The Impact of RFID Adoption upon Operations Strategy: Development of a Theoretical Foundation for Studying RFID-based Supply Chain Coordination and
In-Store Collaboration and Customization
Gregory HeimBoston College
Baylor University – Sloan Industry CentersResearch Seminar on RFID
October 20, 2005
Agenda
Introduction and Premise of the StudyResearch BackgroundToward a Strategic Framework Inclusive of RFID/Sensor/Context-Aware TechnologiesCustomer Value from RFIDContributions and Future Directions
Introduction
Until recently, technology was not available that could feasibly track/monitor individual objects on a large scale within physical spaces
Web – ability to track human actions within e-service
Barcodes/UPC Largely manual; several limitationsNot very useful in service environments for enhancing service experience
RFID Real-Time Asynchronous Event HandlingReal-Time State-Based Decision MakingInfrastructural technologyDisruptive technology
As a result, early RFID adopters trying to enhance internal business performance
Strategic risk of competitors gaining first-mover advantage
Disruptive technology
Internal operational benefitsLower costsLower risksImproved inventory and supply chain managementHow to take advantage of customer data
Privacy issuesCustomers are worried that their data will be used against them
We are now dealing with a situation similar to that in the mid-1990s
Mid-1990sInternet was just emergingE-commerce was a potentially disruptive technologyCompanies focused on first mover advantageNo one focused on operations strategy/managementStrategic frameworks had been developed pre-WWWFew were focused on customer value
Today“Internet of Things” is emergingRFID is a potentially disruptive technologyFirst mover advantageStrategic frameworks were developed prior to RFID emergence, and don’t account for RFID impact Business value vs. Customer value
Premise
Widespread RFID experimentation and adoption provides an instance where it is important to reevaluate the strategic frameworks that have previously guided our thinking about operations management
Manufacturer uses of RFID are spreading fast
Huge number of manufacturing and supply chain applications
Consumer packaged goodsPharmacyAutomotiveMany others
Make up bulk of practitioner publications
Retailer distribution/SCM applications of RFID are growing
Retailers requiring vendors to tag cases and pallets
Wal-MartBest BuyTarget
Logistics ProvidersDHL forward and reverse logistics for garments
Service experience applications of RFID are less common
Applied Digital Systems’ VeriChipHuman tracking for hospitals to link patient health records to patients (Alzheimers)
Nightclubs in Spain, ScotlandChip VIP customers for entry, payment
TollwaysMassPike FASTLANE, NE states E-Z Pass, Bay Area Toll Authority
MobilSpeedpass
Campus/Airport Security/Banking SmartCardsRFID containing facial photos, fingerprintsIntegration of cards with commerce/e-commerce
MasterCard payment processingPayPass
Service experience applications of RFID are less common
Precision DynamicsPassive RFID wristbands to track jailhouse prisoners, waterparkvisitors
Casinos/Shuffle MasterTracking gamblers within casinosRFID-embedded gambling chips
Delta AirlinesBaggage tagging
HospitalsTrack medication given to patients, blood transfusions, lab specimens (St. Clair Hospital, Pittsburgh)Track surgery implementsTrack cardiac medical devices, facilitate billing (King’s Daughters Medical Center)
LibrariesTrack, manage, protect collections
Practitioner literature
Huge number of publicationsSheffi (2004)
Close to 0 articles in 1995Almost 9000 articles in 2004
White papers, visions, roadmaps, architectures, standards bodies
Academic literature on management and RFID is less broad
Lots of engineering projects
Scattered articles in management oriented publications (e.g., HBR)
Recent CFPs for special issues in operations management/logistics journals
Why a strategic framework?
PractitionersHelp to make sense of RFID implications
Summarize linkages between strategy, product and technology-based (including RFID) processesMany don’t want to understand the fine points of the information technology
ResearchersTheory development – proposition generationFramework for subsequent data collection/analysis
Why a strategic framework?
What are the operations choices in a world of RFID?
Same?Different?
Where does RFID fit well with available operations choices?
