RFID IN THE FASHION INDUSTRY: EXPLORATORY CASE
STUDY AND IMPLICATIONS
Federico Pigni Aurelio Ravarini
Samuele Astuti Giacomo Buonanno
Luca Mari
Università Carlo Cattaneo - LIUC
CETIC –Centro per l’Economia e le Tecnologie dell’Informazione e della Comunicazione
22, C.so Matteotti
ABSTRACT
Radio Frequency Identification technologies (RFId) have the potential to reshape entire supply chains by univocally track down goods at item or part level and dramatically improve the efficiency of business process.
INTRODUCTION
Radio Frequency Identification technologies (RFId) have the potential to reshape
entire supply chains. The ability to univocally track down goods at an item or part
level could dramatically improve the efficiency of business process. Moreover,
even if generally compared to barcode, RFId applications provide an extended
flexibility being able to provide a standard, common platform on which users can
build their applications. However, the future of this technology is not yet clear.
RFId technological components are continuously being innovated, business cases
other than those referring to retail industry are very limited, standards are being
defined and literature on the subject is scarce.
Early studies by MIT Auto-ID Center outlined seven main foreseeable
applications of RFId technologies (Smith & Konsynski, 2003): inventory
management, product or asset identification, logistics and transportation,
healthcare, customer service, theft and waste prevention, personal and asset status.
Even though most of them are still in a pilot phase others have been already
deployed (Smith & Konsynski, 2003). It is clear that RFId technologies potentials
are huge and provide extensive flexibility than former barcode applications by
offering, if standardization limits are overcome, “a common platform on which
users could implement several applications simultaneously” (Sarma, Brock, & Engels, 2001). Despite these premises, RFId technologies are far from being
widely adopted (Smith & Konsynski, 2003). In the short term RFId technologies
seem to be a viable solution only for large companies. Moreover, the cost of the
single tag is difficult to justify for low value products whereas barcode could still
be applied. SMEs will probably benefit from these technologies only as a “second tier” adopter possibly forced by their supply chain leaders (Pigni et al., 2006). Furthermore, the lack of industry and application standards are limiting RFId
market expansion and diffusion (Liard, 2003; Micheal & McCathie, 2005).
Finally, some preliminary findings show that the total implementation cost is
discouraging firms to adopt RFId solutions in their supply chains, confining tags
to products batch and single warehouse internal automation (Osservatorio RFId,
However, the cost of the tag, the reader and direct costs in general, are just a part
of the total investment for RFId implementation. System integration, training,
reorganization and application implementation are necessary activities with a
wider scope and generally influenced by the company profile. On this issue any
reference is lacking. Moreover, given the limited number of RFId
implementations, very little is known on how all the information related to
product ID will be managed by companies (Leong, Ng, & Engels, 2004) or how it
could be integrated with their existing systems or again which effects could this
have on their supply chains (Curtin, Kauffman, & Riggins, 2006 - forthcoming;
Loebbecke, Palmer, & Huyskens, 2006; Micheal & McCathie, 2005; Pigni et al.,
2006). Finally, the interorganizational dimension should not be underestimated:
the possibility to track down the single product item along an entire supply chain
generates relevant information flows and requires efficient data management
among partners that should be supported by an adequate Interorganizational
System (IOS) (Cash & Konsynski, 1985; Chae, Yan, & Sheu, 2005; Pigni, Astuti,
& Buonanno, 2004).
Considering the lack of accepted models or frameworks taking into account the
cited specificities, this paper aims at providing an exploratory case study of RFId
implementation in the fashion industry (Yin, 2003). In particular it deals with the
development of an interorganizational system able to address the tedious issue of
counterfeited products. The case study deals with relevant research questions in
the RFId research agenda (Curtin, Kauffman, & Riggins, 2006 - forthcoming). By
assessing the main effects of the RFId system on the B2B logistics, on the internal
operations and by identifying the foreseeable B2C services the study discusses the
possible impacts of the technology on the business value. Finally, the paper covers
some of the typical issues regarding the interorganizational governance and
ownership of the system, such as the roles of the different players and the
increased cross-organizational control in the outsourced process.
CASE SETTING
The G company is a famous Italian brand in the fashion industry. It manufactures
more than 5 million articles per year generating revenues for 40 million euros. Its
activity: the production during the first year of operation was just of 250.000
articles. G has an agile organizational structure focusing only on product concept
and design, fabrics and materials selection, customers and suppliers management.
All the manufacturing and distribution activities are outsourced to external
companies.
G products are considered luxuries and consist of trousers, accessories, shirt and
sweatshirt on which the largest part of the revenues is generated. Like the majority
of its competitors G designs two main collections: Autumn/Winter and
Spring/Summer, plus another line of low cost accessories (around 3 euros).
