Designing a RFID Program for Improved Supplier Management

How to design and implement a successful RFID program has been at heart of RFID adoptions, especially when industry reports have found mixed results of RFID programs. In this paper, we study RFID adoption in the context of supplier management, and develop an incentive mechanism that outlines the optimal structure of the RFID program under various scenarios. We find that a successful design of a RFID program is dependent on the cost of mismatched supplier, the prior probability of the supplier's type, and the supplier's own diffusion level. The higher cost of mismatched suppliers motivates the retailer to offer higher compensation to the supplier in developing the RFID program. When the diffusion level of the RFID within the supplier is high the retailer needs to offer high compensation to the supplier to induce great effort in the RFID program. Finally, the prior probability of the supplier influences the retailer's compensation and the success of the program in different ways dependent on the interaction of the cost of mismatched low and high suppliers. Managerial implications and further research directions are also discussed.