The Future of RFID for the Pharmaceutical

Supply Chain
Radio Frequency Identification (RFID) is hardly a new concept. For some, RFID is already a mainstream technology—it
is used every day to pay tolls, secure building access, control manufacturing subassembly movement and track assets.
Until recently its impact in supply chain management has been limited to niche roles due to cost barriers as well as a
lack of accepted standards, technology challenges and performance limitations.

The movement to overcome these barriers and apply RFID in supply chain solutions will be further accelerated as
suppliers across all industries begin to comply with Wal-Mart and Department of Defense (DoD) RFID mandates. What
has been a niche player throughout the 1990s now promises to be an arena of intense focus over the next decade.
The need to comply with Wal-Mart and DoD requirements is forcing the development of standards, hardware and
software for RFID applications. More important, compliance with these requirements will greatly increase the number
of RFID tags produced, resulting in a rapid and precipitous decline in the cost of RFID tags. With awareness of RFID
technology and its possibilities also comes uncertainty. Many logistics operations understand that RFID is poised to
make a major impact on the supply chain world. At the same time, they are also unsure exactly how this technology
can affect and benefit the way they do business. Precise questions about its benefits, costs and integration issues can
be difficult to answer. Furthermore, the pace at which RFID technology will actually work its way into the supply chain
is still unclear.

Compliance mandates will undoubtedly accelerate the breakdown of current technology and cost barriers. Intense
promotion by RFID solution providers will attempt to position their application in the supply chain as a best practice as
they are able to demonstrate its benefits through successful implementations and use. There is also a multitude of
different vendors and solutions chasing a market whose exact shape and size can only be speculated at this point in
time. No one can guarantee how successful any given vision will be in the coming years. However, the advances in
RFID technology and applications forced by the Wal-Mart and DoD mandates makes it highly likely that RFID will
become a cost effective and viable logistics tool.

Despite the uncertainty, there are compelling reasons to take a close look at RFID right now. Beyond current
compliance mandates, reduced costs, improved accuracy, greater visibility as well as added security and increased
product authentication and tracking are just some of the benefits possible for pharmaceutical companies, and why
they should take notice of RFID today. Although existing cost and performance issues present significant challenges in
using the technology in supply chain applications, RFID still can produce a positive return on investment in numerous
situations. Even if it can't be currently justifiable for a specific situation, its evolutionary pace is such that it may
become feasible in a relatively short time. While its long-term impact can be debated, RFID has the potential to
dramatically increase the efficiency of supply chain operations.

Benefits for the Pharmaceutical Industry

According to many of its proponents, RFID promises to save billions and radically change the way the supply chain
works. For those in the pharmaceutical and health care industries, the anticipated benefits from implementing RFID go
beyond just more efficient supply chains:

Efficiency: The primary reason that Wal-Mart and other major firms are interested in RFID is that they believe it can
save them money by making their distribution operations more efficient. These companies already employ
sophisticated systems that utilize bar codes. They require their suppliers to apply bar coded labels on shipments and
transmit Advance Shipping Notices (ASNs) so that they can streamline their receiving operations. Even though they
effectively utilize bar codes, these organizations believe that RFID can allow them to make their distribution
operations more efficient. A typical pharmaceutical warehouse receives pallet loads of expensive products and quickly
ships cases and eaches. In addition, the organization needs to be able to track product down to the lot or even unit
level after it is shipped. This has traditionally been accomplished using bar code labels, tying cases to pallets and
eaches to cases, and a large amount of bar code scanning and manual data recording. RFID will permit the receipt of
product by case or unit and will provide automatic tracking of the products throughout the supply chain. This has the
potential of greatly reducing both direct and indirect labor.
Accuracy: The high cost of pharmaceutical products and the need to track material by lot or unit make tracking
particularly important for the pharmaceutical industry. Using current technology and methods tracking is an expensive
and time-consuming part of a pharmaceutical operation. RFID can provide an inventory tracking mechanism that is not
dependent on human initiated scans. Transactions can be automatically recorded as product is moved within the
warehouse.

Given enough tags and readers, RFID can provide the ability to track all inventory movements within a distribution
center. All physical moves could be systematically tracked without the need for an operator to record the transactions
in the system. Mis-picks and erroneous putaways where the wrong bar code is confirmed could be eliminated. Cost
and technological barriers currently make this level of tracking impractical for most operations, but it is a theoretical
possibility that could become a reality sometime in the near future.