G considers counterfeited items a very serious issue as they directly impact the
company image and risk to damage both sales and brand strength. The illegal
competition of low-cost fake products, in fact, directly hits sales and the trust that
the network of exclusivist shops have in G. Finally, consumers are damaged
because of the impossibility to have a status recognition granted by the ownership
of branded articles.
This study will focus on the RFId deployment on the two main collections
because of their unitary value and – obviously – because they are more subject to
counterfeiting.
G’s RFId solution against counterfeiting is designed to control both the parallel market of items and the zones of exclusive right, thus identifying that the articles
sold and legit shops, other than original, has been acquired through the official G
distribution channel (the so called “gray market”).
THE RFID ANTI-COUNTERFAITING PROJECT
The business case involves four main actors:
the tag supplier;
the outside contractor (referred to as “façonist”); the logistics provider;
In order to be an effective anti-counterfeiting measure, the RFId tags have to be
applied on items as unique recognizable labels and must remain readable till the
product reaches the final consumer. Consequently:
tags have to be applied on each article by the contractor and a management procedure for both the contractor and the point of sales has to be designed;
all the tags inserted in the articles require proper read and write operations;
consumers’ privacy has to be granted and managed;
logistics should take advantage of tags through proper automated procedures, thus:
o the warehouse management system (WMS) should be adopted in
order to manage the new information from the tags;
o through proper automated procedure tags on items should be
“checkable” on the market both at the points of sale or in other
organizations by sales agents;
Furthermore, the uniqueness of each tag applied to articles improves the shipment
control procedure as each shipment could be checked against the packing list at
item level and agents could better managed, at the points of sale, identifying
returned or defective products.
Three main logical levels are used to approach the case study and further analyze
the choices made to meet the project requirements:
the physical layer, where tags are applied, code are read and shipment executed;
the RFId layer, composed by both the RFId system hardware and archive;
the business layer, where the interactions among the RFId layer, the warehouse management system and the ERP system take place.
Tag application and RFId layer management
The RFId tags operates in the HF – 13,56 Mhz – and stores a 64 bit unique, read
only, identification code (Leong, Ng, & Engels, 2004; Sarma, Brock, & Engels,
2001) set by the manufacturer (2 blocks of data) and 896 bit (28 blocks of 32 bit
50cmx50cmx70cm assorted items boxes. In order to avoid additional costs the
contractor is directly supplied by the tag manufacturer with chip integrated in the
labels describing the materials used. Tags are sent in the exact quantity required
by the order placed to the contractor by G, and their unique codes are stored in the
RFId layer (see Figure 1). Eventually, excess tags have to be sent back to G and
re-allocated to new orders. Once received by the logistics provider, products are
checked for authenticity and put in stock keeping unit (SKU) composed by boxes
of homogenous products (color, size and type). During this operation, each tag is
read and associated with the box and the product code. Both barcode and UPC are
used to manage the stocks in order to minimize the impacts on current practices.
This information is finally transferred to the ERP system updating the inbound
bill.
TAG Supplier Outside contractor Logistic provider
DB
Business Layer (ERP/WMS) RFID
Layer Phisical
Layer
Figure 1: Inbound RFId architecture
The RFId layer requires the management of these new codes and should grant its
accessibility outside company boundaries. Furthermore, it should manage:
Tags shipment from the manufacturer to the contractor;
WMS data integration of:
inbound logistics information regarding the tagged articles received from the contractor;
outbound logistics information of the articles sent to customers;
supplier, customers and articles data.
data on products that should be present in the points of sales, thus acquired from the legit distribution channel;
data on exceptions like products in the points of sale that should not be present;
exception reporting.
Logistics management (picking and shipping)
The integration of the RFId system with the warehouse management system is
designed to limit the impacts of the new technology. The shipping procedure
remains unchanged thus each shipment is identified both at box level through
barcode with the associated picking list and at item level through the RFId tags
(see Figure 2). The warehouse management system will associate to each
box/barcode the proper article code and quantities. During shipment, the box
barcode is used to retrieve the picking list from the WMS and then to check this
list against tag’s readings. The matching of tag’s readings with product codes is
obtained accessing the RFId tags code archive. Any discrepancy is managed as
exception and manually handled. Once tags reading operations are finished the
processing data is sent back to the WMS, thus information redundancy is greatly
reduced.
Logistics provider Points of Sale
Phisical Layer
Business Layer (ERP/WMS) RFID Layer
Figure 2: Outbound RFId architecture
Market control (Sale agents)
Sale agents are used to control the consistencies of point of sales’ articles display
Agents are equipped with a portable RFId reader device, interfaced with the
business layer and able to access all shipment data to the point of sales. In this
first stage, data are not directly sent to the integrated PDA device, but is the sale
agent that has to update this information manually by uploading the “update file”
received periodically by email.
