An RFID application in the food supply chain: A case study of convenience
stores in Taiwan
I-Hsuan Hong
a,⇑,1, Jr-Fong Dang
b, Yi-Hsuan Tsai
b, Chen-Shen Liu
c, Wang-Tsang Lee
c, Ming-Li Wang
c,
Pei-Chun Chen
ca
Institute of Industrial Engineering, National Taiwan University, 1 Section 4, Roosevelt Road, Taipei 106, Taiwan
bDepartment of Industrial Engineering and Management, National Chiao Tung University, 1001 Ta Hsueh Road, Hsinchu 300, Taiwan c
Industrial Technology Research Institute, 195 Section 4, Chung Hsing Road, Hsingchu 310, Taiwan
a r t i c l e
i n f o
Article history: Received 5 January 2011
Received in revised form 20 March 2011 Accepted 9 April 2011
Available online 22 April 2011 Keywords:
Radio frequency identification (RFID) Food traceability system
Supply chain
a b s t r a c t
Food hazards can appear at any stage of global food supply chains, making it essential to define critical control points to capture the data about ingredients, manufacture and dates-certain (sell-by, use-by), etc., and provide it in a transparent manner to supply chain participants and consumers. The government of Taiwan has appointed a non-profit research organization to conduct a pilot project to launch a potential national-wide food traceability system to increase the intangible value of purchased food and to enhance food safety. This paper discusses a financially viable business model for a Radio Frequency Identification (RFID) application to a food traceability system. We conduct a case study of RFID implementation in the chain of convenience stores in Taiwan. The Taiwanese experiment may have implications for policy-mak-ers, industry and public health officials elsewhere.
Ó 2011 Elsevier Ltd. All rights reserved.
1. Introduction
Concerns about food safety have grown over the past decade
(WHO Media Centre, 2007). After the outbreak of bovine
spongi-form encephalitis (BSE, or mad-cow disease) in the United King-dom in 1985, the Euro-Retailer Produce Working Group (EUREP), a private party consisting of several European supermarket chains and their major suppliers, developed GLOBALGAP (Good Agricul-tural Practice; formerly EurepGAP) to set voluntary standards for the certification of agricultural products around the world ( GLOB-ALGAP, 2009). In 1997, several major European retailers responded to food scares such as BSE by banding together to develop new glo-bal guidelines for sales of meat, fruit, and vegetables throughout Europe.2The scandals in China involving contamination of infant formula and pet foods further heightened concern. As countries is-sued product recalls (BBC News, 2009), the public learned that cur-rent industry practices were inadequate to track forward and trace back throughout global food distribution channels. Articles in the popular media, such as ‘‘Live Chat: Who makes sure our food is safe
to eat?’’3, ‘‘Council to report on New York’s Food Industry, From Seed to Compost’’4and ‘‘UK: Listeria scare forces Waitrose recall’’5reveal the extent of the problem. Recently, the US Senate passed the Food Safety Modernization Act that intends to improve food safety proce-dures and controls over the nation’s food supply chain.6
Participants in a typical food supply chain may include primary producers, manufacturers, transport and storage firms, subcontrac-tors to retail and food service outlets, producers of equipment, packaging, cleaning agents, additives, ingredients, etc. (Frost, 2005). Currently, participants rely on two informational methodol-ogies. One manages food supply chains via standards or certifica-tions, e.g., ISO 22000 (the International Organization for Standardization), HACCP (Hazard Analysis and Critical Control Point) and food GMP (Good Manufacturing Practices). The second records logistics operations and production processes via a food distribution traceability system that provides transparent trace back and track forward information. To achieve the ambitious goal
0260-8774/$ - see front matter Ó 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.jfoodeng.2011.04.014
⇑ Corresponding author. Tel.: +886 2 3366 9507, fax: +886 2 2362 5856. E-mail address:ihong@ntu.edu.tw(I-H. Hong).
1 The corresponding author holds a joint appointment with Department of
Mechanical Engineering, National Taiwan University, Taiwan.
2 The article can be found at http://www.flex-news-food.com/console/
PageViewer.aspx?page=14843.
