Impact of RFID information-sharing strategies on a decentralized supply chain with reverse logistics operations
Introduction
Environmental responsibility plays a significant role in the agendas of every corporation (Cai et al., 2008). In this scenario, different drivers like government regulations have forced companies to take environmental initiatives in their supply chain operations (Zhu and Sarkis, 2004, Lee, 2008). Environmental practices can be applied through environmental design, environmental operations, and proper handling of waste and hazardous materials. In this paper, we address the environmental operations of reverse logistics, especially the collection of recycled materials used to replace traditional raw materials. Many industries apply reverse logistics to include recycled materials in their operations. For example, paper industry uses recycled materials transformed from used cartons, cardboard, newspapers, magazines, etc., for new paper production. Automotive industry uses different types of recycled materials in manufacturing tires and door covers to reduce procurement costs, and telecommunication industry uses recycled plastic materials to create new cell phone covers.
Green supply chain initiatives can provide environmental benefits. However, practices and research have shown that reverse logistic is a complex process that complicates managerial decisions in an attempt to achieve greater economic benefits (Zhu and Sarkis, 2004, Srivastava, 2007). One of the complexities that arise is the coordination with the forward supply chain in the inventory management. Reverse logistics operations handle the collection of returns; however, the amount of returns is highly uncertain and this uncertainty greatly affects the collection and inventory decisions (Dekker et al., 2004). Furthermore, the supply chain involves heterogeneous entities from both forward and reverse logistics, adding complexity into the system. As a result, though green supply chains achieve some enhancements in environmental and operational performances, they have not realized significant economic benefits, as noted by Zhu et al. (2007). For these reasons, companies need economic justifications to be fully motivated to voluntarily create environmental operations.
Our research question is then: how decentralized supply chains, through their inventory decisions, can voluntarily apply green supply chain practices such as reverse logistics in order to increases environmental as well as economic benefits?
There have been several studies and research that identify technology as a way to help managers coordinate complex decentralized systems (Surana et al., 2005, Wycisk et al., 2008). In practice, there are different kinds of information technologies such as bar codes, Global Positioning System (GPS), sensors, and Radio Frequency Identification (RFID). For our study, we are modeling the system with RFID technology. Items such as products and pallets can have attached a RFID tag. This tag will have a chip that has an Electronic Product Code (EPC). The EPC can store relevant data about the item tagged. Further, RFID Readers are installed in the warehouses in which through electromagnetic waves, it can detect the tags and read its respective data. One of the motivations for analyzing RFID technology is the capability of providing real-time monitoring of material flows in a supply chain. Also, RFID technology enables the entities in the supply chain to share EPC information through the use of the EPC Global Network (Bottani and Rizzi, 2008)1 . Another motivation for utilizing this technology is that RFID literature still needs quantitative analyses that can guide managers to understand its implications (Lee and Özer, 2007).
The objective of this research is to investigate how RFID information-sharing can help supply chains that use reverse logistics increase environmental and economic benefits through more coordinated inventory management. We study a decentralized supply chain with a manufacturer, a recycled-material supplier, and a raw-material supplier. Our study, through a simulation-based analysis, shows that the RFID technology provides two main competitive advantages to the supply chain: (1) real-time inventory monitoring, and (2) enhanced information sharing among decision-makers. The former competitive advantage allows continuous inventory control as opposed to periodic inventory control. The latter competitive advantage facilitates coordination inside the supply chain. From an environmental perspective, our numerical experiments reveal that the returns see significant increase (i.e., 87% more returns) in the RFID versus the No RFID scenario. However, in terms of economic benefits, cost is reduced in the RFID scenario, but the percentage of change was not as high as the environmental benefit (i.e., 19% less cost). To better understand these outcomes, regression and sensitivity analyses were performed in the economic performance measures. These analyses illustrate statistically significant factors that define what supply chain configurations can attain higher economic benefits.
The novelty of our work relies on three main contributions. First, there are rare papers in literature that address the inventory control on reverse logistics and its respective supply chain with multiple decentralized players. Second, few papers convey the modeling complexity of the decentralized system including stochastic behaviors such as in demands, returns and collection leadtimes as we modeled. And finally, this research is among the very first endeavors that quantitatively analyzes through a simulation-based study the usefulness of RFID information-sharing strategies in a green supply chain context.
The rest of this paper is organized as follows: Section 2 presents a literature review relevant to our research. Section 3 depicts system descriptions, notations and model assumptions. Section 4 presents system performance measures. Section 5 defines the inventory policies resulting from No RFID and RFID scenarios. The numerical results and managerial insights are analyzed in Section 6 and finally Section 7 discusses conclusions and future research.
Section snippets
Literature
Literature review about inventory control models on reverse logistics is first presented. We review optimal and heuristic models in literature. Then, we introduce the literature of quantitative models on RFID information technology.
System descriptions, notations and model assumptions
We define the decentralized supply chain in this section and performance measures in the following section. These two sections will be used to devise the inventory policies in Section 5.
Environmental and economic performance measures
In this section, we define the environmental and economic performance measures that help compare the No RFID and the RFID information-sharing strategies.
Returns ordered from the manufacturer to the recycled-material supplier over a time horizon is used as the measurement of environmental performance. System cost Cs is used as the economic performance that comprises of the cost measurements of the three entities over the time horizon, Cs=Cm+Cg+Cr. Table 1 shows in details the cost measures
Inventory policies under different RFID information-sharing strategies
Having defined the supply chain descriptions and performance measures in previous sections, we now define the inventory policies for the two scenarios. First, we present the inventory policies for the No RFID case. Then, we provide the new inventory policies with the integration of the RFID technology. We illustrate the inventory policies enhancements as well as the information sharing among entities.
Simulation design and experiment
Simulation experiments are performed over two RFID information-sharing strategies: No RFID and RFID. A 1/8 fractional factorial design with Resolution V is used for each information-sharing strategy. Each simulation has 128 runs with 10 replications. No RFID scenario has 10 factors and RFID scenario has 11 factors, with two levels each. The time horizon is of 2000 days. Table 3 shows the experimental variables and levels. Numerical values such as leadtimes and relevant cost measures are based
Conclusions
This research studies the impact of RFID information-sharing strategies on a supply chain using environmental practices such as reverse logistics. To our knowledge, this is one of the first research studies to provide more understanding and insights into the changes of inventory policies with the use of RFID under a decentralized supply chain with reverse logistics operations. Furthermore, it is one of the first studies to provide managerial guidelines on the conditions and patterns where the
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