Problems with RFID adoption in China
Wal-Mart may be trying hard to convince its leading suppliers to use Radio Frequency Identification (RFID) tagging on shipments, but pushing this technology's introduction to the Chinese manufacturers that ship between 50 percent and 70 percent of non-food products to this largest U.S. retailer may prove to be tough.
Even as RFID technology has had a huge impact on manufacturing, distribution and retail globally, lack of information and the fact that companies in South China "don't understand and are not familiar" with the technology is posing a "key barrier" to adoption of RFID in the Pearl River delta region.
RFID tags, designed as the next step from barcodes are, as the name suggests, radio frequency wireless tags that allow retailers and suppliers to keep track of their products and control inventories more efficiently.
In America, retailers have created compelling business cases for deploying RFID in their supply chains. The technology reduces labor costs by automating the process of tracking goods.
A survey of 136 international and local manufacturers, buying offices and logistics service providers located in Guangdong and Hong Kong report that ninety-four percent indicated that they are currently not interested in adopting RFID technology for tracking their merchandise.
Of the ninety-three companies that had clear reasons for not adopting RFID, the main problem was ignorance: fourty-four percent said that they either did not "understand and/or were not familiar" with RFID.
Chinese companies indicated that they have not found a good reason to invest in the technology. That's because unlike in America, where RFID tagging has helped in reducing labor costs by automating the process of tracking goods, labor in China is cheap and widespread; so they don't need labor-saving devices.
Contract manufacturers utilize low-tech, mass-production techniques. With their big-brand customers squeezing them for profits, the manufacturers operate on paper-thin margins. They don't have the luxury to experiment with new technologies.
The argument that RFID can better track goods, as propagated by American retailers, doesn't sell to Chinese manufacturers. If RFID only tells them that goods have left their warehouses; they already know that much!
Wal-Mart, which has deployed RFID technology at 500 stores and at five of its 117 distribution centers and is planning to double the number of stores handling RFID by the end of 2006, has found that there are also some suppliers in America who are still entrenched in their belief that it's not going to work. Starting in January, 2006, the Wal-Mart is reportedly taking a tougher approach with suppliers who fail to support the use of RFID wireless tagging on shipments.
Also, it seems that the Chinese government has realized that logistics modernization is a key driver in improving China's supply chains, which are inefficient. The Chinese government is closely watching the adoption of RFID by overseas companies, both to understand potential customer requirements and to learn what the best practices are.
The Chinese government is acutely aware that Wal-Mart, with its RFID mandate, imports an estimated $12 billion to $20 billion (roughly 10 percent to 15 percent of overall U.S. imports from China) per year directly from China, which is more than China's total exports to Russia or the United Kingdom.
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