Haier Group, China's leading home-appliance manufacturer, is ready to do away with bar codes.
Today, Haier uses bar codes to track items through the production process and enable quality control, according to David Lee, a senior project manager at the company. This requires an employee to manually scan every product. Because of fatigue and operator mistakes, the error rate is between 5% and 10%, he says.
In discussing Haier's shift to RFID (radio frequency identification), Lee cites numerous draws: RFID tags are more durable than bar codes and can nearly eliminate human error from the equation. They also provide a faster method of data capture.
But Lee says Haier is not running pell-mell into the transition. "We have invested a large sum of money into the bar-code system," he says. "We don't want to install a whole new system to run RFID."
One problem in effecting the transition is that the bar codes are based on a decimal system, while many RFID schemes - including the EPC system popular in the United States - have a hexadecimal base. Disparities such as these force companies to replace or rewrite their management software if they want to switch to RFID.
The EPC system also involves higher costs for Haier - the technology is owned by foreign firms, and the license fees add up.
To solve these problems, some Chinese manufacturers and government ministries are looking to create a homegrown RFID standard to use within China. For its part, Haier has teamed up with the Shanghai Tongyong Chemical Technology Institute (TCTI) to create a system that takes the underlying decimal coding of the bar-code platform and incorporates it into RFID technology.
Haier is currently working on a pilot project on one of its refrigerator production lines to integrate TCTI's RFID tags with the existing bar-coding system. "The RFID code of our standard is built on decimal base," says TCTI director Jianping Xie. "As a result, the existing software can use both kinds of tags."
Lee says he is happy with this approach, since it saves him the cost of buying a completely new system to manage RFID tags. This hasn't kept Haier from testing EPC-based tags, though. After all, its overseas customers aren't likely to install a Chinese RFID system just to read the tags on their refrigerators - especially customers who have already settled on an EPC standard.
This poses a dilemma for Haier and all other Chinese manufacturers that export goods to the West and also sell domestically: they must install an EPC system (or another system used by their customers, such as the European ISO standard or Japan's UID). The question is whether to use the foreign platform for all their production, or supplement it with a Chinese system for goods not bound for export. Another issue is that China is wary of yielding too much information about its manufacturing systems to foreign parties.
Standardizing on EPC could save Haier 1.85 million yuan (U.S. $230,000) annually on one refrigerator production line alone due to lower labor costs and higher efficiencies, Lee estimates. But it would also require an up-front investment of 400,000 yuan (U.S. $50,000) for the technology, plus annual license fees.
If the company adopted just the foreign standard, it would be able to avoid the hassle of maintaining two different RFID technologies. With the conflicts well-defined but unresolved, Haier is in the process of testing both tags.
"We will compare the two test results before we make a decision," Lee says. "Right now, it's too early to estimate the potential benefits of using TCTI's standard."
Moving Toward Compatibility
Several other groups in China are also working to produce domestic RFID standards. Applications already popular in China include using RFID tags on government-issued identification cards and on urban transportation cards - stored-value cards used by subway and bus passengers.
There is still no RFID standard for the manufacturing supply chain, but TCTI's Xie is working with China's Ministry of Information Industry and the Ministry of Science and Technology to define one. The standard should be ready sometime late this year, Xie says.
"Once the Chinese RFID standard is issued, all RFID products circulating within China must conform to this standard," Xie explains. "However, it would not affect the products that are exported abroad."
"If the hardware part of the Chinese RFID standard was not compatible with other standards, we would have to put at least two tags on the products we export - one for domestic use and the other for export use," says Haier's Lee. "That would definitely result in an increase in our costs."
Xie hopes to avoid this dilemma by creating chips that are able to support both foreign and domestic RFID standards. "For the RFID tag, the RFID readers in different countries will only be able to read the information that's specifically intended for their local standard," he says. "This is of great significance, because it solves the problems of information security and information sovereignty. Besides that, it's more cost-effective."
If the Chinese chip is multi-purpose, it will also help Chinese RFID chip manufacturers. "If one kind of tag can only be applied in one country, our customer base would be limited significantly," says Lei Shen, deputy chief engineer at Shanghai Fudan Microelectronics, one of the companies working to develop RFID tags.
It doesn't help that the 830 to 900 MHz frequencies that most international RFID standards use aren't currently allowed inside China, he adds.
Lack of standards and the frequency disparities are the major obstacles facing RFID adoption in China, agrees Long Jing, a Beijing-based spokeswoman for Siemens AG, a global cell phone manufacturer.
"With a reduction in cost," she says, "RFID can be used in the mobile communication industry to improve the bottom line."
Benefits of Deployment
In addition to government identification cards and demands from foreign customers, another major growth area for RFID will be in anti-piracy efforts, says Victor Claudio, senior vice president for marketing at Beijing-based RFID systems integrator Sparkice, Inc.
Sparkice recently announced that it is working on several RFID pilot projects, with government support. One involves RFID tagging at Wumart, a major retailer with 700 stores across China. "For Gucci and Louis Vuitton, a five-cent tag isn't going to make a big dent on the bottom line, but will make a huge impact on recovery and loss prevention," Claudio says.
Meanwhile, he asserts, the fact that the Chinese government, foreign buyers, and high-end retailers are all getting behind RFID will create demand and lower prices. For Chinese companies in particular, this is very important.
For example, Huapu Supermarkets president Qiang Shen says that he wants to see unit tag costs reduced to 0.02 yuan (a quarter of a U.S. penny) and scanning terminal costs reduced to 3,000 yuan each (U.S. $375). "For us to deploy any new technology, the cost is the main factor," he says.
Another issue is the lack of trained personnel. "Very few experts are familiar with RFID in China," says Hao Yang, general manager of the Manufacturing Management Department, logistic planning branch, at automaker China Faw Group Corp. Here, he says, China lags behind countries with highly educated employees.