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California's ePedigree requirements call for item-level serialization beginning in 2011. The author explains factors to consider when implementing a serialization strategy and how to achieve a positive return on investment.
Pharmaceutical pedigree requirements have been in flux for many years. State governments, federal agencies, and industry have battled over the most secure and efficient method to reduce counterfeiting and diversion by tracking the movement of drug product through the supply chain.
Today, the confusing patchwork of governing laws requires that manufacturers, wholesalers, and distributors provide, at a minimum, a paper-based record of the quantity, manufacturing lot number, and purchase-order number of a particular drug. This process, however, leaves the documents open to human influence such as error and falsification. The World Health Organization estimates 5–10% of global pharmaceuticals are counterfeits. The US Food and Drug Administration's Office of Compliance reported that there were 1230 Class I and Class II drug recalls from 1997 to 2002—nearly four per week.
FDA's recall classification system includes Class I recalls, in which the product can cause serious injury or death; Class II recalls, in which the product can cause a temporary or slightly serious health problem; and Class III recalls, which violate manufacturing or labeling laws but do not pose a serious health risk. In one case, the recall of 100,000 bottles of counterfeit cholesterol medicine cost a major North American pharmaceutical manufacturer $55 million (1).
The methodologies used by counterfeiters are also improving. Not only are there more and more low-cost and illegal pharmacies proliferating on the Internet (many based in Canada and Mexico), but there is an ever-growing number of offshore manufacturers pushing unlicensed generic drugs into the US pharmaceutical supply chain.
Industry and government recognize that pedigree information needs to be electronically recorded to better secure patient safety. Yet there is no agreement on the best way to make it happen.
The federal government has been working for years to develop a standard for a secure electronic version of the chain-of-custody requirement (ePedigree), but it has stalled because of technical and legal challenges. Although initiatives remain to create a national ePedigree standard by as early as 2011, many states have enacted their own requirements for firms doing business within their borders.
Taking ePedigree in a new direction, California is the first state to require that companies create a unique serial number for each saleable unit. The use of serialization in conjunction with a pedigree can help authenticate a drug, ensuring that it does not negatively impact patient safety and security. Serialization refers to a numerical system that assigns a unique number or identification code to each packaging unit. A serialization scheme is built around a code structure that typically identifies the manufacturer, the product type, and each specific item unit.
Today, most drugs are not serialized at the item, case, or pallet level. A lot number and expiration date is stamped on each saleable unit (e.g., the box or inner-pack) of a pharmaceutical product. But very soon, each of these retail units sold within California will need to have its own unique serial number to distinguish it from other saleable units within the same manufacturing lot.
This serial number, which is the key piece of data that enables the recording of every step in the chain of custody along the supply chain, must be created and maintained in an interoperable electronic system, along with the ePedigree. Implementing such a serialization solution creates a fresh set of challenges for enterprises working within the pharmaceutical supply chain. Because the vast majority of pharmaceutical manufacturers conduct business in California, organizations will be forced to comply. As a result, some believe that California's mandates will soon become the national standard.
Developing the implementation plan
Pharmaceutical manufacturers, distributors, wholesalers, and retailers must begin the process of implementing solutions that support ePedigrees, incorporate serialization down to the item level, and generate ePedigrees at each point of shipment. For organizations that have already begun the implementation process or have yet to start, the key is to understand where and how serialization impacts processes once the product leaves the manufacturing line and enters the supply chain.
Although the to-do list may seem overwhelming, it doesn't have to be. A solid serialized distribution plan is the first important step. When implementing a serialization strategy, many companies primarily focus on the finished product on the manufacturing packaging line, and, why not? The California requirement basically stipulates this. Many, however, do not realize that it is equally important to successfully manage the distribution of serialized product. By doing so, regulatory compliance can be realized more quickly.
There are three fundamental objectives and capabilities required for serialization within an organization's distribution operations as outlined below:
Barcode versus RFID
The industry vision is that all pharmaceutical products will be serialized at the item, case, and pallet levels during the manufacturing process. To do so, manufacturers need to consider designing the capability to serialize product during the packaging process. The question arises, should pharmaceutical companies embrace radio frequency identification (RFID) technologies or use less costly barcodes? The answer to both questions is "yes."
