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Journal of Applied Mathematics
Volume 2014, Article ID 135284, 17 pages
http://dx.doi.org/10.1155/2014/135284
Research Article

Misplaced Inventory and Lead-Time in the Supply Chain: Analysis of Decision-Making on RFID Investment with Service Level

1School of Business, East China University of Science and Technology, Shanghai 200237, China
2Krannert School of Management, Purdue University, West Lafayette, IN 47907, USA
3College of Business, University of Tulsa, Tulsa, 74104, USA

Received 13 February 2014; Accepted 25 June 2014; Published 23 July 2014

Academic Editor: Zhi-Hong Guan

Copyright © 2014 Li-Hao Zhang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Radio-frequency identification (RFID), as the key technology of Internet of Things (IoT), has been hailed as a major innovation to solve misplaced inventory and reduce lead-time. Many retailers have been pushing their suppliers to invest this technology. However, its associated costs seem to prohibit its widespread application. This paper analyzes the situation of service level in a retail supply chain, which has resulted from misplaced inventory and lead-time. By newsvendor model, we analyze the difference between with- and without-RFID technologies in service level of centralized and decentralized supply chains, respectively. Then with different service levels, we determine the tag cost thresholds at which RFID technology investment becomes profitable in centralized and decentralized supply chains, respectively. Furthermore, we apply a linear transfer payment coefficient strategy to coordinate with the decentralized supply chain. It is found that whether the adoption of RFID technology improves the service level depends on the cost of RFID tag in the centralized system, but it improves the service level in the decentralized system when only the supplier bears the cost of RFID tag. Moreover, the same cost thresholds of RFID tag with different service levels exist in both the centralized and the decentralized cases.