Over the last two decades, the way the world conducts its international trade has gone through unprecedented changes. The four major forces driving these changes have been globalisation, the rise of information technology (especially the Internet), the development of the logistics industry, and a seemingly insatiable consumer demand for an ever-greater range of products at ever- lower prices.

As a result of massive improvements in communications and transport, the countries and communities of the world are now linked by a vast, complex web of trade that reaches into the most remote corners of the planeta. Entrepreneurs and businessmen travel endlessly to seek price advantages, new products, new markets or anything that will give them a competitive edge. Raw materials are sourced in one group of countries, shipped to other countries to be turned into products, and then shipped again - often through key trading hubs - to any market where there is a demand for those products. This growth in trade has broken down political rivalries, removed tariff barriers that once restricted the flow of goods, promoted international co-operation and brought an improvement in the wealth and lifestyle of much of mankind.

It has also created a huge demand for new ways to monitor, control, and improve the flow of this deluge of goods and materials moving around the world. Logistics - a term unknown outside the military until some 20 years ago - has now become not only a bona fide industry but also a major factor in cutting costs, increasing profits and generally offering numerous retailing advantages for those trading companies who use it efficiently. The logistics industry has enabled the development of sophisticated techniques in supply chain management, providing businesses with the means to obtain maximum cost efficiencies in ordering, speed up supply, react faster to shifting consumer demands and massively reduce inventories and unsold stock - traditionally one of the major cost problems faced by retailers.

IT revolution in trading

In order to deliver the best results, logistics departments and companies have turned to increasingly sophisticated techniques to manage their supply chains. The introduction of IT has enabled vast amounts of data to be conveniently stored, rapidly processed and easily accessed; while the Internet has opened the way to 24 by 7 communication, wholly electronic trade documentation, and global sharing in real time of critical trading information.

But as the global web of trade grows ever more complex and tightly interwoven, the demand for even better supply chain management is growing. One of the biggest problems is ensuring seamless communication between trading partners, linked by electronic information exchanges, who are trying to operate in unison all over the world.

Fortunately, some new initiatives and technology seem to offer just what’s required. These solutions have already been developed, are currently being implemented and will change the way we all do business. Now is the time to understand what they’re all about - and what to expect in the immediate future.

The numbers game

One of the biggest problems confronted by international traders is agreeing on a global trading “language” a code that can be used electronically by computers and monitoring systems. The first step in that direction was the simple 12-digit bar code, which gave every product an electronic “identity” that could be instantly recognized by a checking device connected to a computer. Companies worldwide use this bar code, also called the Universal Product Code (UPC), to track and identify their products throughout the supply chain.

The bar code, however, has its limitations. A study conducted by the Uniform Code Council estimated that the supply of 5-digit company prefixes that go into the 12-digit UPC codes would run out in 2005. This prompted many corporations to start looking for a suitable replacement, and they seem to have found one in the Electronic Product Code (EPC). This seemingly simple development has the potential to create a major upheaval in global supply chain management - and the whole way the world trades.

EPC, a 96-bit numbering scheme, has enough digits to identify each item in a supply chain. This means that instead of merely identifying product types, EPC has the capability to assign a unique identification number to every single item that rolls off a manufacturing line. (e.g. each can of soda will have its own unique EPC number as opposed to all the cans coming off that manufacturing line having the same bar code)

EPC is not just another larger numbering scheme: it is designed to be embedded with other information in an electronic tag that can be applied to each item at very low cost. This electronic tag uses radio frequency identification technology (RFID) - which is currently being backed and supported by all the major trading companies in the world - to transmit the EPC information. The EPC can be easily read by appropriate electronic readers and enables shippers to track their products anywhere in the world - and even gives the capability to find precise products even in the most crowded warehouse or container shipment. This is a vast step forward from the bar code, which doesn’t provide anything like the same volume of information, and requires that a storage container be broken open so that a product code can be scanned and read.

Enjoying EPC benefits

EPC allows every single item on a shelf to be tracked all the way back to the original manufacturer who produced or assembled it. More information allows for better supply chain management, and more detailed control over each product moving through today’s complex web of supply chains.

As a result, EPC is able to reduce labour costs and time involved in receiving, processing, warehousing and distribution operations. It provides accurate, real-time inventory data and facilitates improved management of pallets and other returnable shipping containers. This results in improved product traceability and authentication, and reduces problems associated with shrinkage and theft.

With EPC, even counterfeiting - which is the bane of genuine brand-owners - can at last be curtailed. By providing a unique serial number for each item, it provides an extra layer of protection against counterfeiting.

Ultimately, EPC will reduce costs in several ways, including reductions in labour time, data latency and errors associated with product handling. With an associated reduction in fixed assets, due to better handling and better inventory visibility, manufacturers can also enjoy a reduction in fixed assets through better utilisation of space and equipment, and in working capital needs.

Conclusion

Undoubtedly, moving to EPC will create a major upheaval in the global supply chain, which currently relies on bar codes. For Hong Kong SMEs, it will mean installing new systems and processes in their environment.

However, Hong Kong SMEs need to jump onto the EPC bandwagon as soon as possible to meet the incessant demands by major buyers for better transparency and to keep ahead of new low-cost competitors sprouting from developing countries.

For Hong Kong SMEs, changing to EPC and embracing this revolution can already be extremely beneficial. Ultimately, it will be essential.