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By Doug Bartholomew, Contributing Editor
Radio frequency identification (RFID) is ready for the pharmaceutical industry. The question is, are pharmaceutical manufacturers ready to incorporate RFID into their businesses? Better yet, do they fully understand the challenges inherent in making this new technology mesh with their manufacturing processes and systems?
“The integration issues are huge,” remarks Kara Romanow, research director at AMR Research (Boston), a technology research and consulting firm. “All systems will need to recognize this RFID data, which will require that pharmaceutical firms change their current infrastructure and applications.” Putting RFID technology into place and making it work, by AMR’s estimate, will cost the average pharmaceutical manufacturer anywhere from $13 million to $23 million.
And it’s not just the technology that will need adapting to accommodate RFID. Smart firms will want to streamline business processes as well to get the most out of the new technology, adapting the way they package, ship, track, and manage their products throughout the supply chain.
Inserting a new technology into the already complex mix of technologies that make up the daily operations of most pharmaceutical firms will necessitate some heavy-duty systems integration work, not to mention some new middleware — software that bridges different systems and, in effect, makes it easier to pull together disparate collections of data. “We figure that 70 percent of ERP and legacy systems are not designed to handle this new RFID functionality, and will need some middleware to make it all work,” says Janice Chiu-Kikta, a partner in the Life Sciences practice at IBM (White Plains, N.Y.).
Tagging pallet-loads of goods, as consumer products manufacturers are for Wal-Mart and other retailers, won’t be good enough for pharmaceutical manufacturers. They will have to RFID-tag all the way down to the “item” level — i.e., each and every bottle or packet of drugs shipped. “Item-level tracking is required for the electronic pedigree of a product, as opposed to tracking at the case and pallet level,” says Ron Bone, senior vice president in charge of distribution support in the pharmaceutical supply division at drug distribution giant McKesson Corp. (San Francisco).
Plain and simple, this degree of difference in the so-called “granularity” of the data is a dramatic one. “If your ERP system today tells you that all your data about your supply chain is contained in a bucket of sand, then when you convert to RFID, you’re going to be tracking a whole beachful of sand,” says the director of process and packaging at a large pharmaceutical firm.
The goal, of course, is for RFID to thwart the counterfeiting and diversion of prescription drugs, while improving the tracking and management of inventory. Scanners can track wholesale volumes of bottles as they are moved from the manufacturer to the distributor and on to the pharmacy. One of the industry’s aims is to create a detailed electronic pedigree of each drug shipment down to the item level. An industry group, EPCglobal, is nearing consensus on standards to make it easier for partnering companies to coordinate these efforts.
Talk about challenges. If installing and integrating RFID throughout the supply chain seems mind-boggling, that’s because even industry experts think it is. “Every time you think about integrating RFID, a variety of different integration issues arise,” adds the process and packaging director. “At our company, we’ve glimpsed inside this Pandora’s box to see what it takes. You’re talking about coupling this to legacy applications and ERP, and that means at any one company, it’s not likely that one size of RFID middleware fits all.”
Still, most manufacturers that have checked out RFID think the benefits it promises are worth the challenges and the costs of installing and connecting the new technology. “You can use this data to change your business processes,” says the process and packaging manager. “Most companies I’ve seen are looking to apply RFID to their current business processes, but if you are willing to look at how new business processes can add value through the extra granularity of data and visibility into the supply chain, that’s where the real payoffs are.” Adds AMR’s Romanow, “Every pharmaceutical company needs to figure out how they can leverage this new tool.”
For example, with ERP, most pharmaceutical companies still can’t view real-time point-of-sale data. Manufacturers could use this data on a daily basis to reduce the number of stock-outs of their products, thereby boosting sales. RFID can provide this data in spades. “RFID will help retailers prevent out-of-stock situations,” says Chiu-Kikta of IBM. “An estimated 30 to 40% of out-of-stocks are in the back room of the pharmacy,” she adds. “The manufacturer, the wholesaler, and the retailer all have a lot to gain from this technology.”
Although drug manufacturers haven’t implemented RFID on any large scale yet, consumer goods manufacturers are reporting benefits from receiving timely sales and inventory data back from the giant retailer. “It’s giving manufacturers a chance to do what I call 'vendor-managed inventory on steroids,’ where they really know what products are out of stock and where the replenishment opportunities are,” says the process and packaging director.
While the integration issues surrounding RFID loom large, there’s certainly no shortage of software firms and systems integrators ready and willing to lend a hand. IBM, Hewlett Packard, Accenture, and enterprise software giant SAP are just a few of the IT biggies to have beefed up RFID support capabilities.
Accenture (Chicago) recently completed the first phase of an RFID pilot study (Pharmaceutical Manufacturing, September 2004, p. 55) While participants agreed on the benefits, once again, the integration issues facing the industry loomed large. Although it bent over backward to downplay the negative, Accenture found in RFID an immature technology that promises to test the mettle of IT experts to install and get working smoothly with existing systems that support manufacturing.
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