By, Hamir Malia, Senior Vice President, Professional Services, GenuOneSupply chain management in the pharmaceutical industry was once viewed as an internal issue impacting only the manufacturer and distribution parties. But today, as counterfeiting in the pharmaceutical industry grows to insurmountable levels, protecting pharmaceutical business as a whole, as well as the consumer has become a vital issue. As drug counterfeiting becomes a critical problem for the industry, The Food and Drug Administration (FDA) and other government agencies are in the process of finalizing mandates requiring pharmaceutical manufacturers to track and trace their products down to the unit level in order to combat the drug counterfeiting epidemic.
According to the Wall Street Journal, over the past three years the FDA has quadrupled its counterfeiting investigations to “crack down” on the distribution of placebo drugs. Despite the FDA’s increased efforts, the pharmaceutical industry is losing approximately $12 billion annually to counterfeit drugs based on data fromSCRIPS/Interpol. As mandates are being set to combat this problem, including requiring the tracking and tracing of drugs throughout the supply chain, pharmaceutical manufacturers are under pressure to quickly understand and implement new technology needed to meet these regulations. Beyond meeting mandates, pharmaceutical organizations also are scrambling to learn how to achieve the business benefits of these new technology investments.
One of the most recent regulations includes a mandate set for March 2004 initiated by the FDA, requiring tracking and tracing all class two (C2) level drugs, from the pallet down to the unit level. Tracking drugs at the unit level will enable all those involved, from the manufacturer down to the retailer, to identify the exact location of their products in real-time, and realize where and to whom drugs are sold.
In addition to enhancing knowledge of products as they are identified throughout the supply chain, this industry will gain other benefits as well. Life sciences companies face the enormous challenge of stock dumping and transit trade between countries with large wholesale price differences. Unit level tracking of products enables companies to establish a cost-effective tool for monitoring and investigating unauthorized distribution for both anti-diversion purposes and consumer protection to prevent liability issues.
The FDA is recommending a variety of technologies to implement this track and trace mandate which include utilizing options such as advanced barcodes or radio frequency identification (RFID). While the FDA is not mandating the use of RFID exclusively, the government agency is recommending organizations consider this as a top choice for identifying products throughout the supply chain.
The use of RFID will certainly mature in 2004, as retail giant, Wal-Mart, is requiring its top-100 vendors to track their goods at the case and pallet level with RFID by January 2005. These top 100 suppliers cross over to include some of the top pharmaceutical manufacturers as well, exerting additional pressure on these companies to adopt RFID immediately.
The major barrier for pharmaceutical companies in adopting RFID immediately lies in standards development. The RFID industry recently developed an electronic product code (EPC) standard for RFID chips. The chips that meet basic requirements have just recently been developed and deployed in the supply chain on a pilot basis, while the more advanced chips which meet the EPC standard are currently in development. With upcoming mandates for the pharmaceutical industry, trials in place, and widespread adoption expected within the year, pharmaceutical companies are truly under the gun to get all other needed technology components to support RFID up and running. Building the IT infrastructure to support RFID now is essential so companies can implement an RFID system once the chips and readers move from pilot mode to adoption mode – using barcode technology in the interim.
Organizations that understand the adoption of RFID is inevitable and beneficial are upgrading their IT systems to include advanced middleware technology that support both barcode and RFID tracking systems. As companies work to support barcodes now with the intention to implement RFID in the future, they can create a migration path to adopt RFID painlessly down the road. Whether building infrastructure from the ground up, or simply retrofitting existing systems with a middleware component, the pharmaceutical industry must address the infrastructure component of RFID today to meet mandates and remain competitive in the marketplace.
While the FDA mandates certainly are market drivers to adoption, the pharmaceutical industry will realize many benefits beyond compliance. Better supply chain management will not only limit the counterfeiting of drugs, but also enables better inventory control and cycle count accuracy. As companies are able to improve their visibility into the supply chain, they will be able to better manage the distribution and sale of products including sale volumes at each unique distribution location, thus helping organizations make better business decisions.
Unit level tracking also enables the pharmaceutical industry to be prepared for worst case scenarios like product recalls, which can drastically damage a company’s reputation and endanger the consumer. If a drug is identified as harmful, the batch distributed can be easily tracked down since its entire pedigree is retrievable through its barcode or RFID tag. Instead of recalling all drugs distributed, only the batch identified as harmful can be recalled. This has the potential to save companies millions of dollars, and additionally make the recall a more discrete process by avoiding embarrassing public announcements. The tracking system also protects the consumer, assuring that the drug is safe.
Now is the time for pharmaceutical companies to carefully evaluate their processes and IT infrastructure to assure their systems can support compliance initiatives and achieve business value beyond compliance by improving supply chain management. Unit level tracking and tracing of products will help combat counterfeiting and ultimately give the FDA better control over illegal trafficking, and give companies the ability to avoid dramatic loss in profits. As pharmaceutical companies look to upgrade their systems they should consider that the FDA will likely require RFID compliance as the industry standard in the near future. Technology applications that support both the unit level tracking of bar codes and can also support RFID, are ideal for pharmaceutical manufacturers. In 2004, these manufacturers should watch the evolution of RFID as it is applied to other industries, consider a pilot deployment of this technology, and also realize the internal value of improved supply chain security.