RFID TAG COST SHARING IN THE RETAIL SUPPLY CHAIN

In this research, we study some of the operational benefits of item-level radio frequency identification (RFID), and how these benefits may affect the dynamics of the retailer-manufacturer interaction. We describe a retail operation with backroom and shelf stock under the assumption of multiple replenishment and sales periods, where backroom stock is replenished according to a periodic review order-up to policy and shelf stock is replenished continually from the backroom. In this environment, retail shelves are outfitted with RFID readers to continually monitor the remaining stock on the shelves and issue low-stock and replenishment alerts to store personnel so that shelves can be replenished from the store backroom before actual sales are lost at the shelf. We are interested in the dynamics between retailer and manufacturer with respect to the cost of item-level tagging the products. Of interest is the way in which the cost of tagging the product is divided among the two supply chain partners. To do this, we investigate a supply chain in which power is distributed asymmetrically among manufacturer and retailer. This interaction is modeled using the Stackelberg game framework. From an analysis of this framework, we derive several properties of interest, relating to the appropriate division of tagging cost as well as to a life-cycle centric view of RFID implementations.