Analysis the Impact of the RFID Technology on Reducing Inventory Shrinkage

We provide a Newsvendor model to analyze how to reduce inventory shrinkage problems by deploying the RFID. We propose a comparison between two scenarios based on whether to deploy RFID, and analyze the affect of order fulfillment rate, RFID improvement rate, and the tag price, respectively, the results show that the decision of deploying the RFID depends on the order fulfillment rate, when the order fulfillment rate below the critical value, the retailer gains a higher profit under deploying the RFID. We also propose an analytical critical tag cost which makes the deployment of RFID cost effective.