3
The article can be found at http://www.theglobeandmail.com/news/national/ time-to-lead/global-food/safety-and-traceability-in-the-global-food-market/ article1806207.
4
The article can be found at http://www.nytimes.com/2010/11/22/nyregion/ 22food.html.
5The article can be found at
http://www.just-food.com/news/listeria-scare-forces-waitrose-recall_id99476.aspx.
6The article can be found at http://whitehouse.senate.gov/newsroom/press/
release/?id=1942135E-B40A-43B8-8F4D-7BF52E9BAF57.
Contents lists available atScienceDirect
Journal of Food Engineering
of recording the associated information of interests in a food supply chain, industry has turned to Radio Frequency Identification (RFID), an automatic identification technology that uses wireless sensors to identify items and gather data without human interven-tion. An RFID system is based on tags and readers (Tajima, 2007): the tag is a microchip and an antenna that stores and transmits identification data, and the reader communicates with the tags, delivering the information in a digital format to a database. In addition, retailers may equip kiosks for consumers’ inquiries about the food distribution information.
The government of Taiwan has appointed a non-profit re-search organization to develop a pilot project to improve food safety. If the pilot is successful, the associated technology, learn-ing and management skills will be transferred to an application service provider (ASP) which will consult with the parties intending to launch a food traceability system. The aims of this paper are to analyze the profitability and benefits incurred in establishing the ASP and to propose a financially viable business model of a food traceability system. Although RFID technology is a powerful records tool for food supply chains, barcodes are most commonly applied due to cheaper pricing. The current sta-tus of the pilot project is still at the interview/analysis stage. The aim of the pilot project is to provide industry practitioners and government regulators with a cost-benefit analysis such that associated firms in food supply chains may be willing to imple-ment a food traceability system in the future. We hope to con-tribute significantly to the ongoing discussion among industry, regulators and consumers.
The remainder of the paper is organized as follows. Section2
reviews the relevant literature on RFID development and food traceability systems. The participants in a food traceability sys-tem and the implementation procedures required to install a traceability system are introduced in Section 3. Section 4 dis-cusses a proposed promotion scheme and pricing strategy. Sec-tion5 presents a case study of RFID application to convenience stores in Taiwan. Section6presents our conclusions and sugges-tions for future research.
2. Literature review
RFID technology developed for several decades, with success-ful applications for access control systems, airport baggage han-dling, livestock management systems, and automated toll collection systems, especially in logistics and retail businesses
(Ergen et al., 2007; Agarwal, 2001; Hou and Huang, 2006; Kelly
and Erickson, 2005). For example, a construction industry appli-cation using RIFD in an automated traceability system of pipe spools and buried assets is another successful application of the technology (Domdouzis et al., 2007). Tajima (2007)suggests that adopting RFID in supply chain management may reduce management costs and increase the efficiency of product flows.
McMeekin et al. (2006)state that the use of RFID technology
en-ables the food industry to increase the accuracy and speed of gathering source information about foods in traditional retail environments. Wamba et al. (2008) show that using RFID in a retail industry can improve shipping, receiving and put-away processes corresponding to suppliers, distribution centers (DCs) and retailers, respectively.Gandino et al. (2007)propose a trace-ability system based on RFID technology for a fruit warehouse.
Meuwissen et al. (2003)indicate the importance of the traceabil-ity system and analyze its potential costs and benefits by apply-ing RFID technology to the British livestock industry. These and other research demonstrate that RFID technology helps retail companies both enhance product availability and improve a chain’s end-to-end visibility.
Table 1 summarizes the key studies categorized by ‘‘system
design’’, ‘‘industry overview’’ and ‘‘benefit analysis’’. The research related to system design demonstrates that a typical traceability model in food supply chains can establish a secured food distri-bution system (Gandino et al., 2007; Ruiz-Garcia et al., 2010; Thakur and Hurburgh, 2009; Bevilacqua et al., 2009; Regattieri et al., 2007; Martínez-Sala et al., 2009). General situations of food traceability systems have been conducted by Jedermann et al. (2007),Lin, 2009andPrater et al. (2005). Benefit analysis studies indicate how a traceability system can enhance food safety (Karkkainen, 2003; Bertolini et al., 2006; Martínez-Sala et al., 2009).