Obvious (yet nontrivial) case – RFID tracks materials going into an existing processInteresting case – Adding RFID to the mix creates potentially new manufacturing and service process types
Product-Process Matrix (Hayes and Wheelwright 1979)
Product Life Cycle Stages
Process Life Cycle Stages
Low volumeLow standardizationOne of a kind
Multiple productsLow volume
Few major productsHigher volume
High volumeHigh standardizationCommodity products
Jumbled flow(Job shop)
Disconnected line flow (Batch shop)
Connected line flow (assembly line)
Continuous flow
Product Life Cycle
Problems with the product life cycle as a theoretical basis
Assumptions behind H & W (1979) Product-Process MatrixProduct life cycleA process life cycle that should match the product life cycle
Academics at the time were very critical of the product life cycle concept (Tellis and Crawford 1981)
Rigid biological life cycle model of birth-growth-maturity-deathUnable to empirically validate product life cycle conceptReally only applies to individual product forms, not aggregated product classes or brands
Hunt (1976)Product life cycle is a tautologySales level [predicts] stages of life cycle [predicts] sales level
Wind and Claycamp (1976)Product life cycle oversimplifies product growth process
Service product-process matrix (Kellogg and Nie 1995) presumes same life cycle/volume
Service Package Structure
Service Process Stages
Unique Service Package
Selective Service Package
Restricted Service Package
Generic Service Package
Expert Service
Service Factory
Service Shop
Product Life Cycle
Claim – prior frameworks were asking the wrong question
Their question: For specific product forms following the product life cycle pattern (birth, growth, maturity, death), what processes are appropriate in each stage?
What is the important question to ask when building a product-process matrix?
Is our question about the expected pattern of an individual product design? product class? task/need?
Is our question time-specific?Technology choices (and alignment with product characteristics) up to 1979?Technology choices (and alignment with product characteristics) in the past and into the future?
Is our question sector-specific?Manufacturing vs. service vs. e-service
Is our question regarding evolution?Evolution of products (customer needs)Evolution of processes (technologies)
My question and basic assumptions
Question:Can we build a general model that represents all process types over time (inclusive of emerging RFID uses)?
Premise:Evolutionary model provides a better approach for understanding interrelationship between products and processes
DynamicOpen ended – allows us to evolve beyond 1979 view
My question and basic assumptions
Assumptions of evolutionary model (Tellis and Crawford 1981)
Cumulativechanges take place over time, build upon prior changestechnology builds upon prior technology
Motivatedconsumer needs/utility drivemanagerial/entrepreneurial creativity drive
Directionalmove toward greater complexity, efficiency, diversity
Patterneddivergence, development, differentiation, stabilization
Løwendahl and Revang (1998)Evolution of Strategy
Low High
High Strategy = market differentiation and/or focus
Structure = market based grouping, divisions
“Post-Modern Conditions”Local solutionsWide diversity
Alliances, networks, licensing
Low
Strategy = overall cost leadership
Structure = functional, bureaucratic
Strategy = emergent, incremental, or none
Structure = fluid, adhocracy, team based
Impact of complexification
processes externally
Impact of complexification processes internally
Heim and Sinha (2001)Evolution of Product Structure
Speed of customer need recognition and fulfillment
Static Dynamic
Unique Niche MarketLow volume/scaleLow variety/scopeLow online customization
Customized Mega MarketHighest volume/scaleHighest variety/scope
Highest online customizationJoint production/branding
Broad
Market Extender Dynamic Mass Market
Commonality of
customer needs
Jaikumar (1988)Evolution of Process Control
Mechanized/Human Integration vs. Computerized Integration
StaticMechanization
DynamicIntelligent
HighEnglish CIM
American NC
LowTaylor Dynamic
DiscretionScope
A product-process matrix derived from evolutionary patterns
PersonalService Process
Evolution
Manufacturing Process Evolution
Jumbled flow (Job shop)
Disconnected line flow (Batch shop)
Connected line flow (assembly line)Continuous Flow
DynamicNC/CNC
Computer Integrated Manufacturing/FMS
Mass Customization
Fabrication Laboratories
Expert Service
Service Shop
Service Factory
Dynamic Service Factory
Service Nervous Systems
Sensor Network Services
Evolution of StrategyEvolution of Product Structure
Jaikumar (1988)
Static/Mechanization High Discretion/Scope
Static/MechanizationLow Discretion/Scope
Dynamic/IntelligenceLow Discretion/Scope
Dynamic/IntelligenceHigh Discretion/Scope
StaticUnique need
Static Common
need
DynamicCommon
need
DynamicUnique need
How RFID fits into the process stages
PersonalService Process
Evolution
Manufacturing Process Evolution
Jumbled flow (Job shop)
Disconnected line flow (Batch shop)
Connected line flow (assembly line)Continuous Flow
DynamicNC/CNC
Computer Integrated Manufacturing/FMS
Mass Customization
Fabrication Laboratories
Expert Service
Service Shop
Service Factory
Dynamic Service Factory
Service Nervous Systems
Sensor Network Services
Evolution of StrategyEvolution of Product
Structure
RFID Use Characteristics Jaikumar (1988)
