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. SowerSam Houston State University

Gary BakerSam 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.

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RFID Utilization and Information Sharing ImpactSupply 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.

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1. IntroductionAccording 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,

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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

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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

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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

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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-------------------------------

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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

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.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.

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-------------------------------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.

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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.

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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.

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Table 1Measurement 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

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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.

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Table 2Standardized Estimates and Associated t-values for Measurement Model Items

ItemStandardized

Estimate t-valueRFID1 .88 13.79RFID2 .90 14.34RFID3 .89 14.09RFID4 .91 14.56RFID5 .93 15.13RFID6 .94 15.48RFID7 .94 15.41RFID8 .90 14.49RFID9 .82 12.46

SCIS1 .84 12.86SCIS2 .84 12.94SCIS3 .86 13.32SCIS4 .82 12.35SCIS5 .89 14.07SCIS6 .87 13.53SCIS7 .79 11.59SCIS8 .86 13.36SCIS9 .87 13.63

SCP1 .79 11.75SCP2 .81 12.13SCP3 .83 12.64SCP4 .90 14.36SCP5 .87 13.47SCP6 .84 12.90SCP7 .86 13.28SCP8 .78 11.49SCP9 .85 12.98SCP10 .82 12.29SCP11 .84 12.86

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Table 3 Descriptive Statistics and Correlations(n = 155)

A. Descriptive Statistics

Variable Mean Std. Dev.RFID Technology Utilization (RFID) 2.61 1.74Supply Chain Information Sharing (SCIS) 4.69 1.24Supply Chain Performance (SCP) 4.85 1.26

B. Correlations

Variables RFID SCIS SCPRFID Technology Utilization (RFID) 1Supply Chain Information Sharing (SCIS) .277** 1Supply 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).

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RFID

Supply ChainPerformance

Supply ChainInformation

H1: (+)

H2: (+)

H3: (+)

Figure 1RFID-SCIS Performance Model

with Hypotheses

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RFID

Supply ChainPerformance

Supply ChainInformation

-.01 (-.18)

.32 (3.93**)

.72 (8.36**)

Figure 2RFID-SCI Performance Model

with Standardized Coefficients and (t-values)Relative Chi-Square = 1.48; NNFI = .99; CFI = .99; RMSEA = .06

(** significant at .01 level)