Chapter 5. The Field Study
5.1 Data collection from the chain convenience stores
The distribution traceability system serves a role to help us enhance the food safety in a food supply chain. To implement the task, the pilot project runs the food distribution traceability system to link itself with a set of suppliers, distribution centers (DCs) and retailers including convenience stores, supermarkets and warehouse stores. For the reason of viability, we restrict the study range to chain convenience stores in Taiwan. They have adopted the electronic commerce system so that it is easier for them to implement the food/product traceability system by using RFID technologies. As expected, launching the RFID technology results in customers with convenience and security. In addition, we note that the major groups of chain stores in Taiwan are 7-Eleven, FamilyMart, Hi-Life and OK-mart.
The target markets for the RFID are convenience stores whose main customers expect fresh, convenient, nutritious and inexpensive products.
The goal of this pilot project is to promote RFID systems to chain convenience stores, including the retailer stores, distribution centers and food manufacturers. Once the goal of implementing RFID system to convenience stores is successfully reached, it can be extended to the next stage of supermarkets and warehouses to apply the RFID system.
For analyzing purposes, we have to measure the market size and the demand of RFID hardware/software in two aspects: one is to estimate the number of equipment needed in food supply chains, the other is to verify the target market to promote the RFID technology. We first calculate the number of required instruments of RFID readers and tags by the following estimated approach. Note that there are different types of RFID readers including the fixed reader, the hand-held reader, the RFID-POS system and the kiosk. In a similar manner, the demand of readers can be discussed in two sides: manufacturers and retailers. For a
manufacturer, fixed readers are needed in order to record the information of products. For retailers, each retailer store has an RFID-POS at checkout counter to record the selling information and a kiosk for consumers to inquire the relative data of their purchases. The retailers and distribution centers also need hand-held RFID readers for stocktaking. For a systematic analysis, an integrated procedure is proposed and contains three stages as shown in Figure 3. The first stage is to investigate the chain of convenience stores in Taiwan. In the second stage, we sample and inquire the convenience stores for estimating the number of purchases. On the other hand, we investigate the number of convenience stores, major food suppliers and their related distribution centers. Applying the analyzing process, we can estimate the consumption of RFID tags and the requirement of RFID equipment in the convenience store chain.
Figure 3: The procedure of estimating the number of RFID equipment
It is worth to mention that each chain of convenience store has its own logistics system.
Obviously, the needed numbers of readers, RFID-POS and kiosks can be estimated by the firm of convenience stores. With the information gathered from each convenience store, the number of stores and related distribution centers in each convenience store chain is shown in Table 4. In addition, some larger food manufacturers and the distribution centers of each firm are summarized in Table 5 as well.
Table 4: The number of stores and related DCs of each convenience store
Table 5: The number of plants and related DCs of major food manufacturers Firm Number of plants Number of DCs record the information of inventories of merchandise, two RFID-POS systems at counter for clerks to checkout and a kiosk for customers to inquire the information about goods. In addition, each food manufacturer has at least two fixed readers to record the production and transportation process. Moreover, two fixed and one hand-held reader assumed to equip in a distribution center. As above-mentioned statement, the requirement of RFID equipment is shown in Table 6.
Table 6: The requirement of RFID equipment to each member
Under this consideration, the amounts of fixed readers, hand-held readers, RFID-POS systems and kiosks can be calculated and are summarized in Table 7.
Table 7: Estimated equipment demand of distribution traceability system Fixed reader Hand-held reader RFID-POS system Kiosk
Food manufacturers 60 30 N/A N/A
In the following, we calculate the consumption of RFID tags in chain convenience stores.
We can estimate the consumption of RFID tags by the field data from retailer stores. We take samples from five different locations of convenience stores in Taiwan. The purchase data are recorded in two time periods, morning and evening, which are from 10:30 to 11:30 in the morning and from 7:00 to 8:00 in the evening. There are four kinds of foods that are suitable for utilizing RFID tags. Those are beverage, instant food, packaged food and frozen food due to their characteristics. We record the number and types of purchases by observing customers of the checkout counter. In addition, we summarize the resulting data in Table 8.
In Table 8, each cell indicates the consumption of each kind of food during a specific time period.