Static/Mechanization High Discretion/Scope
Static/MechanizationLow Discretion/Scope
Dynamic/IntelligenceLow Discretion/Scope
Dynamic/IntelligenceHigh Discretion/Scope
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
Applying process types to retail food industry
RFID Use Characteristics
PersonalService Process
EvolutionRetail Food Industry Examples Benefits to Consumer
Wedding Cake/Flower Consultant More accurate tracking, delivery
Better in stocks
Shopping cart management/shrinkage
Speed, ease
Location, information, entertainment
Knowledge of consumer and satisfaction of personal needs
Shopping Basket Assembly Process
Shopping Cart
RFID Shopping Carts/Automated Checkout
Metro Group’s Store of the Future
Loyalty Card of the Future (vendor + retailer)
Expert Service
Service Shop
Service Factory
Dynamic Service Factory
Service Nervous Systems
Sensor Network Services
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
Dynamic Service Factory – Intelligent Shopping Carts/Payment
Tesco’s RFID-enabled shopping cartsGatekeeper GS2 Wheel
Self-lockingActive RFID communicationWireless system diagnosticsAddition of replaceable battery
Automated checkout
Service Nervous System – METRO Group’s “Future Store Initiative”(Loebbecke 2004)
Technology Use Impact UponPersonal Shopping Assistants (PSAs) shopping list
personalized promotionsinventory management, replenishment
Customer Cards loyalty programs marketing
Intelligent Scale automated weighing human resources/service OM
Checkout via PSA automatic checkout human resources/service OM
Self-Checkout customer checkout human resources/service OM
Information Terminals information about products service OM
Electronic Advertising Displays display video clips marketing
Everywhere Displays interactive computing marketing/service OM
Electronic Shelf Labels automatic price updates
Personal Digital Asst. (PDAs) employee check stock level inventory management
Central Information Repository hold digital content marketing
RFID Devices pallet, case, item-level tagging
inventory, theft prev., freshness dating, product demonstration
Smart Shelves read product movement inventory, prioritize replenishment, product expiration
Sensor Network Service –Loyalty Card of the Future
CPG vendorsTrade Promotions Management applications/alliancesWant to better understand demand of ultimate consumerWant retailers to share transactional RFID data
My point of developing this matrix?
Løwendahl and Revang (1998) “When the core of competitive dynamics changes, theories and models which were assumed to be general turn out to be only locally applicable.
In the new and fundamentally different context of postindustrialcompetition, we therefore need to reassess the applicability of our theories when we apply them to a new and different context.
Failing to do so implies that we claim general validity without even testing the appropriateness of the underlying assumptions for the next context.”
Tellis and Crawford (1981)Product Life Cycle model is a special case of the Product Evolutionary Cycle
Evolutionary model provides a more general theoretical basis forstudying RFID adoption and management in service operations
Researchers must focus on the value to the customer of RFID
Much of the discussion so far has been about operational business benefits
better profits/lower costsinventory management improvements
Eckfeldt (2005)Customers will not adopt and use RFID-based systems if their own cost-benefit analysis doesn’t indicate personal value
Risks = privacy/data ownershipBenefits = peace of mind, consumer convenience, improved service
From our matrix, there are several different scenarios for uses for RFID
PersonalService Process
Evolution
Manufacturing Process Evolution
Jumbled flow (Job shop)
Disconnected line flow (Batch shop)
Connected line flow (assembly line)Continuous Flow
DynamicNC/CNC
Computer Integrated Manufacturing/FMS
Mass Customization
Fabrication Laboratories
Expert Service
Service Shop
Service Factory
Dynamic Service Factory
Service Nervous Systems
Sensor Network Services
Evolution of StrategyEvolution of Product
Structure
RFID Use Characteristics Jaikumar (1988)
Static/Mechanization High Discretion/Scope
Static/MechanizationLow Discretion/Scope
Dynamic/IntelligenceLow Discretion/Scope
Dynamic/IntelligenceHigh Discretion/Scope
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
Value/service quality research has found generic and specific attributes
Parasuraman, Zeithaml and Berry (1988)Generic model of service quality
Keeney (1999)Generic model of value of internet commerce to customers
Field, Heim and Sinha (2004) Important to model individual e-services to understand what qualities an e-service is capable of delivering
Keeney’s (1999) Model of Value of Internet Commerce
Means Objectives Fundamental Objectives
Product AvailabilityProduct VarietyBetter Purchase ChoicesImpulsive BuyingComparison ShoppingAccess to InformationProduct InformationEase of UseAccuracy of TransactionFraudMisuse of Credit CardSystem SecurityMisuse of Personal InformationReliable DeliveryPersonal TravelPersonal Interaction
Maximize Customer SatisfactionProduct QualityCostTime to Receive ProductConvenienceTime SpentPrivacyShopping EnjoymentSafetyEnvironmental Impact
Open questions
In a specific service environment …What are the fundamental objectives of customers in using RFID within that environment?What are the means objectives?
