Pharmaceutical companies are not often cited as leaders in supply chain innovation. Recently, however, the industry seems to be pulling ahead with RFID technology using electronic product codes.
Over the last two years, the world’s interest in Radio Frequency Identification (RFID) has surged-not because it is a new phenomenon, but because major improvements have been made to a technology that actually has been around for decades. As a result, RFID has reached the point where the size, economics, reliability and applicability of tags have produced numerous commercial applications – particularly in markets with a preponderance of medium- and high-value products.
An Electronic Product Code (EPC) is the heart of an RFID-enabled supply chain. In operation, memory chips with embedded EPCs are attached by tags to individual products or cases. In this manner, every item becomes an intelligent, communicative object: Information contained in the chips is sent via antennae out over the Internet, where it can be accessed by any number of supply chain management applications.
To some degree, RFID’s recent metamorphosis was spearheaded by Wal-Mart, which insists that its top 100 consumer packaged goods suppliers attach RFID tags to cases and pallets by 2005. Such a move likely will benefit Wal-Mart by enhancing order accuracy, inventory visibility, operational efficiency and materials management. Tesco and Metro have also recently announced similar plans with their core suppliers.
Trade channel requirements such as these will help most manufacturers, wholesalers/distributors and retailers enhance track & trace; reduce theft and shrink; and generally improve inventory management activities. The directives also will help to lower price points for RFID tags and scanning equipment, which should make the overall business case more attractive as RFID adoption increases.
Pharmaceuticals sector targets RFID
One industry – pharmaceuticals – has been particularly successful at targeting the above benefits, and working rationally and systematically to identify RFID-related opportunities. As a result some of the world’s largest drug manufacturers, wholesale distributors and chain stores are working together as a group, with Accenture serving as programme manager, to identify key uses for EPC applications, such as:
- Returns management (improving expiration date management, lot & batch tracking, returns management and recall expediting).
- Operational productivity (monitoring and controlling shipping accuracy, receiving accuracy and operational productivity).
- Product security and consumer safety (supporting anti-counterfeiting measures, product security, consumer safety and shrinkage).
The pharma industry group has also created three working teams to build a whole-industry perspective on issues relating to counterfeiting, shrink and theft. The mission of the Regulatory and Enforcement Measures Group is to refine and gain agreement on legislative and regulatory changes that will be required to enhance counterfeit prevention across supply chain segments. The Business Policies and Practices Group (to the extent allowed by anti-trust laws) strives for agreement on strategic and procedural actions. And the Technology Prevention Measures Group is investigating high-potential technologies that could be implemented to combat counterfeiting.
All in all, pharma companies chose the right technology. This is because RFID has the potential to advance patient safety and support anti-counterfeiting programmes – it can be easier to counterfeit the actual pharmaceutical product than it is to create a fake RFID identity. Because purity and accuracy of ingredients and dosages is incredibly important, being able to monitor flow of inventory through the supply chain is hypercritical. During a recall, for example, it is vital to know the exact location of all products, and to be sure that all defective merchandise has been brought back to a destruction or return point – the visibility provided by RFID enables this process to be much more effective and efficient. In addition, industry players may experience fewer line clean-downs and less scrapped product. Lastly, pharma represents somewhat of an ‘isolated’ supply chain, with largely separate picking, shipping and in-store positioning. This makes the piloting and implementation of RFID more attractive.
Members of the pharmaceutical industry have taken a leadership role by working together to examine RFID’s potential to maximise operating performance. And although it may gain insights in advance of other industries, the prospective RFID benefits below are not limited to pharma: Significant reductions in the cost of goods sold, resulting from increased labour productivity and reduced shrink; Drops of up to 30 per cent in working and fixed capital- the result of improved inventory management and asset utilisation; Improved inventory visibility for wholesalers/ distributors, thus creating an environment conducive to better planning; Less time needed for all supply chain parties to (re)check, (re)audit or (re)verify product-correctness and quantity.
Despite RFID’s broad applicability, pharma currently is moving ahead more quickly because its companies are looking critically at where the value is and how they might harness it in a rational way. By taking a pan-supply-chain view, they also are well positioned to recognise key benefits and avoid focusing on the wrong things.
Pharma companies also have been careful about priorities. Although the buzz is all around compliance with retailer mandates, they have tended to look for additional value, such as optimising supply chain performance, improving trading relationships and increasing patient safety.
Lastly, the industry has succeeded in forming a cogent view about benefits, rather than setting up an ‘us versus them’ scenario that fosters suspicion and hordes the rewards. In pharma, real insights are being born of collaboration. Stephen Proud is an associate partner, supply chain practice at Accenture. Stephen.firstname.lastname@example.org