Several studies indicate that RFID brings more advantages than the barcode system for food traceability (Jedermann et al., 2009; Tajima, 2007).Regattieri et al. (2007), who analyze the economic advantages of alphanumerical codes, barcodes and RFID in a prod-uct traceability system, show that although RFID is relatively more expensive, it is still very promising because it does not require physical contact or particular alignment with RFID readers and the reading phase is very fast and fully automated. The most com-monly mentioned advantage of RFID over barcodes is supply chain visibility, which enables fast and automated processes at the sup-ply chain level, such as exception management and information sharing (Tajima, 2007).Li et al. (2006)propose an innovative plan-ning model which utilizes RFID technology to identify the product quality status for a perishable food supply chain. Their model con-siders the product value for consumers instead of merely reducing the costs.Jones et al. (2005)analyze the benefits of RFID, i.e., great-er speed and efficiency in stock opgreat-erations and bettgreat-er tracking throughout the chain, from the retailer perspective. Kelepouris
et al. (2007)study the requirements of a traceability system in
which RFID technology provides excellent opportunities for effec-tive and efficient system design and makes the traceability feasible and easily deployable across a supply chain. However, this is typi-cally considered a long-term benefit because realization of visibil-ity requires popularized adoption, trading partner collaboration and technology infrastructure for information sharing. Recently, several solutions for implementing food traceability systems by RFID technology are found in (Abad et al., 2009andWang et al., 2010).Lin (2009)develops the approach to construct an integrated framework of the RFID promotion procedure to implement the technology in logistics and supply chain management. As expected, RFID becomes a popular technology, but most applications are re-stricted to a single process or single division (i.e., a particular prod-uct such as vegetable, cheese, etc.). In reality, few large-scale applications have been implemented in food supply chains. Thus, implementation of an RFID-based food traceability system throughout an entire food supply chain is a daunting challenge.
Table 1
Literature on food traceability systems.
Category Author Scope of study System design Gandino et al. (2007) Agriculture food chain
Regattieri et al. (2007) Expensive cheese
Bevilacqua et al. (2009) Vegetable products
Thakur and Hurburgh (2009)
Bulk grain supply chain
Ruiz-Garcia et al. (2010) Agricultural batch products Industry
overview
Prater et al. (2005) Grocery supply chain Jedermann et al. (2007) Temperature monitoring
Lin (2009) An integrated framework
Benefit analysis Karkkainen (2003) Perishable grocery supply chain
Bertolini et al. (2006) Pasta production
3. Introduction to the traceability system 3.1. Food traceability system
The implementation of the food traceability system suggested for Taiwan follows three stages: planning and development; pilot testing; and implementation. In the planning and development stage, the government underwrites a non-profit research organiza-tion to develop the technology for integraorganiza-tion of required software, hardware, etc. In the pilot testing stage, lessons learned are used to customize and refine the traceability system depending on the par-ties’ requirements. After the system is developed maturely, the government transfers the associated intellectual properties (IP) to an ASP which operates the system. In the implementation stage, the ASP provides the members with consulting services, e.g., tech-nical support and data analysis.Table 2shows the three stages.
The pilot project plans to operate an RFID-based traceability system that offers the services listed inTable 3: information ser-vice; technical support; and educational training. The information service includes information sharing to the members. Technical support includes software and hardware installation. Educational training is given in the design, development, and implementation of traceability systems.
3.2. Operations in the food traceability system
The three participant groups (food manufacturers, DCs, and retailers) proceed through the three steps illustrated inFig. 1 be-low, where each step indicates a particular control point in the group’s operations. At the producing step, the processing food is electronically labeled on an RFID tag to record its production data (e.g., manufacturing date, ingredient contents and weight). Manu-facturers pack products into cartons and label them with RFID tags as well. In the packaging step, the identity of products specified by the corresponding carton and pallets holding the cartons are also tagged. All associated information is uploaded to the traceability system and made immediately available.
