RFID likely to revolutionize retail industry
By Zhao Renfeng (Business Weekly)
Updated: 2004-07-29 14:25

The technology, expected to save the manufacturing, distribution and consumer packaged goods industries billions of dollars, is set to create a new challenge within China's retail industry, as a fierce rivalry with foreign retail giants looms.

In compliance with China's commitments to the World Trade Organization (WTO), the nation's retail market will open to all foreign players by year's end.

"Competition within the retail sector will eventually become competition for the new technology," said Steve Shea, general manager of Logichain Technology Inc.

As profit margins in the retail industry continue shrinking, retailers will have to resort to new technologies to maintain the lowest possible costs to survive the resulting price wars, he said.

Good management throughout the supply chain, to reduce every unnecessary expenditure, is essential for retailers, he added.

"The RFID technology provides a timely solution," said Kevin Ho, vice-president, responsible for Asia-Pacific, of NCR's retail solutions division.

NCR is a US-based tech firm.

RFID is most commonly used to track goods in the supply chain, assets, parts moving to a manufacturing production line, and for security (including controlling access to buildings and networks) and payment systems that let customers pay for items without using cash.

Unlike the widely used bar code, which has 14 digits, RFID technology uses radio waves to automatically identify individual items.

RFID is expected to improve supply chain visibility and reduce efforts required to take stock of inventory and shipments.

That function outperforms bar codes, as the combination of numerals and black-and-white lines cannot store the kind of information retailers and vendors need to better track merchandise.

Whereas bar codes identify groups of products, the RFID technology can provide a unique identification information for any physical object in the world.

With the new technology, a product is identified by an electronic product code stored on a microchip, which is attached to an antenna, called an RFID tag.

This RFID tag is embedded in a smart label, which can be affixed to any physical object. The smart label enables the chip to transmit the identification information to a reader.

The reader converts the radio waves returned from the RFID label into a form that can be passed on to computers and peripherals.

RFID readers may be deployed at virtually any point in the supply chain, from the plant to the store and even, perhaps, in the home.

While bar codes employ line-of-sight technology that the scanner must "see" to read, RFID does note require line-of-sight. Tags can be read as long as they are within range of the reader.

Shea said RFID's advantage is growing more and more apparent.

For instance, due to the rising prices in the real estate sector, opening an outlet with a large warehouse in a city's downtown area is becoming increasingly expensive.

RFID can help retailers maintain sufficient supplies within limited warehousing space to reduce costs.

In addition, RFID can prevent switching of tags by dishonest customers in large supermarkets.

As RFID tags are so small, the smallest can be no larger than a grain of wheat, they are part of the item in much the way the bar code is either on the item or its packaging.

The tag can simply be inserted into the cardboard of a cereal box or attached somewhere inside an electronic device.

It will be harder to tamper with the tag, compared with bar codes, because, in many instances, shoppers cannot find the tags.

Media have reported Wal-Mart, the world's largest retailer, wants to be one of the first firms to adopt the technology. Wal-Mart's RFID testing has helped push the development of the technology.

Other international chains, including Germany's Metro AG, are preparing to adopt RFID.

In China, enabling RFID systems, however, remains a novel idea in the fledgling retail market, and the initial costs may be too high for small and medium-sized retailers.

Zhou Zheng, general manager of Tianjin Hongzhou Commercial Co, said many of China's retailers are still interested in low-cost IT systems.

Zhou was a sales agent for IT manufacturers.

"If people can still buy many things for less than 1 yuan (12 US cents), you cannot expect the market to readily accept RFID technology," said Keith Au, general manager, for Greater China, of NCR's retail solutions division.

An RFID tag costs at least 15 US cents. The price is expected to fall to about 1 US cent in 2007.

Also, some improvements must be made to the technology. For instance, the information on an RFID tag cannot be read as accurately if put on a liquid or metal surface, Ho said.

"Privacy is another concern for RFID developers," Au said.

"For instance, many people don't want other people to know their shopping habits and/or the goods they prefer."

Au said such concerns are being taken into consideration by the technology's developers, and they are trying to ensure shoppers' information cannot be misused.

Experts suggest RFID might help China's retailers better compete against foreign rivals.

It might be easier, and faster, to deploy a new technology in China than it is to update an out-dated system in Western countries, they added.

Close