Using System Dynamics to assess the impact of RFID technology on retail operations

The application of item-level radio frequency identification (RFID) technology in retail supply chains creates cost savings and promises large potential benefits from revenue growth. However, the economic assessment of the impact on improved store operations, labor utilization, and increased sales is still not fully explored. We propose to use System Dynamics as a structural modeling and simulation approach to integrate conventional return on investment evaluations. Building on previous research about RFID technology in retail supply chains, we developed a model based on the case exploration of a leading Italian apparel retailer. Simulations show that RFID implementations are profitable whenever they contribute to increase sales, especially when a fashion retailer is focused on clerk-assisted sales strategies. Sales growth results from the dynamic and integrated impacts of RFID technology on better inventory control, faster inventory turnover, and longer time available for store personnel to assist consumers as an effect of more efficient backroom operations. ▶ Analyzing the economic impact of item-level RFID technology with System Dynamics. ▶ The case of a leading Italian fast fashion retailer is explored. ▶ Simulations reveal that RFID implementations are able to reduce operational costs. ▶ Results also show that RFID technology contributes to increase sales and revenue. ▶ The approach may be applied to other complex and highly volatile industries.