The second group involves the operations in a DC, including receiving and stocking, picking, and repackaging and shipping. As
the goods pass through the RFID reader, the stocking and the mer-chandise data are recorded. At the same time, the corresponding relationship between the cartons and pallets is removed since the goods are allocated to other cartons at the next step. The oper-ators in the DC place the cartons on tagged pallets and upload the shipping data to the traceability system.
Retailers, the third group, receive and store, handle kiosk inqui-ries and sell goods via an RFID-POS (point of sale) system which re-cords sales information. When retailers receive goods from DCs, the corresponding relationship between cartons and pallets is re-moved. Retailers then write their own merchandise data and use the RFID reader to record specific stocking data and sales of goods gathered by their RFID-POS system. Typically, each retailer has an in-store kiosk for use by consumers inquiring about food distribu-tion informadistribu-tion.
4. Financial plan of implementing the RFID 4.1. Implementation of RFID in food supply chains
We apply the innovation diffusion theory (Kotler, 1994) to pre-dict the number of adopters of RFID technology in food supply chains. Innovation diffusion theory is widely used to understand technology adoption in organizations (Ranganathan and Jha, 2005; Lee and Shim, 2007; Sharma et al., 2008).Rogers (1995) indi-cates that it follows an S-shaped cumulative curve where the num-ber of memnum-bers adopting a new technology is plotted over time on a frequency basis. The S-shaped curve rises slowly when there are few adopters at initiation and accelerates to a maximum when half have adopted the new technology. The S-shaped cumulative curve then increases at a slower rate as fewer remaining members adopt. In practice, the logistic distribution returns a nice-looking S-shaped cumulative curve with a relatively simple mathematical formula (Stockute et al., 2006).
The cumulative function of the logistic distribution is used as a growth curve (Balakrishnan, 1992). Let F(x) denote the cumulative distribution function (cdf) of the logistic distribution with variable x (seeStockute et al., 2006).
FðxÞ ¼ 1
1 þ ex;x 2 R ð1Þ
The probability density function (pdf) of the standard logistic distri-bution is given by
Table 2
The participants in Taiwan’s pilot food traceability system with RFID implementation.
Table 3
Major services and features of a food traceability system. Information service
– Provide members with food distribution information
– Analyze food consumer behaviors based on the recorded data, e.g., data analysis
Technical support
– Establish hardware and software for members – Develop innovative applications
– Design packaging, e.g., tag-embedded bottles – Lease hardware, e.g., kiosks and readers Educational training
– Assist in implementation of complete traceability system
f ðxÞ ¼ e x ð1 þ exÞ2;x 2 R: ð2Þ The variance is VarðxÞ ¼
p
2 3 : ð3ÞThe plants of each food manufacturer and the DCs install the RFID hardware at initiation, followed by a large number of retail-ers. Because time is needed to promote RFID technology to the en-tire food supply chain, we assume that retailers will adopt RFID following an S-shaped cumulative curve in T periods according to the innovation diffusion theory, which has been applied in (Norton and Bass, 1987andSchmittlein and Mahajan, 1982). Therefore, let M, N, and L denote the total numbers of food manufacturers, DCs, and retailers, respectively. Assume ltretailers adopt the RFID
tech-nology in t period. To estimate lt, we use the standard logistic
dis-tribution with a commonly used three-standard deviation and let Rðt; TÞ denote the proportion of retailers who adopt the RFID technology:
Rðt; TÞ ¼ Fð1:5
r
þtT3
r
Þ; t ¼ 1; . . . ; T: ð4ÞThe number of retailers increases in proportion of Rðt; TÞ from periods 1 to T1, and then achieves L in period T. The cumulative number of retailers in period t is
lt¼
L Rðt; TÞ; t ¼ 1; :::; T 1 L; t P T:
ð5Þ
4.2. Pricing strategy and prospective profits
In this section, we analyze the costs and profits of the ASP. Since the procurement cost of the RFID hardware is simply transferred to the members installing the traceability system, the financial anal-ysis in this paper does not consider this cost. One pricing approach is breakeven pricing. Breakeven analysis is used to identify the sales volume at a price that covers costs, where the total revenues equal the total costs of all fixed and variable costs. In(6), the break-even point is the minimum sales that must be sold before a firm starts to make a profit.
