The dream is clear. We could soon live in a world where almost every item on sale has an electronic ID which, with one sweep from a scanner, instantly provides full and essential information about that item, including where it came from, where it's going and where it is now. Using sophisticated software, stores will automatically have a complete, real-time account of their inventories and shelf stock. Computers will automatically inform suppliers when they are running out of anything from baby food to beer, and place a new order for delivery before stocks get too low. If it all works as planned, retailers will be able to run their shops with minimal staff, but the customer will get better service - and better prices - than ever before. RFID - radio frequency identification - certainly has the potential to create a brave new world in retailing.

But making the dream a reality means getting a lot of elements - and particularly people - to work together, and it's a huge challenge. Although the promise of RFID is enormous, the obstacles to overcome before it's an everyday reality are considerable.

So many people want RFID to succeed that the end result seems inevitable. According to Professor C. J. Tan, Interim CEO of the Hong Kong R&D Centre for Logistics and Supply Chain Management Enabling Technologies, and founding director of the E-Business Technology Institute of the University of Hong Kong, the realization of the RFID dream has already started. "As I see it, we are already beginning to see serious commercial use of this technology," he says. "A year ago most of the cases were just pilots, but increasingly we see people using RFID in retailing and manufacturing, and there will be more to come. Even a retail store like Lane Crawford has begun using it."

RFID technology has been around in a very basic form since World War II, but only in the past few years has a raft of new technologies and e-commerce systems come together to make it a powerful tool in the global trading network. A tiny computer chip, called a tag, is connected to an antenna that can actively transmit information. The chip stores this data and broadcasts it via the antenna. A "reader" can pick up the signal, and the information is instantly available for processing. An essential part of the set-up is an Electronic Product Code (EPC), a unique number that gives every product an "individual identity." The goal is to have an EPC number for every single product produced everywhere and anywhere in the world.

The EPC number is the essential link that will enable RFID to provide instant product information on a global basis - but setting up this system is also one of the toughest challenges faced by RFID developers. EPC requires a global network of its own with a vast repository of numbers that can be easily allocated to new products, and a massive but easily accessible database allowing RFID scanners all around the world instant access to identify the product once its number is scanned. Once an item is tagged, it can be tracked and identified anywhere in the world, and relevant data accessed. The benefits are enormous, and include a revolution in supply chain management, meticulous control of in-store inventory, vastly more efficient check-outs and even an effective weapon against counterfeiting, smuggling and perhaps even shoplifting.

The Wal-Mart initiative

Two years ago the world's largest shopping chain, Wal-Mart, created a storm by announcing that, over time, it would require all its suppliers to use RFID tags. Some thought this heavy-handed; others saw it as the only way to get people to adopt a technology they all wanted anyway. It follows that China will be a major player in all this because it supplies so much of what Wal-Mart sells. China, of course, may not want to follow rules set down by an American company and there is some concern that a 'standards war' is brewing over how all this will be handled.

Professor Tan believes that, since we all live in a global economy, our interdependence will eventually make people come to "reasonable" solutions. While China was left out when many of these technologies were in their infancy, "China has gradually started to organise itself and look seriously at standards. Eventually, there will have to be some kind of resolution. When, I don't know. But just like everything else, they must come together. Remember, Wal-Mart gets most of its goods from China."

On a recent visit to Hong Kong, Wal-Mart infotech director Simon Langford painted an impressive scenario about the progress of RFID implementation. "In our stores, RFID-tagged items are replenished 63 per cent more effectively than non-tagged items," he said. "We have seen a 16 per cent reduction in out of stock items and those with an EPC are replaced three times as fast. We have seen a 50 - 70 percent reduction in the price of the tags and a 40 per cent cut in the cost of the readers." By January 2007, 300 more suppliers will be onboard.

But how will this affect the large number of SMEs in Hong Kong and the Pearl River Delta?

Professor Tan feels the problem is not the switch to RFID but the attitude of too many SMEs who fundamentally oppose all but the simplest technology. "A common denominator here is the lack of mature IT support," he says. "SMEs will not pay for this, but the world is moving fast. Right now it's RFID, tomorrow it will be something else. The world is more connected than ever before. You cannot operate by yourself; you must work with others."

Ultimately, SMEs will change or die off, like any business too slow to adapt. "You must be aware of what you must do in order to survive two years from now. You need to be educated on this."

The waiting game

SMEs aren't the only section of the business community that's slow to move: most people, and most companies, are reluctant to change. Economists have been studying - and for the most part showing - that RFID technologies will eventually be economically viable, but despite this, many are reluctant to commit at this stage and prefer to sit on the sidelines and see what develops.

Costs are definitely coming down, and Professor Tan believes that in time they will be quite reasonable. For now, the most cost effective practice is to tag cartons, bags or pallets rather than individual products, which obviously requires far fewer chips and far less organization. As second generation tags become available - and cheaper - and EPC numbers become readily available, the 'Holy Grail' of a 'tag for every item' will become possible.

A company in Hong Kong likely to take advantage of such technology is Avery Dennison, an American company that supplies millions of labels for clothing and other goods. It has enormous turn-around needs and ships tons of labels on a daily basis. Terry Hemmelgarn, their Vice President and General Manager for the Retail Information Services Asia, said they were certainly looking into this kind of technology.

"We are making substantial investments in RFID but carton-tags are most likely to be the first RFID deployment," he says.

Taking off at the airport

Other businesses here have been quick to grasp the benefits of RFID, and are already using this technology. Baggage handling at Chep Lap Kok airport is an outstanding example of RFID. Elyes M'rad, Vice President for North Asia and China of Sita, which installed the system, said it saves enormous amount of time and is one of the reasons bags are handled so smoothly here. "Nobody needs to scan the bags by hand any more (an RFID chip sends out an 'active' signal as opposed to a bar code, which must be scanned), so it is far more efficient," he said. On tag costs, he adds: "People are looking to see the chips made in China - everything else made there has come down radically in price, why not tags?"

Those who are already touting RFID technology and the solutions that it offers - or hopes to offer - are, as usual, looking for what they call a 'killer application' or a compelling way to persuade their customers they must buy into the technology or risk going out of business. In the past, this has often backfired. Remember the dotcom boom, when a number of leading equipment and software manufacturers tried to intimidate and pressure businesses into establishing a web presence, even when they didn't really need one?

Most would agree, however, that RFID's time has come. It will undoubtedly bring vast benefits to supply chain management, inventory control, stock re-ordering and a range of other vital areas of distribution, wholesaling and retailing. But there is still much to be done, and clearly agreements on standards and a viable, affordable support infrastructure for the whole technology are amongst the top priorities. As a major international logistics centre, Hong Kong can clearly play a major role in this.

Professor Tan is optimistic about the world working together on this, and it looks the obvious way forward. But there's no bets yet on exactly when all those laggards will become "taggards".