EPCglobal, the governing body leading the development of industry-driven requirements for the Electronic Product Code, defined and ratified a number of serialization standards that offer direction for pharmaceutical companies implementing such solutions. Yet, industry still lacks a consensus on data-carrier technology. For simplicity, and to minimize costs, many manufacturers are leaning toward a 2D-barcode solution at the saleable item level and also at the case and pallet level. A barcode solution, however, makes the distribution process extremely difficult because each packed item requires a manual scan. Using barcodes does not generate the benefits of automatic identification RFID technology. Many distributors demand that manufacturers begin using the ultrahigh frequency RFID standard at the case level to minimize the complexity of the distribution process.
If the lack of industry consensus on technology and data constructs has been an impediment to starting a company's implementation, there is reason to reconsider. There are several standards already ratified and more on the way covering the fundamental components of the serialization architecture such as tag data formats, data filter and collection, Electronic Product Code Information Services (EPCIS), and ePedigree. Many companies are effectively working with their trading partners to agree on interoperability standards in lieu of a final word from the industry. For example, in the consumer packaged goods (CPG) industry, brands such as Wal-Mart and Sam's Club adopted standards that suppliers must meet.
The key to a quick implementation is starting small while developing a business foundation for scaling up in the future. Early adopters' experiences have shown that companies are more successful in rolling out new pedigree and serialization technologies and business processes when they phase in implementation. It is important to work closely with partners to determine the best strategy and to ensure that processes are aligned. Be careful when jumping into a pilot serialization implementation project without considering how the entire enterprise will be affected by the change. As with most things, it's important to define a strategy and then execute. Consider the business implications of counterfeiting, diversion, and pedigree compliance, and how they relate to the organization.
Full pedigree and serialization compliance affects all products. Companies previously planning a risk-based approach to serializing products in a phased manner over time must think strategically about encompassing all products, including pipeline products. It will also be important to take other regulations into account and develop a single approach for nationwide full compliance and interoperability.
Understanding the technologies to use—and for what products—in a pragmatic and cost-effective manner is crucial to developing a cohesive product-security program. Until the industry ratifies standards, companies along the pharmaceutical supply chain will employ a wide range of data-collection technologies. Although a company may be starting with fewer stock-keeping units (SKUs), serialization solutions will need to use and support multiple technologies and data constructs. A serialization solution that uses both barcode and RFID technologies requires varying types of hardware. RFID technology requires tags and fixed-mount readers, and barcode technology uses fixed-mount or handheld scanners. Thus, the ideal serialization solution would allow for the capability to manage and orchestrate both types of data-carrier technologies.
Once a strategy is developed and understood, the company is better prepared to define the appropriate initial implementation, its timeline, and plan for the cost of the overall solution.
Identifying and achieving ROI
Many companies may find a serialization solution to be yet one more cost of doing business. If implemented properly, however, it actually helps improve the business operation and bottom line. In a July 2008 report from Forrester Research, analysts outlined key benefits and gains of creating supply chain visibility (2). According to the report, the types of benefits will vary depending on the level of tagging (i.e., pallet-, case-, and/or item-level tags) and supply-chain stage. The scale, timing, and duration of these benefits can be estimated by considering one or more key metrics and the value of improving those metrics over time. Benefits include reduction in recalls and returns, reduction in shipping errors, improved financial accuracy of order terms, direct labor savings, reduction in inventory shrinkage, reduced losses due to expiration or spoilage, reduced stock-outs, and inventory cost savings. A well-executed implementation, integrated with existing business and enterprise resource planning systems, provides a real opportunity to further automate and improve distribution processes and realize a positive return on investment.
California is one of the largest markets for pharmaceutical manufacturers. While other states have implemented similar, and less extensive measures, California is likely to have a greater impact on the pharmaceutical supply chain at the national level. The key to making the transition for manufacturing and information technology operations as seamless as possible is not to wait for standards. Industry consensus on technology and data constructs is lacking. Thinking strategically as to how serialization will affect the entire enterprise, while roping trading partners into this process, will help define future business implications. It is important to be cautious, but even more important to act early to implement a system that not only complies with state and future federal mandates, but also offers overall business value.
Andre Pino is the vice-president and chief marketing officer at Acsis, 3000 Lincoln Drive East, Marlton, NJ 08053, tel. 856.673.3000, firstname.lastname@example.org
1. G.M. Gaul and M.P. Flaherty, "Lax system allows criminals to invade the supply chain," Wash. Post, Oct. 22, 2003.
2. R.C. Wildeman and P.M. Connaughton, "The ROI Of RFID For Supply Chain Visibility," Forrester Research, July 18, 2008.