Breakeven Point ¼ Total Fixed Costs
Price Unit Variable Cost ð6Þ
Considering a desired profit in the estimated breakeven point, the breakeven point can be further represented as(7).
Sales Volume to Achieve Desired Profit ¼Fixed Costs þ Desired Profit
Price Unit Variable Cost ð7Þ
We can set the price in(8)as a result of(7).
Price ¼ Fixed Costs þ Desired Profit Sales Volume to Achieve Desired Profit
þ Unit Variable Cost ð8Þ
To establish a company would incur start-up costs in the begin-ning and operation costs which maintain the company existence. As a result, we assume the ASP incurs start-up and regular opera-tions costs for promoting RFID technology. The start-up costs only occur in the initial period, and operations costs are considered in the following periods. The start-up costs include fixed assets costs, such as office supplies and installation of hardware, and the oper-ations costs include rent, payroll, insurance and utilities. Let TCt
de-note the total cost in period t, TSC the total start-up costs, and TOCt
the total operations cost in period t. Thus, the total cost in period 1
is the sum of the total start-up costs and the operations cost while the remaining periods (starting from period 2) only include opera-tions costs. TCt¼ TSC þ TOCt; t ¼ 1 TOCt; t > 1: ð9Þ
In the pilot, the ASP charges an initial fee, termed Pinitial, which
pays for installing the RFID-related hardware to make the break-even point of the ASP’s start-up costs. Thus, Pinitialis derived from
dividing the start-up costs by the total number of installers:
Pinitial¼
TSC
N þ M þ L: ð10Þ
The ASP may also charge a service fee, denoted by Pservice, after
the first installing period. To make a positive profit, we impose a desired proportion of profits, x%, on the operations costs and then divide it by the number of accumulated clients over service peri-ods, 1, 2, . . ., T. Specifically, the service fee is:
Pservice¼ PT t¼1TOCt ð1 þ x%Þ PT t¼1ðN þ M þ ltÞ : ð11Þ
The profit is calculated by revenue minus costs and is stated as
Profit ¼ Pinitial Newly Adopting Members þ Pservice
Accumulated Members TC:
Food manufacturers and DCs adopt the RFID technology in per-iod 1 followed by retailers from l1to lTin T periods. We note that in
each period the ASP only charges an initial fee to newly adopting members. Those adopting the RFID in preceding periods are charged a service fee in each period. The profit of the ASP in each period can be stated as:
Profit ¼
Pinitial ðN þ M þ ltÞ TCt; t ¼ 1:
Pinitial ðlt lt1Þ þ Pservice ðN þ M þ lt1Þ TCt; t ¼ 2; :::; T:
Pservice ðN þ M þ LÞ TCt; t > T: 8 > < > : ð12Þ 5. Case study
5.1. Description and data collection
Consumers expect to find fresh and risk-free food products in convenience stores. For this reason, we choose chains of Taiwanese convenience stores consisting of a set of suppliers, DCs and retail-ers with good experience in electronic commerce systems. Tai-wan’s Department of Commerce, Ministry of Economic Affairs (MOEA), plays the role of government sponsor for the pilot project and the Industrial Technology Research Institute (ITRI) plays the role of a non-profit research organization. Our case study is based upon representative data for food supply chains in convenience stores. Note that the data only apply to our research case study and clearly would differ for other industry sectors, geographic re-gions, and/or time epochs. The specific case study data are only gi-ven for demonstration purposes for our general framework presented in Section4.
We must first predict the market size and the demand of RFID hardware for our particular chain of stores. Note that there are dif-ferent types of RFID readers, including fixed readers, hand-held readers, RFID-POS systems and kiosks. Let firms A, B, C and D de-note Taiwan’s four major chains of convenience stores. The upper part ofTable 4shows the types of information collected from the stores and DCs in our case study, based on estimating the total readers, RFID-POS and kiosks required by the members in the
chains. Similarly, the lower part ofTable 4summarizes the associ-ated large food manufacturers and their DCs.
