The introduction of Radio Frequency Identification (RFID) technology for product monitoring is beginning to grab attention due to the potential for dramatically improved supply-chain efficiency, lowered costs and reduced out-of-stocks.

RFID is used to track goods in the supply chain, assess parts moving to a production line, improve security (including control of access to buildings and networks), and create payment systems that allow customers to buy items without cash.

Unlike barcodes, which have 14 digits, RFID technology uses radio waves to identify items. RFID starts with a tag consisting of a wafer-thin integrated circuit, or chip, attached to a miniature antenna. Data on the tag is read and sent via radio waves by a reader, then decoded by a processor.

The tags can be read through packaging, shipping containers and most materials, and do not have to be placed on the outside of the item. Dozens of RFID tags can be read simultaneously. RFID is expected to improve supply-chain visibility and reduce the time required for taking full stock of inventory and shipments.

That function outperforms barcodes, which cannot store the kind of information retailers and vendors need to track merchandise.

Whereas barcodes identify groups of products, RFID provides information for any product in the world because readers can be deployed at any point in the supply chain.

While barcodes employ line-of-sight technology that the scanner must "see" to read, RFID requires only that tags be within range of a reader. RFID helps retailers store sufficient supplies within limited warehousing space to reduce costs. It also prevents switching of tags by dishonest customers in large supermarkets. As RFID tags are very small (the smallest is the size of a grain of wheat), they become part of the item in the same way as the barcode. The tag can be inserted into the cardboard of a cereal box or attached inside an electronic device, so tampering is difficult because shoppers cannot see them.

An RFID tag costs approximately 15 US cents (about HK$1.17), but industry experts say the price is expected to fall to about 1 US cent by the end of the decade. RFID is already saving companies money.

Associated Foods Stores, a Salt Lake City-based grocery distributor, cut the number of tractors in its fleet from 120 to 67 after installing an RFID real-time locating system. After adopting RFID, the Spanish facility of Proctor & Gamble, the US manufacturer of family, personal and household-care products, not only reduced the number of its forklift operators, but also virtually eliminated shipping errors. Air Canada cut the number of food carts it loses annually by more than 80 percent and cut trucking costs because its RFID system mean food carts were moved fewer times. Scotland's Courage Brewery, among the largest in the United Kingdom, found its RFID system reduced the number of lost kegs and cut the time between refills from an average of 47 days to 40. The company not only saved millions of dollars, it also cut gray-market sales and increased revenues more than 3 percent.

In Hong Kong, the most familiar RFID implementation is the "contactless" Octopus cards used to pay transport fares and buy items in convenience stores and vending machines.

With US retailer Wal-Mart's decision to require all its suppliers to tag all pallets and cases by 2006, doubts have been banished that the technology will be widely employed in the supply chain. Research firm Meta Group estimates that approximately 70 percent of the goods sold by Wal-Mart originate in China, the world's largest factory. This will force Hong Kong's retailers to fall in line because of the significant quantity of China-made products they sell.

John Tsang, Hong Kong Secretary for Commerce, Industry and Technology, said the governments of Hong Kong and neighbouring Guangdong province will launch a pilot scheme using RFID technology in cross-border trade and other exchanges. Tsang feels RFID has "high potential" to transform the whole supply chain into a more effective and efficient information pipeline.

"This could help industry achieve substantial savings through better inventory management and reduction of product shrinkage," he said. "In the long run, this would also help consolidate mainland China's position as a major global manufacturing base and Hong Kong's status as the world's major logistics hub."

Some local entrepreneurs are pursuing pilot projects and alliances to push RFID use on the Mainland and Hong Kong. International Transport Information Systems, a Kowloon-based independent software vendor, is working with the Department of Computing at the Hong Kong Polytechnic University to develop RFID applications for the Hong Kong logistics industry.

Polytechnic University professor Keith Chan said the key electronic logistics applications for RFID involve inventory management and tracking cargo.

"What is needed for commerce is a global standard which unifies RFID application in cross-company and cross-industry situations," said Anna Lin, chief executive of the Hong Kong Article Numbering Association (HKANA).

In March, HKANA set up EPCglobal Hong Kong to facilitate adoption of Electronic Product Code (EPC)-related technologies, standards and applications in the local business sector, facilitating the adoption of RFID.

"As the major logistics and trading hub in the region, adoption of EPC would benefit Hong Kong industry globally," Lin said.

The establishment of EPCglobal Hong Kong followed the realisation among the world's retail giants that RFID technology must have global standards to be effective for product identification. For example, a US retail shop may not be able to read the RFID tag attached to a product from an Asian supplier simply because the two are using different codes.

As a result, adoption of EPC and Global Data Synchronisation (GDS) as international standards for product identification is becoming a prerequisite for deployment of RFID technology.

EPC is a code that identifies a product and is stored in the RFID tag. It is divided into sets of numbers representing a product and its manufacturer. Once an RFID reader retrieves the EPC from the tag, it transmits the EPC to the back-end system. The user can reconcile the EPC with the product's attributes according to the GDS. As such, EPC is superior to barcodes in enabling supply-chain process automation and visibility, and will eventually replace them.

GDS has been around for more than a decade in North America, Europe and Australia. The concept of GDS is a data pool in a shared environment for suppliers to publish product-identification information.

There are many established data pools, including UCCNet, Transora and WordWide Retail Exchange, which publish the product codes they store in a registry. A retailer can use the product code to identify which data pool hosts the product information, and then subscribe to that pool, initiating data synchronization with suppliers on subsequent product-information changes.

GDS has been used sparingly until recently because the cost to small-and-medium enterprises is higher than the payoff. As a start, RFID is a tool for increasing efficiency along the supply chain, "but we should not just stop there," said Mimi Ho of the Hong Kong Computer Society. "Bigger benefits can be realised by leveraging this technology to improve customer satisfaction and product differentiation."

Ho said RFID can help Hong Kong businesses in several areas:
- Retail: Real-time inventory tracking of each item on store shelves. Greater product visibility along the supply chain enables better sales forecasts and customer service. Unattended or self-checkout services will enhance the shopping experience and will save valuable time for retail customers.
- Pharmaceuticals: RFID can be an effective tool to check counterfeiting. Drug suppliers can also provide value-added services like dosage monitoring and refill services.
- Security: Asset tagging can guard against theft or abuse of valuable items and dangerous goods. Great potential exists for using RFID in security applications in many physical environments. RFID can also make product recall much easier and quicker.

Other applications: Check-out time can be cut for hotel guests if RFID tags can be applied to food and beverage items. The real-time inventory of in-room refrigerators and snack bars can be retrieved when a guest leaves the room. Lost baggage at airports will become a thing of the past.