The agent will not directly deal with the possible exceptions encountered: the
PDA generates an exception file that will be sent back by email to G.
Future development of the RFId application will be able to manage defective
products in order to authorize returning these articles.
Privacy issue
Customer’s privacy concerns need to be dealt carefully both for the obvious issues
and actions that could emerge and for the possible marketing opportunity.
Customers have the possibility to detach the RFId tag from the label and are
invited do to that if for any reason privacy is one of their concerns. The advice to
remove the tag is sufficient to protect G against any action for privacy concerns.
However, by suggesting to customers that the label grants the originality of the
products, tags could be used for marketing purposes.
PROJECT RESULTS AND LESSONS LEARNED
One of the most recent authoritative study on RFId application is Loebbecke et al.
(2006). In the analysis of the results of their case study the authors identified three
main relevant aspects of their application:
The physics involved, and the need to fine tune readers, tags and packaging to reach the 99% readability;
The processes affected by the RFId implementation “from tagging,
packing, and shipping logistic units and items through distribution and
warehousing on to display, sales, and theft prevention at the stores”;
The price and performance of the application and the different scenarios and choices regarding the RFId tag selection.
Despite all these elements provide interesting views of a case study, we suggest
stated before, an instance of IOS). The study of the IOS level is proposed to
isolate RFId effects on business processes’ information dimension. This is
especially useful for the present case study because of the limited impacts on
processes purposely planned in the design phase of the project.
The physics
As RFId applications are based on radio signals they are obviously subjected to
interferences that could thwart its feasibility (Finkenzeller, 2003; Loebbecke,
Palmer, & Huyskens, 2006; Micheal & McCathie, 2005; Pigni et al., 2006). The
effective scanning distance of RFId tags is affected by the composition of nearby
objects or simply by the material the tag is applied to. One of the most critical
aspects of any RFId project implementation is thus the understanding of the RFId
environment. High-moisture materials and metals can reduce the scanning
distance, as confirmed by several studies.
The pilot study was used to fine tune the application in order to attain the
application readability requirements. In particular, the scanning process required
special attention during the installation of the equipments both for the pilot and for
the actual deployment of the solution. The main obstacle was posed by the relative
short distance between tags applied on folded products, in several cases to small to
grant a perfect readability. Despite the encountered difficulties, product
readability was reached quite easily by studying a convenient packaging and
procedure in a pilot phase with the support of an RFId solution provider that
already developed expertise in this field.
The processes
The entire project was studied to minimize the effects on current business process
and it mainly affected logistics’ and sales’ ones. Despite the limited impacts all
the supply chain actors (Contractor, Logistics Provider and POS) experienced
changes in the way products are handled.
Outside Contractor: Tag application is totally transferred to façonists that have to
receive the RFId tags, apply them to products and handle both the outbound and
shipment. Tags application had only minimal impacts as it is stitched to the items
the outside contractors but checked by the logistics provider to verify legit
products.
Logistics provider: tags streamline logistics operations producing relative increase
in performance and accuracy through automation of inbound and outbound items
check.
Point of Sales: the single item tracking impacts sales agents jobs as they are
responsible for grey market/counterfeited items checking at the POS. Moreover,
POS are supplied with a proper PDA to verify sales and check inventory on a
daily basis. Actually, no action is formally undertaken when discrepancy between
items expected and found at the POS are notified, since the case study is still in an
early stage.
Finally, despite the project identified possible added value services to be provided
to customers, none of them was put into place, yet.
The Supply Chain Management System (IOS)
The RFId project posed multiple challenges in terms of IS design because of its
interorganizational nature. The first problem to address was related to the
“architecture” of the IOS supporting the RFId system. Generally, RFId
architectures range from centralized to fully decentralized and interoperable
systems, depending on where the information is stored: a central database or the
tag itself (Pigni et al., 2006). The solution developed by G mainly leverages the
benefits from the first scenario by directly managing the system, thus reducing the
impacts and the costs on the supply chain partners. The drawback is the obvious
“cost” to set-up the RFId layer, to grant its interoperability with both G’s current
ERP system and the logistics provider’s WMS, and the design of POS’ PDA application. Finally, to improve the traceability of gray market product, in each
tag is sored in other than the Electronic Product Code, the Stock Keeping Unit
Identifier: an 8 characters code that identifies the box used to store items in the
logistics provider’s warehouse. Thus the RFId layer manages the correspondence
between the SKU and the single items associated, whereas the WMS was only
capable to identify the class of products within each SKU.
Logistics provider: a procedure was setup to remotely exchange data from G’s
ERP system to logistics provider WMS providing RFId identification data,
exceptions, orders and packing lists.
