Mean-risk analysis of radio frequency identification application in retail stores with inventory misplacement

Abstract

Nowadays, the inventory misplacement is a significant issue in the supply chain management. This study analyzes how the managers consider using Radio Frequency Identification (RFID) to effectively eliminate misplacement problems and to improve profitability. A mean-risk framework is carried out to portray this issue and a central semi-deviation model is proposed for risk measurement to analyze the impact of risk attitude on RFID adoption. Both risk neutral and risk aversion cases are discussed in this study. By considering both fixed setup cost and the tag cost, it is proved that retailers do not always benefit more from implementing RFID, unless the level of available products and tag cost are both low enough. Under the risk analysis, it is found that a risk aversion manager will be more unwilling than a risk neutral manager to invest RFID technology. Moreover, the manager will be more unwilling to invest RFID if the manager is more risk-averse. © 2013 Asian Network for Scientific Information.