Many pharmaceutical manufacturers have been working to conform to California’s ePedigree laws, which were originally scheduled to go into effect in 2011. However, lawmakers have pushed this legislation to 2015. As the industry breathes a collective sigh of relief to have more time, many are now asking – what does the deadline push mean for me? In reality – nothing – it is still vitally important to implement a serialization system that will be compliant with these and other regulations as soon as possible.
Why? First, because globally, other parts of the world are already implementing similar regulations and since most pharmaceutical manufacturers operate worldwide, they will still need to comply. Second, there are many business benefits to getting a system in place sooner rather than later. Third, companies that have taken the lead in deploying serialization technologies are laying down the foundation for significant financial benefits based on their ability to control and minimize recalls, product expirations, and counterfeiting problems that have long plagued the pharmaceutical industry.
The current state of the global marketplace
To date, Idaho, Wyoming, Nevada, South Dakota, Kansas, Texas, Mississippi, Georgia and Connecticut have all enacted their own versions of e-pedigree laws, and many others are following suit. Serialization—the process of applying a unique identifier via barcode or RFID tags directly to the product so that it can be monitored throughout the supply chain — is a key aspect of these regulations. Serialization not only provides a way to uniquely identify, but it also enables processes automation for greater efficiency and brings much needed visibility across the product supply chain. The impetus behind these mandates is to root out product counterfeiting, theft, and other problems afflicting the industry.
• Billions lost in product expiration. Ironically while there are millions of dollars poured into sophisticated technologies to develop drugs, the systems for dispersing medications throughout the customer ecosystem is still lacking. There is often no efficient means to track the shelf life of products. Thus, countless batches of medications nearing expiration may sit idle in a warehouse while newer versions are shipped out to retail stores and pharmacies.
In fact, the number one reason retailers return prescription medications to manufacturers is due to expiration prior to dispensation. This costs the pharmaceutical industry an astounding $2 billion a year in returns and product losses. Adding serialization technology would make it easy to implement first-in, first-out policies to prevent this costly problem from occurring in the first place. This means using track and trace to quickly identify the associated expiration dates of product still on the shelf and adjust ship dates for those that need to be moved quickly, or removed from distribution. This simple change has a major financial impact.
• Rampant counterfeiting problems. Six million counterfeit cosmetics/personal care products and 1.2 million foodstuffs and beverage products were seized at the EU border last year—and those are just the ones that were apprehended. The problem is even more profound in the pharmaceutical market. Fake medicines account for almost 10 percent of world trade in pharmaceuticals. Pharmaceutical manufacturers are increasingly concerned about this growing problem as they expand operations around the world and engage with more outsourcing partners.
The more a product changes hands, the easier it is to introduce counterfeits into the system. Manufacturers know full well that regardless of whether a problem arises at their own site or a partner location, they will ultimately be held responsible. To root out counterfeiting, they need the ability to trace movement of goods in production at each stage in the process, from inception through packing and shipping, regardless of where these activities occur. This is where track and trace solutions like RFID tags come in handy. They allow manufacturers to follow the exact chain of custody of medications being produced through the entire product lifecycle.
• Product return and recall concerns. Product returns, expirations, and product recalls cost the pharmaceutical industry $2 billion a year, according to the Healthcare Distribution Management Association. The recall of 100,000 bottles of counterfeit Lipitor, for example, cost Pfizer $55 million. The sheer task of identifying and pulling tainted product is a huge endeavor, not to mention the impact of lost revenues, litigation, stock devaluing, and loss of consumer confidence in the brand. Research from the University of Wisconsin suggests that shareholder value lost after a drug recall is approximately 12 times the estimated total cost brought about through litigation, recall, or replacement, suggesting that the impact on shareholder value could be as high as 1 – 2 percent.
Currently, many companies simply manage materials as generic batches. If a defect is uncovered that necessitates a recall, the only safe way to recall the right items is to recall everything that has been shipped during a particular timeframe—making the recall far wider in scope than is necessary. This means added cost for the manufacturer and retailer in lost inventory, as well as the greatest detriment in consumers’ perception of the company. The wider the recall the greater the news cycle devoted to covering it. There is a better way, however. Manufacturers today can use track and trace to determine exactly which products, from which batch, are impacted. This simplifies the process of pinpointing exactly which stores or in the case of pharmaceutical manufacturers such hospitals and drug stores have already received the product in question—greatly impacting public safety and protecting the company’s financial status.
The catalyst for serialization
According to a recent report by the University of Texas at Austin McCombs School of Business, RFID technologies have already added $40 billion in benefit to the retail and health care sectors. The group estimates the value of total benefits accruing to manufacturers, distributors, and hospitals as being $27.95 billion, and notes that these benefits are gained through a number of areas, including depreciable inventory of pharmaceutical products using pallet-level tagging, reduction in counterfeiting, efficient product recalls, and enhanced inventory turns. However, while the catalyst for implementing serialization may be to combat issues such as recalls and counterfeiting, pharmaceutical manufacturers are realizing these solutions can be extended to actually increase revenues.
• Fulfilling customer demand. Poor forecasting often leads to either overstocking our out-of-stock problems. This costs manufacturers dearly. A study conducted by IRI and Procter & Gamble found that over 2 percent of high-volume stock keeping units are out-of-stock at any given time, contributing to revenue losses upward of 25 percent for items. Researchers noted that 15 percent of the time, when consumers encounter a stock-out, the sale was lost altogether, and 50 percent of the time, consumers purchased a competing brand. Track and trace brings the necessary visibility across the customer/retail ecosystem to counteract this problem. Manufacturers then have the real-time insights to replenish goods much more accurately, resulting in increased revenues.
• Invoice Dispute Resolution. Traditionally when there is a dispute between manufacturer and customer about what was shipped versus what was received, it can result in a game of “he said, she said,” with no single source of data to determine what was actually shipped and what was actually received. As a result, the resolution usually involves some type of “middle of the road” approach which costs both the manufacturer and the customer. Serialization technology is revolutionizing the supply chain industry, and one of its most tangible advantages is the ability to determine exactly which items were shipped and which items were received. Ultimately, this can eliminate invoice disputes—and when problems do occur, it can make dispute resolutions fast and accurate for manufacturers and customers alike.
• Improving responsiveness. Manufacturers employing serialization can capitalize on market opportunities much more quickly than their competitors. If, for example, there is a natural disaster or other emergency causing a huge demand for a particular medication, the manufacturer can quickly respond by rerouting batches where they are needed most. This level of agility has a major impact on an organization’s ability to solve emerging health threats.
Ultimately, no savvy manufacturer is going to take a “sit back and wait” approach to serialization. Regardless of the status of e-pedigree legislation, businesses realize the tremendous downfall of delaying implementation of track and trace solutions. In this fiercely competitive industry, these solutions provide a powerful means to combat some of the greatest challenges the industry has faced—and take advantage of unprecedented new business opportunities.