We interview several industry experts who work for ITRI, all of whom are involved in the research and development of RFID technology in food supply chains and have abundant experience with its implementation in a food supply chain or other sectors. From interviews with industry experts, each retailer is equipped with at least one hand-held reader to record inventory, two RFID-POS systems at two checkout counters and one kiosk per
store for customers to inquire about goods. Each food manufac-turer has at least one hand-held and two fixed readers to record production and transportation processes and each DC has one hand-held and two fixed readers. We suggest that the estimated total quantities inTable 5should give RFID component manufac-turers strong incentives to develop hardware for this potentially large market.
We also take samples from five different retailer locations to estimate the consumption of RFID tags. Consumers’ purchase data is captured from both morning (10:30–11:30 a.m.) and evening (7– 8 p.m.). We record the number of four typical product categories available in convenience stores: beverage, instant, packaged and frozen.Table 6summarizes the results.
The cross-out marks for 132, 104, 76 and 42 are the outlier sta-tistics (the highest and lowest numbers of morning and evening time periods, respectively) which we omit from our analysis. It is easy to estimate the day-consumption of tags in each retailer by
ð64 þ 112 þ 71 þ 47 þ 100 þ 84Þ=6 24ðhÞ ¼ 1912ðtags=dayÞ:
Thus, the total consumption of the annual number of tags can be approximated as
1912ðtags=dayÞ 365ðdaysÞ 9200ðretailersÞ ¼ 6420; 496; 000ðtagsÞ:
5.2. Promotion scenarios
The next sections discuss 4- and 6-year promotion schemes for the pilot project. To record the complete data throughout the food supply chain, the manufacturers and DCs may need to adopt RFID technology at the onset of the 4- or 6-year promotion scheme. We assume that food manufacturers and DCs install RFID hardware in Year 1 and retailers participate in Years 1–6. The number of install-ing retailers follows the standard logistic distribution presented in
(5).Figs. 2 and 3illustrate the 4- and 6-year promotion schemes. 5.3. Cost and profit analysis
We estimate the annual expenditure including start-up and operations costs. The major part of operations cost is salaries. We
Table 4
Number of retailers, plants and DCs in each convenience store chain and food manufacturers.
Chains of convenience stores Number of retailers Number of DCs
A 4800 9
B 2300 4
C 1250 5
D 850 2
Total 9200 20
Food manufacturers Number of plants Number of DCs
a 6 6 b 4 4 c 2 4 d 2 3 e 2 3 f 2 3 g 4 0 h 3 0 i 2 0 j 3 2 Total 30 25 Table 5
Estimated hardware demand for the chains of convenience stores. Fixed reader Hand-held reader RFID-POS system Kiosk Unit cost (NTD) 100,000 70,000 80,000 130,000 Food manufacturers 60 30 N/A N/A
DCs 90 45 N/A N/A
Retailers N/A 9200 18,400 9200 Total 150 9275 18,400 9200
Table 6
Records of tags consumption from five retailer locations.
Category Location 1 Location 2 Location 3 Location 4 Location 5 a.m. p.m. a.m. p.m. a.m. p.m. a.m. p.m. a.m. p.m. Beverage Plastic bottles 11 29 48 48 25 12 17 63 20 16 Metal can 3 9 1 17 2 1 17 Glass bottles 2 1 15 1 4 2 Retort pouch 24 34 35 19 18 31 16 12 9 37 Milk 7 12 5 11 6 3 8 2 Instant food Rice ball 7 11 1 1 Sandwich 5 8 8 2 2 2 Dessert 1 4 1 Bread 7 13 3 5 3 4 4 4 Packaged food Snack 4 6 1 3 5 2 2 5 Instant noodles 1 2 1 1 3 1 3 Crackers 4 2 1 5 2 4 4 Candy 4 3 2 4 2 2 Frozen food Frozen food 1 Ice, Popsicle 2 1 Total 64 112 71 47 100 84
approximate the personnel plan and total payroll as shown in Ta-ble 7(the numbers are in New Taiwan Dollars (NTD)). According to industry experts, 20 employees are expected to be recruited in Year 1, 28 in Year 2 and 35 in Years 3–6. From interviews with industry experts, we assume a firm with 35 employees is established for promotion and operation in the ASP.