Table 8: Records of tags consumption for firms
Package or Morning Evening Morning Evening Morning Evening Morning Evening Morning Evening
Plastic bottles 11 29 48 48 25 12 17 63 20 16
From the available data, we summarize the whole number of items in each specific store given the time period. Some outlier statistics are deleted as shown in the cross-out marks in Table 8 (i.e. 132, 104, 76 and 42); that is, we delete the highest and the lowest number of morning and evening respective. With the field study data, we can estimate the day consumption of tags in each retailer store by
hrs tags day Thus, the total annual number of tags used can be approximated as
days stores
With the former estimations of required RFID readers and predicted amounts of tags, the potential market of hardware is large according to our analysis. Because the number of tags consumption is 6,426,079,040 per year, it is worthy of investing in this field.
5.2 Promotion scenarios of food traceability system
By the illustration of section 4.1, the adopting process of the RFID technology in chain convenience stores would follow a specific sequence. In this field study, we take a year as a planning time period. The food manufacturer and distribution centers should install the RFID equipment in the first year. The retailer stores may install the hand-held readers and kiosks in sequence. Following industry experts’ opinions, we investigate two scenarios in the study: 4- or 6-year promotion schemes. The adopting numbers of retailer stores follow the standard logistic distribution as shown in (5) in section 4.1. We let M denote the number of food manufacturers, N denote the number of distribution centers, and L denote the number of retailers, where M is 30, N is 45, and L is 9,200 in the field study respectively. This helps us derive the result shown in Figure 4 and Figure 5. For 4-year promotion scheme, the accumulated clients of retailer stores installed the RFID-based traceability system through the first year to fourth year are 2,000, 4,600, 7,200 and 9,200. On the other hand, for 6-year promotion scheme, the accumulated clients of retailer stores installed the RFID-based traceability system through the first year to sixth year are 1,300, 2,600, 4,600, 6,600, 7,900 and 9,200. This allows us to approximate the suggested price in a reasonable manner. As expected, once the pilot project is successfully promoted throughout the entire convenience store chain, the RFID traceability system then may be expanded to other fields.
Retailer stores 2,000 4,600 7,200 9,200
0
5.3 The cost and profit analysis
To set the price of implantation of RFID, we estimate the annual expenditure including start-up cost and operations costs. Because salary cost is one of the most important parts of operations costs, we also estimate the personnel plan and total payroll as shown in Table 9.
According to industry experts, 20 employees are expected to be recruited in the first year, 28 employees in the second year, and 35 employees in the third year and remaining years. A small-sized firm with 35 employees would be launched for promotion and operation business in this pilot project. We also list the estimated expense of the pilot project in Table 10.
Note that the technology transfer fee is the maximum part of the expense in the first year.
The total expense would be summarized by start-up cost in the first year and operations costs in each year. From the second year, the total cost includes operations costs without start-up costs.
Table 9: Personnel plan of the pilot project
Year 1 Year 2 Year 3 Payroll(year/person)
President 1 1 1 $1,147,500
Vice-President 0 1 1 $675,000
Manager 1 1 2 $810,000
IT engineer 6 9 10 $607,500
Accountant 2 2 4 $472,500
Sales 6 8 10 $337,500
Technician 4 6 7 $405,000
Total people 20 28 35
Total payroll $10,192,500 $14,175,000 $17,617,500
Table 10: The estimated expenses service fee respectively. From (10), we state 15,452,500 as the total start-cost TSC, 30 as the number of food manufacturers M, 45 as the number of distribution centers N, and 9,200 as the number of retailers L respectively. As a result, we have the initial fee as and 6-year promotion scheme is discussed separately in the followings.
4-year promotion scheme
According to (9) and estimated expenses in Table 10, the total costs can be estimated as
follows: installing clients are 2,075, 4,675, 7,275 and 9,275, the price should be
As the computations above, the clients implementing the RFID pay an initial fee Pinitial = 1,666 in the first year and Pservice = 4,413 from the second year. Similarly, we can analyze the other promotion scheme in the following.
6-year promotion scheme
It is the same as 4-year promotion scheme, so we calculate the resulting total costs that would occur within six years in the following
Suppose that the pilot project is expected to make 20% profit. Given that the accumulated numbers of installing clients are 1,375, 2,675, 4,675, 6,675, 7,975 and 9,275. Therefore, we
have the service fee for 6-years promotion scheme as calculated below.
