

The application of item‐level radio frequency identification (RFID) technology in retail supply chains creates cost savings and promises large potential benefits from revenue growth. However, the economic assessment of the impact on improved store operations, labor utilization, and increased sales is still not fully explored. We propose to use System Dynamics as a structural modeling and simulation approach to integrate conventional return on investment evaluations. Building on previous research about RFID technology in retail supply chains, we developed a model based on the case exploration of a leading Italian apparel retailer. Simulations show that RFID implementations are profitable whenever they contribute to increase sales, especially when a fashion retailer is focused on clerk‐assisted sales strategies. Sales growth results from the dynamic and integrated impacts of RFID technology on better inventory control, faster inventory turnover, and longer time available for store personnel to assist consumers as an effect of more efficient backroom operations.

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