Table 8details the start-up costs, which are 15,452,500. We ap-ply the pricing method illustrated in Section4.2to determine the initial fee and service fee, respectively. In(10), we take the value of the total start-up costs TSC as 15,452,500, the number of food manufacturers M as 30, the number of DCs N as 45 and the number of retailers L as 9200, respectively. The initial fee is
Pinitial¼
15; 452; 500
30 þ 45 þ 9200¼ 1666:
The ASP also charges an annual service fee after installation. The pricing strategy of the service fee for both promotion schemes is discussed below.
5.3.1. ASP service fee during 4-year promotion scheme
We summarize the estimated expenditure of the ASP inTable 8. Note that the technology transfer fee comprises the maximum part in Year 1. The ASP’s total expenditure includes the start-up and operations costs in Year 1 and only the operations costs thereafter. According to(9)and the estimated expenditure inTable 8, the estimated total costs are
TC1¼ 15; 452; 500 þ 16; 712; 500 ¼ 32; 165; 000
TC2¼ 20; 695; 000
TC3¼ 24; 137; 500
TC4¼ 24; 137; 500
Note that the total cost is 24,137,500 after Year 3. Suppose that the ASP is expected to earn a 20% profit. Given that the accumu-lated numbers of installing clients are 2075, 4675, 7275 and 9275, the service price, as shown in(11), is
Pservice¼
ð16; 712; 500 þ 20; 695; 000 þ 24; 137; 500 2Þ ð1 þ 20%Þ 2075 þ 4675 þ 7275 þ 9275
¼ 4413:
As mentioned, the members implementing the RFID pay an initial fee Pinitial= 1666 in Year 1 and an annual service fee Pservice= 4413
thereafter.
5.3.2. ASP service fee during 6-year promotion scheme
Since the 6-year promotion scheme eventually serves the same number of clients, we let it adopt the identical personnel plan. The total cost in Years 5 and 6 are the same as the cost in Year 4 of the 4-year promotion scheme. Again, suppose that the ASP is expected to earn a 20% profit. Given that the accumulated numbers of installing clients are 1375, 2675, 4675, 6675, 7975 and 9275, the service price is
Pservice¼
ð16; 712; 500 þ 20; 695; 000 þ 24; 137; 500 4Þ ð1 þ 20%Þ 1375 þ 2675 þ 4675 þ 6675 þ 7975 þ 9275 ¼ 4923:
Thus, Pinitial= 1666 in Year 1 and Pservice= 4923 in Year 2 and
thereafter. Note that Pinitial and Pservice shown in the paper are
rounded to the closest integer number so the profits may be slightly different from the demonstrated calculation in the paper. 5.3.3. Profit analysis
Next, we estimate the profits for both promotion schemes. Year 1’s profit is
Profit1¼ 1666 2075 32; 165; 000 ¼ 28; 707; 972:
Thereafter, the ASP charges Pinitial = 1666 for new clients who install the food traceability system and Pservice = 4413 for the in-stalled clients. Thus, the profit of the ASP in the 4-year promotion scheme can be summarized as
Fig. 2. Four-year promotion scheme.
Fig. 3. Six-year promotion scheme.
Table 7
Personnel plan of the pilot project.
