RFID value in aircraft parts supply chains: A case study Eric W.T. Ngai a , Bernard K.S. Cheung b , S.S. Lam c,n , C.T. Ng d a Department of Management and Marketing, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China b CIRRELT & Department of Mathematics & Industrial Engineering, Ecole Polytechnique de Montreal, C.P. 6079, succ. Cenre-ville, Montreal, Quebec, Canada H3C 3A7 c Lee Shau Kee School of Business & Administration, The Open University of Hong Kong, Homantin, Kowloon, Hong Kong, PR China d Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China article info Article history: Received 21 May 2012 Accepted 25 September 2012 Available online 4 October 2012 Keywords: Radio Frequency Identification (RFID) Value of RFID Aircraft maintenance Product inventory model abstract The value of Radio Frequency Identification (RFID) in the maintenance of supply chains of aircraft parts is examined, particularly in the proposed analytical model. This model helps us gain a better understanding of the relationships between various costs incurred and the RFID effect on an aircraft maintenance tracking process. Using an RFID system, a maintenance company specializing in aircraft parts can accumulate savings based on the assumption that the technology can eliminate inaccuracy problems related to inventory recording delays brought about by mishandling in the component repair process. This case study illustrates such phenomenon through the use of numerical assumptions, highlighting the benefits of RFID. Further, the value of RFID in aircraft maintenance is evaluated using sensitivity analysis, in accordance with the parameters of the model of cost reductions in mishandling repair components and inventory control. The findings support the industry’s acceptance of RFID technology, proving that this is beneficial to maintenance companies of aircraft parts. & 2012 Elsevier B.V. All rights reserved. 1. Introduction Radio Frequency Identification (RFID) is an interesting area for research because it is a relatively new technology but is already undergoing significant growth (Ngai et al., 2007). RFID has high potential in aircraft maintenance because Airbus and Boeing are already using RFID technology for tagging the parts and compo- nents of aircrafts. In fact, Boeing started adopting RFID technology in the late 1990s, when it began using RFID in closed-loop manufacturing automation and asset management applications (O’Connor, 2005). The approval by the Federal Aviation Administration (FAA), one of the main agencies worldwide responsible for the certifica- tion of new aircrafts, on the use of passive ultra-high frequency (UHF) RFID tags on individual aircraft parts for commercial aircrafts opened up a number of RFID-based applications by incorporating RFID tags on high dollar value items, line replace- able units, limited lift parts that need to be frequently inspected, repaired, and replaced, and on-board emergency equipment for airlines. Aircraft maintenance companies and aircraft manufac- turers also planned to tag some of their maintenance-significant parts. One of these companies is Boeing, which planned to tag its 787 Dreamliner (O’Connor, 2005). Boeing is most concerned with improving its business processes. The company believes that RFID is a means to that end, but what is really driving Boeing’s push for RFID is the increased data, through identification and sensing, that it provides (O’Connor, 2005). Airline operations in the Asia Pacific region are increasingly realizing the benefits of outsourcing non-core aspects of business such as maintenance operations, especially those on heavy or long-term maintenance. This provides a good opportunity for independent maintenance, repair, and overhaul (MRO) service providers. However, major weaknesses that impact the efficiency of the MRO process are found in inadequate inventory manage- ment for parts, human errors, and checking procedures. RFID technology has high potential in the area of aircraft maintenance. Extensive requirements regarding quality, safety, and documentation, as well as high costs for having aircrafts idle during maintenance, demand efficient execution. The costs of having planes idle during unplanned maintenance are estimated at US$23,000 per hour (Brown, 2003). The company covered in this study has considered maximizing the efficiency of life cycle asset management by tagging contain- ers of repairable items, parts and components, and the tools that require maintenance. The company, operating two airline main- tenance centers [one located at the Hong Kong International Airport at Chek Lap Kok (CLK) and the other at Tseung Kwan O (TKO), a large reclamation area in Hong Kong] has two hangers capable of accommodating wide-bodied aircraft fully docked for Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/ijpe Int. J. Production Economics 0925-5273/$ - see front matter & 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.ijpe.2012.09.017 n Corresponding author. Tel.: þ852 27686927; fax: þ852 23919095. E-mail addresses: mswtngai@polyu.edu.hk (E.W.T. Ngai), bernard.cheung@cirrelt.ca (B.K.S. Cheung), sslam@ouhk.edu.hk (S.S. Lam), lgtctng@polyu.edu.hk (C.T. Ng). Int. J. Production Economics 147 (2014) 330–339