Decision Analysis to Solve Misplaced Inventory with RFID

Misplaced inventory will lead to a more cycle inventory quantity and an increasing cost to maintain the inventory. RFID is a promising solution for the problem. But the adoption of RFID needs to invest more in inventory investment. Whether this improves the service level or not after adoption is needed to be considered. We use the newsvendor function with the condition of single cycle and one product, build decision models to find the optimal inventory before and after adopting RFID. Through these models, we also have discussed how the optimal quantity, the optimal income and the fill rate are influenced by the misplaced rate and the unit variable cost of RFID. The results show that the relationship between the misplaced rate and the unit variable cost is the key factor for adopting RFID. We found that when the misplaced rate is lower than a certain limit and the unit cost is higher than a certain limit, there is no need to use RFID; When the misplaced rate is higher than a certain limit and the unit cost is lower than a certain limit, there is necessary to use RFID.