Year 1 Year 2 Year 3 Payroll (year/ person) in NTD President 1 1 1 1147,500 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 personnel 20 28 35 Total payroll 10,192,500 14,175,000 17,617,500
Profit2¼ 1666 2600 þ 4413 2075 20; 695; 000 ¼ 7206; 674
Profit3¼ 1666 4035 þ 4413 4675 24; 137; 500 ¼ 824; 191
Profit4¼ 1666 568 þ 4413 7275 24; 137; 500 ¼ 11; 297; 933
Profitt¼ 4413 9275 24; 137; 500 ¼ 16; 791; 523; t > 4
Similarly, the profit of the ASP in the 6-year promotion scheme is
Profit1¼ 1666 1375 32; 165; 000 ¼ 29; 874; 198 Profit2¼ 1666 1300 þ 4923 1375 20; 695; 000 ¼ 11; 759; 476 Profit3¼ 1666 2000 þ 4923 2675 24; 137; 500 ¼ 7635; 330 Profit4¼ 1666 2000 þ 4923 4675 24; 137; 500 ¼ 2211; 469 Profit5¼ 1666 1300 þ 4923 6675 24; 137; 500 ¼ 10; 892; 042 Profit6¼ 1666 1300 þ 4923 7975 24; 137; 500 ¼ 17; 292; 462 Profitt¼ 4923 9275 24; 137; 500 ¼ 21; 527; 032; t > 6
Table 9summarizes the resulting profits.Table 9shows a positive profit in both promotion schemes after Years 3 and 4, respectively. We note the following insights. The initial fee of the two schemes is the same, but the service fee of the 6-year scheme is higher than the 4-year scheme since the 6-year scheme has a relatively higher an-nual personnel cost. Because of a larger number of installing mem-bers in the beginning of the 4-year promotion scheme, its profits are greater than the 6-year scheme in Years 1–5. However, when the installing number reaches the same level for both schemes, the profits of the 6-year scheme are greater than the 4-year scheme from Year 6 onward since the 6-year scheme has a higher service fee.
6. Conclusions and future research
In recent years, more researchers have focused on food trace-ability systems which provide visibility of transaction processes to members of food supply chains and customers. With the imple-mentation of RFID technology, food traceability systems can be-come more reliable and efficient since RFID enables a higher reading rate than traditional barcodes.
This paper proposes a framework for promoting a food trace-ability system and analyzes the profits and costs associated with RFID implementation for a convenience store supply chain of man-ufacturers, DCs and retailers. We also develop a pricing strategy in which an ASP charges an initial fee for installing RFID in the first year and an annual service fee for technical support thereafter.
Although this paper focuses solely on a proposed pilot project, many factors, not the least of which is the worrisome state of the global economy, will impact the market growth of a food market. In this paper we propose a framework for promoting a food trace-ability system for estimating costs and developing an appropriate price strategy. Note that the pilot project should be regarded as a demonstration and that the proposed framework allows readers or industry practitioners to change the time span, number of employees, etc., to fit their situations. We suggest that future re-search consider using another growth function, such as the normal distribution, to predict the number of members who might con-ceivably adopt RFID technology. We find that our two proposed promotion schemes can extend beyond a convenience store sce-nario, for example, to grocery and wholesale chains. Furthermore, global food safety policies stipulated by governments typically are followed by a series of regulations which many countries then implement due to food safety incidents and the globally complex network of food supply chains. Following this trend, the Taiwanese government is promoting and encouraging traceability throughout the stages of all food supply chains. It is expected that the govern-ment may next provide sufficient funds to launch a pilot project for developing a food traceability system for the private sector. Given the overwhelming social and environmental costs of food contam-ination, the Taiwanese experiment now underway should have implications for policy-makers, industry and public health officials elsewhere.
Acknowledgments
The authors thank the reviewers and the chief editor for their helpful and valuable comments to improve this paper. The authors are grateful for the generous interaction and guidance provided by many industry experts. This research has been partially supported by the National Science Council, Taiwan under Grant NSC99-2221-E-002-151-MY3 and the Industrial Technology Research Institute (ITRI), Taiwan.
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Table 8
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Technology transfer fees 10,000 Deposit for office rent 546 Interior decoration 1800 Office furniture and computer 3054.5 Office supplies 52 Total 15,452.5 Operations costs Payroll 10,192.5 14,175 17,617.5 17,617.5 Insurance 2400 2400 2400 2400 Office rent 3480 3480 3480 3480 Utilities 300 300 300 300 Miscellaneous 340 340 340 340 Total 16,712.5 20,695 24,137.5 24,137.5 Total costs 32,165 20,695 24,137.5 24,137.5 Table 9
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