How Pharma Can Find RFID's ROI

Before they can embrace RFID and integrate it into their enterprise IT systems, pharmaceutical manufacturers must grapple with several key issues, including how to justify the ROI. In this exclusive interview, SAP's Jim Sabogal discusses problems firms are having with RFID, and strategies that SAP has in store.

When pharmaceutical industry discussions turn to RFID, sooner or later data integration issues and ERP, and the name SAP, come up. As director of the firm’s pharmaceutical division of its life sciences unit, James Sabogal is at the center of changes happening at SAP and in the industry, and has his finger on the pulse of RFID and where it connects to enterprise IT.

Pharmaceutical Manufacturing spoke with Sabogal to get his thoughts on the pharmaceutical landscape now that RFID is an integral part of every firm’s long-range strategic planning.



PM: What changes have you seen in the industry over the last six to nine months?

JS: Pharmaceutical manufacturers have started to understand what the FDA is doing with compliance, specifically the issue of improving quality throughout the drug manufacturing process — the updated cGMPs, for example, and the whole Critical Path agenda.

Compliance is a key issue for our customers, but, based on FDA’s timetable, companies are looking at the RFID initiative. And they’re getting external pressure from local governments especially around the pedigree laws, Florida being one of the first.

PM: What does this mean for manufacturers in the next six to nine months?

JS: They’ll need to:
  • improve their manufacturing quality
  • assimilate RFID into their supply chains
  • look ahead three to five years and see how they are suited to developing their internal supply chain landscape.
PM: What do you mean by “developing” the internal supply chain landscape?

JS: For one thing, it makes sense for companies to have active ingredient products manufactured overseas, such as in India and China. That doesn’t happen overnight, and its also a big supply chain issue. If I gain cost savings with the same quality and purity in a foreign country, how do I bring that back to the largest pharmaceutical market, the U.S.?

Progressive companies are investing in RFID for solutions. RFID by itself really doesn’t have a good ROI. But RFID in terms of avoiding or handling counterfeiting and product recall can have a huge impact on ROI has a big impact.

PM: What industry trends are you seeing with RFID these days?

JS: Market leaders are using two strategies. Some want to try to understand a little about RFID, so they buy a point solution just to try to understand how the technology works. Then when they’re up to speed, they integrate this technology into their business process.

Once this scenario moves into manufacturing, when suppliers are starting to ship materials with RFID tags, there’s the whole issue of how to modify the business process to use this information—the information that will go into a pedigree document for a product that is shipped, for example, to Florida.

PM: What solutions are you providing for RFID?

JS: From a supply chain perspective, we’re helping companies justify the ROI—for example, by reducing the cost of product recalls.

I’ll tell you a story: We recently entertained two foreign companies that have recently merged. Parts of each of their IT landscapes are on SAP. The whole issue of RFID didn’t really raise any eyebrows until I brought up product recall. I said, “You have a mixed landscape. How do you from a business perspective handle recalls?” The U.S. manufacturer said, “We’re fine as long as the materials come in the door and we have control over them. We can tell you exactly which lot to recall.” I said, “Terrific. Where do you get your raw materials from?” They said Japan. So I asked the other company, “How do you do a product recall?” They said, “We’re not sure unless that facility calls us and sends us the information. It could be days before we know which materials we have to recall.”

The financial guy there was incredulous. He said, “You’ve got to be kidding! The last recall cost us millions of dollars!” These are the kinds of discussions we’re having with customers.

So we could probably write a business case that said, “RFID by itself—not a big ROI.” But tie it into product recall or the counterfeiting issue and there’s a lot of traction.”

PM: Making the ROI case is then a lot easier in the pharmaceutical industry?

JS: Yes. The recall issue is number one. Number two is the value of the product.

PM: What are the challenges of integrating data from RFID, barcoding and other technologies?

JS: There aren’t, at least from SAP’s perspective. Most firms have SAP back end systems. Adding RFID information just means extending our fields. It is the entire business process that we’re concerned with in terms of what do we do with RFID and barcode information.

PM: Are there challenges in dealing with the increased amount of data RFID generates?

JS: Not really, because companies have been going step by step [in implementing RFID]. For example, the little nuances with the tags had to worked out first. The second step was determining how the numbering sequence from EPC should work and whether one could get 100 % readability all the time. Many of the industry leaders are now at step three: now that we have the data, how do we best use it?

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