Breaking New Ground

Jerry Moy of Siemens Business Services talks RFID and the pharmaceutical supply chain.

Right now, there are few technologies that appeal more to the imagination than radio frequency identification, or RFID. The use of tiny, intelligent chips to identify, characterize and track and trace all sorts of goods, products and even human beings triggers visions of a world where almost anything can be located and followed at the push of a button. Now, with the issue of the ‘Draft Guidance on RFID’ by the US FDA, RFID technology has entered the business area of the global drug-manufacturing industry.

The pharmaceutical industry, currently facing tremendous challenges to keep up with external changes, recognizes that RFID technology could not only help address issues such as counterfeiting or tracking and tracing, but that this innovation could support the industry in improving its internal processes and tackling major supply chain challenges.

Introducing RFID
RFID as a technology is nothing new. Since World War II, when the technology was used to distinguish ally fighter planes from those of the enemy, RFID has been used in various applications across several industries. It is used to identify, secure or track and trace the items in which the tags are attached. Access control, livestock identification, car security and highway tollgates are examples of RFID technology used at its most basic level.

Over the last decade, there has been a regained interest in RFID technology. When US leading retailer Wal*mart announced its mandate – which required all of its suppliers to put RFID tags on pallets and cases by the end of 2006 – many of the world’s leading retailers followed suit. UK supermarket giant Tesco began tracking shipments and inventory with RFID tags, while Airbus and Boeing started ‘smart-labeling’ aircraft-parts and special tools. Gillette began tagging its razors as an anti-theft precaution, and Europe’s pendant of the Wal*Mart initiative, German Metro’s ‘future store’ launched in Neuss, Germany.

The major hype around RFID, however, is primarily related to the idea of tracking all (or at least the greater part of) goods, creating a new quality of supply chain transparency. This transparency ultimately results in better product availability to the consumer at the Point-of-Sale. The business benefit comes from increased sales due to higher consumer satisfaction and less ‘out of stock’ situations, as well as from reduced bound capital in-stock and warehouse capacity due to more efficient replenishment and shorter lead times along the entire supply chain. On top of this, there is a gain of productivity and security when handling the goods at production, warehouses and retail stores. Parts of these benefits can be gained already, when not every single item is tagged, but only pallets or cases are tracked along the supply chain.

For high value goods, the information about sales channels can be helpful to fight grey markets, theft and counterfeits.

Moreover, by means of RFID, each individual product can be provided with an electronic ‘pedigree’, containing all relevant information of the product the tag is attached to: raw material and production data and conditions, shipping dates, storage conditions and times, handling-events up to the final point-of-sale transaction. So, not only the assets and inventory can be tracked, but also all items produced under the same conditions can be traced, allowing more efficient and very specific product recalls.

In order for item level tagging to reach a global breakthrough, everyone agrees that three major issues must be solved:

Price – In particular, the item price per tag. In general, experts believe that for the huge numbers in retail and pharmaceutical, price of an individual (passive) tag, should drop significantly below the current 15-20 cents; at what price a business benefit will be created depends on the application itself and the value of the goods that are tagged; as a rule of thumb, it becomes interesting when the tag price is around or below one percent of the value of the tagged object.

Standardization – An RFID tag can only be interrogated in the frequency it is tuned to. Therefore, in order to use the information in a global supply chain, all participants should us exactly the same frequency and protocol. Today, various frequencies and methods are being used, depending on application, read/write distances, amount of information to be handled and background of the supplier. EPCglobal Inc., a community of users, suppliers and technology-driving authorities tries to synchronize the various technologies available. In 2004, EPCglobal succeeded in standardizing UHF frequencies and tag-to-reader protocols; these standards are currently applied to tag pallets and cases in the consumer packaged goods/retail supply chain. Similar standardization of the 13.56 MHz band, which is more appropriate for item tagging, is on the way

Environment – RFID reading performance is influenced by materials like water or metals and, depending on the frequency, RFID systems show different properties. This is a principal limitation, especially for bulk reading, that cannot be overcome with new RFID technology, but only with clever methods of material handling, like singulation, individual placement and assembly of bulks, due to the mandates of the retailers, innovations in this area can be expected.

Furthermore, there exist privacy concerns of consumers. But, while a consumer certainly would not like that products can be traced after purchase in a retail store, a patient probably would highly value that the drugs he receives in a pharmacy or a hospital are authentic, if it can be securely proven.

The pharmaceutical business case

The pharmaceutical industry has generally been regarded as laggards with respect to manufacturing and supply chain innovations. A main reason for this is the stringent regulations that traditionally have made it time, cost and risk prohibitive to allow innovative modifications to running (and validating) installations.

Recent developments, however, have enabled the pharmaceutical industry to shift into the position of ‘early adaptors’, when it comes to item level RFID tagging.

