Effects Of RFID Technology On Efficiency And Profitability In Retail Supply Chains

Abstract

Ten years have passed since Wal-Mart’s public announcement about its RFID technology adoption plan in 2003. Some large competitors of Wal-Mart in the U.S. retail industry jumped on the trend of RFID technology adoption. However, there has been a slowdown of RFID technology adoption since 2008. Many U.S. retailers do not consider adopting RFID technology because of the uncertainty of return on investment and the lack of business cases demonstrating its profitability or efficiency. This study investigates whether RFID companies have better financial performance ratios in the U.S. retail supply chains. RFID retailers have significantly lower days-in-inventory and lower per-employee costs. Compared with pre-RFID, the RFID retailers do not improve profit ratios after they adopted it, but their days-in-inventory ratio and sales efficiency improve significantly. Panel data regression analyses show that inventory management efficiency does impact gross margins, but the impact of cost efficiency is negligible. RFID retailers have a positive relationship with gross margin increases. In summary, it could be stated that introducing RFID improves inventory management efficiency but we do not know yet if RFID technology adoption also contributes to profitability in U.S. retail industry.