Mapping determinants of value in RFID onto process types
RFID Use Characteristics
PersonalService Process
EvolutionService Facility Examples
Hypothesized Fundamental Objectives
of Importance
Personal physician – pharmacy
Hospital – pharmacy, surgeryRetail – inventory management
Package deliveryBaggage taggingTollway/payment processing
minimize time spentminimize time to receivemaximize conveniencemaximize safety
maximize conveniencemaximize qualitymaximize safetymaximize enjoymentmaximize privacy
Waterpark visitors – wristbands Vending
Nightclubs/Coffee shopRetail – Metro Group, Prada
Hospital – cardiac devicesCasinos – gambler tracking (benefits)
Expert Service
Service Shop
Service Factory
Dynamic Service Factory
Service Nervous Systems
Sensor Network Services
Hypothesized Means Objectives
of Importance
InternalProcurement/SCM
InternalProcurement/SCM
InternalProcurement/SCM
accuracyavailabilityaccess to informationproduct information
make better choicesvarietyease of useinteractioncomparison shoppingsecuritymisuse of personal data
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
InternalProcurement/SCMCustomer-Contact
Proposition: In general, a means-ends model of customer value will becomemore complex as we move down the matrix
Contributions
Updated the product-process matrix Based on evolutionary patterns, rather than single product life cycle conceptExplains how RFID combines with process technology configurationsProvides a more satisfactory conceptual framework for generating hypotheses and empirical testing regarding RFID
Initial work on a model of value for customers using RFID in service environments
Two sub-groups of value situationsWill be context-specific
Research Directions
Next step is to collect data and examine propositions
Customer value from RFIDState formal research propositionsExamine with survey data
The importance of asking the right question
Douglas Adams – The Hitchhiker's Guide to the Galaxy
The Ultimate Answer to Life, the Universe, and Everything is sought from the computer DeepThought
DeepThought computes for 7.5 million years, and finally says the answer “is 42.”"Forty-two!" yelled Loonquawl. "Is that all you've got to show for seven and a half million years' work?""I checked it very thoroughly," said the computer, "and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you've never actually known what the question is."
Jaikumar (1988, p. 91)
“The systems … characterized by integration and intelligence are seen as man-machine cooperatives. To understand the significance of this shift, let us imagine the technology in the extreme.
Consider a small group of engineers working cooperatively via a connected system of workstations on designing and writing the manufacturing software for producing, on any defined configuration of machines located anywhere in the world, all of the components for a new rifle. Having created the requisite procedures, the rifle can now be produced in whatever quantity is desired. Machine capacity and materials have become commodities, to be bought and sold at whatever price one can obtain.”
“We are not there yet, you say. Yes. But why not? What is holdingus back is not increasing mechanization, but the greater intelligence in the form of precise and complete sets of contingent procedures. That is the technological imperative today.”
How does RFID fit into this?
Strategy Product ProcessHigh internal
complexificationHigh external
complexification
Unique customer needsDynamic need recognition
and fulfillment
High process scopeHigh process discretion
Dynamic intelligence
Post-Modern ConditionsLocal solutionsWide diversity
Customized Mega MarketHighest volume/scaleHighest variety/scope
Highest online customizationJoint production/branding
Computer Integrated Manufacturing
CIM/FMSMass customization
Fabrication laboratoriesRFID and sensor networks