the impact of rfid adoption upon operations strategy ...business.baylor.edu/pedro_reyes/rfid seminar...

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

Research Background

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

Toward a Strategic Framework into which RFID Fits

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)


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


Evolution





DynamicNC/CNC


Mass Customization


Expert Service

Service Shop

Service Factory




Evolution of StrategyEvolution of Product

Structure

RFID Use Characteristics Jaikumar (1988)





InternalProcurement/SCM



InternalProcurement/SCMCustomer-Contact



Applying process types to retail food industry

RFID Use Characteristics


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 – 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

Customer Value from RFID

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


Evolution





DynamicNC/CNC


Mass Customization


Expert Service

Service Shop

Service Factory




Evolution of StrategyEvolution of Product

Structure

RFID Use Characteristics Jaikumar (1988)











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


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




Hypothesized Means Objectives

of Importance




accuracyavailabilityaccess to informationproduct information

make better choicesvarietyease of useinteractioncomparison shoppingsecuritymisuse of personal data




Proposition: In general, a means-ends model of customer value will becomemore complex as we move down the matrix

Summary

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

Thank You

[email protected]

Additional Slides

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

the impact of rfid adoption upon operations strategy ...business.baylor.edu/pedro_reyes/rfid seminar...

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