Because of the same reason, the price that the clients would pay is Pinitial = 1,666 in the first year and Pservice = 4,923 from the second year.
Profit analysis
In the following, we would utilize the estimated prices to calculate the resulting profits for 4- and 6-year promotion schemes. From section 4.1, the prices can be derived according to the cost-based pricing approach. For 4-year promotion scheme, we charge Pinitial = 1,666 for
As above, it can be seen that we would have a positive profit from the third year and would earn 16,791,523 (NTD) from the fifth year.
On the other hand, the profitable condition of 6-year promotion scheme also can be derived as below.
As above, we would have a positive profit from the fourth year and earn 21,527,032 (NTD) per year after the seventh year. In summary, resulting profits of 4- and 6-year promotion schemes can be arranged in Table 11.
Table 11: The resulting profits of 4-year and 6-year promotion schemes 4-year scheme 6-year scheme
We can see the comparison of 4- and 6-year promotion schemes in Table 11. The initial fee of these two promotion schemes is the same, but the service fee of 6-year promotion scheme is higher than 4-year promotion scheme. On the other hand, in the first five years, because the adopting number of clients of 4-year promotion scheme is more than 6-year promotion scheme, the profits of the former are higher than the latter. However, when the number of clients reaches to the same, the profit of 6-year promotion scheme is higher than 4-
year promotion scheme from the sixth year because the higher service fee. It seems that the 6-year promotion scheme is a better scenario than 4-year’s in long-term. Nevertheless, in the view of serving the RFID technology to the entire supply chain, the shorter promotion scheme would be better to the industry.
In this section, we analyze the estimated cost and profit of this pilot project that operates the food distribution traceability system for chain convenience stores in Taiwan. It is clear that the pilot project makes an incremental profit according to our project. We charge the clients who install the RFID hardware/software with an initial fee in the first year. In addition, we charge the clients with service fee per year for technical support and maintaining those related hardware/software. The retailers have incentives to implement the RFID food distribution system because the technology may enhance customer service. The food distribution traceability system may protect consumers from the fear of food accidents and satisfies consumers in a safe food supply chain.
Chapter 6. Conclusions and Future Research
In recent years, because of concerns in food safety issue, many researches focus on the food traceability system. The food traceability system may provide members in food supply chains and customers with a visible transaction process. However, not much research indicates the utility of operating a food traceability system. In this study, we propose a framework of promoting the food distribution traceability system. Our study provides an essential way to commercialize the food distribution traceability system and to perform operations in a food supply chain. The proposed system is based on RFID technology, which is applied in improving supply chain management and asset visibility in recent years.
With the implementation of RFID technology, a food traceability system would be reliable and efficient because RFID enables a higher reading rate than traditional bar code.
In this study, we develop the promotion schedule to know the adoption of a new technology for supply chain members. In this paper, we assume that the members in a food supply chain composed of food manufacturers, distributors and retailers adopting the RFID technology follow the logistic function. In addition, we propose a pricing strategy for clients who adopt the RFID infrastructure and service. The tentative plan is to charge clients an initial fee for installing RFID equipment in the first year; and then charge clients service fee for technical support from the second year. As a result, we can analyze the cost and the profitability of this pilot project.
The chain convenience stores in Taiwan have adopted an electronic commerce system for years. With the existing institution, chain convenience stores would be easier to implement a food traceability system than other food supply chains. In addition, chain convenience stores have become a popular choice of grocery shopping. To successfully implement the RFID technology in food supply chains, we focus on the chain convenience stores in Taiwan
for a field study. The computing result provides a suggestion to investors who consider the viability of operating a traceability system.
In this study, we focus on commercializing the food distribution traceability system.
We predict that the adoption process of members in a food supply chain would follow a cumulative logistic function. However, there are many influences to market growth in reality. We may consider using another growth function to sketch the adoption process of a new technology in future research. In addition, the promotion scheme can be extended to more scenarios to observe the variation. We may improve the way to estimate the expected profit of this pilot project according to the precision investigation. In practice, there is variety of food supply chains. We may extend the range of this study to other food supply chains instead of confining in chain convenience stores.
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