With the issuance of an extensive report on counterfeiting and the release of Draft Guidance, the US Food & Drug Administration (FDA) suggests that the use of RFID technology can increase patient safety and prevent drug counterfeiting. The general idea behind this is when every single dosage form is equipped with an RFID tag, and there is a global, end-to-end spanning IT infrastructure behind it, it will be possible to provide individual drugs or dosage forms with an e-pedigree, enabling tracking and tracing of all relevant information up to the moment of use, whether it be at the bed-side of a patient or the regular consumer buying it at a pharmacy.

In order to stimulate pilot programs and RFID testing, the FDA issued a policy of enforcement discretion. Originally written (or at least perceived) as a mandatory rule, today the FDA strongly recommends the use of RFID technology in the above described sense, in order to build up systems of end-to-end tracking and tracing supply chains by 2007.

Improving patient safety along with the possibility of combating the proliferation of counterfeit drugs are the key reasons why the pharmaceutical industry could become the front-runner among industries when it comes to using RFID technology.

At the same time, there is increased pressure by pharmaceutical industry players to operate more as a competitive/traditional type of business, where issues like time-to-market, market responsiveness, cost reduction and flexibility are key-drivers. The new environment, while possibly creating another regulatory hurdle, could make a wonderful springboard for the industry to leap forward in its attempt to keep up with today’s challenges.

As price and regulatory changes evolve over the coming years, many of the challenges currently experienced by the consumer packaged goods (CPG) and retail industries will apply to the pharmaceutical industry. Despite higher average value of products, the price of tags is an issue. In addition, the technology-factor of product authentication is of utmost importance, requiring 100 percent security for special high-value prescription drugs. So far, though, no clear rules have emerged on how product authentication will be carried out, though EPCglobal Inc., the organization that develops Electronic Product Code standards for RFID technology, is said to be working on evolving a standard that will be cost-effective as well as acceptable to organizations like the FDA. Clearly, the required level of security determines the type of solution. Levels near100 percent seem to be available only with special security precautions on the RFID tag itself (encryption and secure identification similar to what is currently used on bank cards). This can result in more expensive RFID tags as compared to those currently used in CPG/retail applications where simpler and cheaper tags support a supply chain tracking solution. Tracking is more vulnerable. Still the security level achievable will be considerably higher than the current one. So it can be considered for general prescription drug or even OTC drugs. It will still will increase patient safety at one side and open the possibility to fight counterfeiting on the other side.

The supply chain tracking solution requires participation of all players in the supply chain. And, while the business case seems to be evident for the drug manufacturers, it is by far less obvious, why distributors, pharmacies or hospitals really benefit from the tagging of individual syringes, blisters or ampoules. Many of the obstacles that have occurred in the CPG/retail arena will apply. What standards will be used? Who owns the necessary global infrastructure? How can it be rolled out? Given the fragmented infrastructure of the average pharmaceutical supply chain (many producers, many distributors, even more outlets) it will be a tremendous effort to get all necessary parties lined up and interested.

Despite the strong push forward by the regulatory authorities, real breakthrough will come only when there is a clear business case, which lets all parties involved benefit from it. Investments (not only in tags, but also in IT infrastructure) will be considerable, as will be the impact on organization of production flow, supply and distribution chain – including the human side of organizations that have to adopt and implement.

The awareness of these factors has resulted in the fact that the industry is currently somewhat ambiguous towards a large-scale implementation of RFID. However, almost all large pharmaceutical companies are running various RFID trials and pilots, from small-scale closed loop warehouse or manufacturing applications to the full blown end-to-end type projects. The general expectation is that with the experience gained in these kinds of experiments, along with the regulatory push and the need for supply chain improvements, the pharmaceutical industry will become the front-runner industry to fully adopt RFID technology.

The use of RFID in the pharmaceutical industry is not restricted to the supply chain but has potential uses across the pharmaceutical value chain.

For distributors, pharmacies and hospitals, RFID needs to support the operational processes. This can only be achieved if there is a significant integration into the operational IT and material flow systems. The benefits achieved here, will be comparable to those of the retailers. Not having the need to purchase and apply the tags themselves, they will benefit from increased process security and efficiency, especially in operations that require single item handling, (e.g. at receiving, picking, packing and shipping) where using RFID as identification technology can be automated by far better than before – eliminating human failures and increasing product throughput. The more accurate inventory will reduce time for stock-taking and will shorten replenishment cycles. In a pharmacy, for example, the entire back room can be managed without the need for a human operator.

In modern hospitals using wireless infrastructure, all necessary information is available at the bedside of a patient, reducing paperwork and the risk of clerical errors, leaving more time for hospital staff and physicians to focus on patient care. An increased level of security and protection from human error is achieved when the patients are identified with RFID tags themselves.