Point of Sales: a PDA application should be designed to check daily sales at POS
and provide a proper interface with G’s ERP system. A similar application was
designed for G’s salespersons to check items’ RFId tags against the legit ID stored
in the central database.
Price and performance
G products benefits of a high unitary value minimizing tags’ cost incidence on the
final price of the branded items. Despite this, their value, on the total amount of
both investment and variable costs, represents the most relevant voice totaling (at
fixed quantities) more than 150.000€/yr. Investments in the RFId antennas, related
installation and configuration services where in the order of the 20.000€. Higher
costs (30.000€) were sustained for the acquisition, configuration and integration of the RFId software layer in G and the logistics provider. Finally, 20.000€ had to be
invested for the development of PDA software and partially committed to the POS
sales tracking system.
Benefits originated both from increased revenues and costs savings. It is estimated
that counterfeited products hit revenues by 8% and through the use of RFId this
plague was at least contained. The institution of a new item tracking procedure
through the RFId system dramatically reduced the costs of the services provided
by those agencies responsible for the inspection of customs’ confiscated products
(around 100.000€/yr.). Moreover, the finer tracking greatly impacted the gray
market increasing customers’ trust on the company as legit products are now
available only through G distribution channel as all the others are persecuted.
Consequently, the company exposure to customer’s claims, that generated legal
costs of over 200.000€/yr, are effectively eliminated.
Logistics benefits from the RFId project are related to returned goods
management. The ability to check the items composing each shipment reduced the
possibility of errors that generally translated in missed sales. Therefore, the costs
In summary, this case study showed a very successful example of RFId
implementation. The project payback was lower than a year and despite a limited
investment, great benefits were achieved. Harder to determine are the indirect
effects of the projects both in term of benefits and costs, despite the fact that the
latter were purposely contained. The effects on brand and customers’ trust are
surely important, but hardly referable to monetary values or performance indexes
and generally were not explicitly considered during project design. Finally,
despite its evident relevance the RFId contribute to G’s competitive advantage
was not assessed as the main project success criteria were directly related to
correspondent elements in the company budget.
CONCLUSIONS AND FURTHER RESEARCH
The RFId project had the precise purpose to limit the impacts on current business
processes and systems since its limited deployment on the company’s product
range. If changes were limited, the B2B logistics experienced positive efficiency
and efficacy effects, enabling full tracking of the gray market. Similarly, the
company has developed strong interest in the B2C logistics to strategically use
tags for “after sales” management and brand recognition among the consumers. The increased control on manufactured and delivered products reshaped the
internal process of G allowing new control opportunities on the distribution
channel, increasing market perception.
Furthermore, compared to the findings of Loebbecke et al. (2006) in the same
industry, the standardization did not constituted a real issue: despite the fact that
the application has an interorganizational scope and involves multiple players it is
directly owned and managed by G. G is the initiator and the owner of the system
and was able, reducing the impacts of the RFId solution and properly
communicating the attainable benefits, to engage all the relevant partners in its
supply chain. The main integration efforts were focused on the logistics provider
both for the inbound and outbound activities, but the impacts on the WMS were
extremely reduced. The entire implementation, in fact, was supported by a parallel
“RFId application layer” designed to be interoperable with both the logistics provider WMS and G’s ERP system and responsible for the management of
Further research should deepen the understanding of the price and performance
concept by referring to a more comprehensive one like the “business value” of the
RFId application. This concept should comprehend additional aspects other than
operational measures, generally adopted because of their direct “measureability” and their use of the ROI ratio (Gebauer & Buxmann, 2000). Moreover, RFId
projects have a strong interorganizational component involving partners with the
different role of initiators and participants and interorganizational investments
tend to be oriented to the long term, thus requiring an adequate evaluation
perspective (Gebauer & Buxmann, 2000; Pigni, Astuti, & Buonanno, 2004).
Lastly, this paper provides a preliminarily positive answer to an interesting
research question: do RFId use impact IOS adoption and creation? The RFId
project determined the adoption and creation of an IOS (Morrel & Ezingeard,
2002) because it resulted to perfectly fit company’s needs to track items along the
supply chain to fight the counterfeiting plague. The main reasons behind this
project development are attributable to efficiency and effectiveness drivers, more
than an accurate understanding of G’s competitive positioning, that seems to experience benefits, too. The development the RFId systems enabled the adoption
of an IOS along the supply chain, fostered by the ability of G to manage the
organizational challenge posed by the technology itself and the coordination of
multiple partners. Likewise all the inhibitors that generally hinder IOS
development were avoided thanks to G commitment to the project and the
decision to support all the costs by itself, greatly reducing the partners’
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