Visibility: The pharmaceutical industry has been a leader in creating visibility throughout the supply chain. While
traditional EDI provides a mechanism to share information between trading partners, RFID and the Electronic Product
Code (EPC) Network will provide the basis for tighter and less costly collaboration and greater visibility within the
entire supply chain. An EPC Network is designed to share information over the Internet. Conceptually, it allows one
organization to locate and retrieve detailed product information stored on servers maintained by another firm for any
given EPC. The ONS, or object name service, provides the appropriate network address or URL for where the
information is stored. PML, or physical mark-up language, provides the means for the requesting application to
retrieve the information.

The EPC Network establishes a vision for RFID that goes well beyond traditional automatic identification technologies.
It provides the structure to track product movement throughout the supply chain. Properly maintained and updated
PML servers can provide complete item-level history from the manufacturer to the end-user. This feature will make it
possible to instantly know the history and location of every item in the supply chain. Today, independent systems
often report this information only in financial transactions between partners and at best, send ASNs to the next
trading partner. RFID provides the ability to have all systems use and leverage a single tag that creates visibility up the
chain, improving the ability to plan for future events. Once the systems are in place, there is great potential to remove
billions of dollars of inventory from the supply chain, passing savings along to all trading partners and end-users.

For the pharmaceutical and health care industry, lot and unit tracking are part of traditional regulatory and
compliance standards. RFID's traceability features are an excellent example of how this extended visibility will benefit
the overall supply chain. Consider the process that a pharmaceutical or diagnostic manufacturer must go through to
recall a specific SKU / lot. Existing supply chain systems only identify the immediate recipient of the lot. This recipient
could be a wholesaler, hospital/clinic, drug store, or retailer who in turn distributes the product to other entities in the
supply chain. An individual item could go through many intermediate destinations before ending up in the hands of
the final customer. Using RFID allows for traceability at each point to track where the drug was distributed and by
whom. At the lowest reasonable point, pharmacies could track what prescriptions were filled with what lot and greatly
improve recall accuracy while minimizing costs. In addition, this concept could also be used to support pedigree paper
regulations that require drug wholesalers to provide a record of each entity in the supply chain that has handled the
controlled item being resold.

Security and Product Authentication: Probably no products have higher security requirements than those in the
pharmaceutical industry. Products are extremely high in value, chemical analysis is required to determine if a product
is counterfeit, and many products have elicit uses and thus, high street value. There is an ongoing problem of product
diversion as well as the reintroduction of expired products into the supply chain. Because RFID can passively track the
movement of an individual object, it can be used in a similar manner as sensormatic and other loss-prevention
technology to help reduce theft. Product authentication is another area that may prompt enterprises to turn to RFID
for greater security. If every object has a unique identifier and detailed information on the object is stored in a PML
server, any purchaser can validate the object's authenticity by interrogating its RFID tag. The information contained in
the RFID tag could be encrypted so that counterfeiting will become nearly impossible. This would provide
pharmaceutical manufacturers a powerful tool to combat product counterfeiting and product diversion and end
users/customers will be able to ensure product integrity from the manufacturers.

RFID Drivers for the Pharmaceutical Industry

RFID presents the potential to provide tremendous benefits to the pharmaceutical and health care industries. The
technology's capability for individual unit tracking and overall visibility will greatly reduce product diversion, making
this and counterfeiting difficult. Dispensing errors will also be decreased, thus increasing patient safety. If product
diversion does occur at any point, RFID's ability to identify the security gap will allow focused efforts to prevent it in
the future. By being able to track individual units, RFID tags will reduce dispensing errors thus increasing patient
safety. The tracking enabled by RFID will greatly reduce product diversion, and the data coded in the RFID tag will
make counterfeiting and product diversion nearly impossible.

Some of the key benefits projected with the use of RFID include:

 The ability to identify drugs at the individual and container level.

 Assurance that the ID on the bottle has not been forged or mislabeled.
 The ability to track exported drugs being re-imported and resold in U.S. markets at lower costs.
 Minimized line-of-sight requirements to read product information.
 Remote tracking of product movement and location.
 Increased potential for reducing clinical trial times by reducing errors and improving delivery
accuracy.

The potential for improvements in tracking and visibility are crucial to the long-term supply chain success for both the
pharmaceutical and medical product industries to ensure that consumers are protected, product integrity is
maintained, and shrinkage is minimized to maximize revenue. In addition, full visibility of the supply chain inventory
will reduce out-of-date stock and returns, further improving profitability.

But even the most fervent supporter must admit that the potential benefits from RFID will vary greatly among supply
chain operations. While some promises may seem a bit over-optimistic, RFID does provide significant advantages over
bar coding. Before any organization can seriously contemplate using RFID to support its operations, it should have a
firm understanding of the benefits that the technology can provide.

As the old saying goes, "the early bird catches the worm." Even if the true benefits will not be realized for several
years, establishing the base RFID infrastructure today is the key driver for total supply chain adoption and benefit
realization tomorrow.