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 AMRs estimate, will cost the average pharmaceutical manufacturer anywhere from $13 million to $23 million.
And its 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.).
Beachfuls of data
Tagging pallet-loads of goods, as consumer products manufacturers are for Wal-Mart and other retailers, wont 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, youre 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 industrys 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.
Inventory on steroids
Talk about challenges. If installing and integrating RFID throughout the supply chain seems mind-boggling, thats 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, weve glimpsed inside this Pandoras box to see what it takes. Youre talking about coupling this to legacy applications and ERP, and that means at any one company, its 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 Ive 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, thats where the real payoffs are. Adds AMRs Romanow, Every pharmaceutical company needs to figure out how they can leverage this new tool.
For example, with ERP, most pharmaceutical companies still cant 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 havent 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. Its 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.
An immature technology
While the integration issues surrounding RFID loom large, theres 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.
We are still learning about what it will take to scale and integrate RFID with existing order-taking, inventory management and warehouse managements systems at pharmaceutical firms, says Accenture consultant Jamie Hintlian. We have questions about the maturity of the technology. Its not quite yet ready for use on all products. For instance, for oral solid-dosage forms, its ready, but for liquids and products such as refrigerated drugs and biologics, there are still challenges to overcome, Hintlian says.
Doesnt the industry know it. Integrating RFID looms as the main issue facing most drug firms today. This is the current focus of the industry, Hintlian says. The cost of tagging products with RFID tags is one thing. A bigger cost will be the integration issues and the skills cost, and for most companies that cost will depend on the current skill level of their IT staff, he says.
Rainer Kerth, RFID lead architect for the IBM Software Group (Somers, N.Y.), agrees. The data capture side of RFID is new, and not many companies have these skills in-house, says Kerth. It depends on the size of the company and whether its IT staff has the right skills as to whether they will want to engage someone who has done this kind of integration before.
Throughout the value chain
Another big integration challenge will come when each drug manufacturer, having installed RFID technology in its plants, attempts to ship products through a supply chain whose participants may not be fully RFID-capable. The real challenge, says Simon Raban, services program manager in the product tracking and authorization program at Hewlett-Packard (Palo Alto, Calif.), is to integrate RFID across the value chain. This is going to require good middleware that works with multiple RFID devices.
Software vendors in the middleware arena include SAP and RedPrairie Corp. SAP, working with Infineon Technologies AG, is offering RFID middleware based on its NetWeaver technology and Infineons RFID integration platform. RedPrairies RFID Accelerator promises to connect a manufacturers existing distribution system with common RFID systems.
HP is working with middleware provider Oat Systems (Waltham, Mass.) to make connections between RFID readers, and in turn, to connect the data with other enterprise systems. Most drug companies use ERP systems such as SAP to do product level tracking and to provide order information, says Raban. We will need another class of enterprise system to contain the EPC data.
HP is pulling out all the stops when it comes to helping customers implement RFID. The company is establishing a new Product Tracking and Authorization Solutions Center in Puerto Rico to develop and test RFID systems for the pharmaceutical industry.
The technology company has plenty of experience with RFID, having worked with Wal-Mart to develop its consumer products tracking system. We have been tagging our inkjet printer cartridges that contain liquid, metals, and plastic, and in general, have a manufacturing process similar to many pharmaceutical products, Raban points out. The company also is RFID-tagging the boxes that contain its printers and scanners.
Also working to solve the RFID integration problem facing pharmaceutical manufacturers is IBM. A key issue is to bring the data capture by RFID readers into enterprise systems in a way that it can be understood, Kerth says. You do not need to ensure that the data are auditable. Its not only about capturing the data, but also guaranteeing that they get to the proper database and that someone signs for them. Companies will need to convert raw events into higher-level business events.
None of this is going to happen overnight. RFID is still in the early stages of development, HPs Raban says. Its still too expensive. And its still not everywhere. In fact, you have some hospitals today that dont even have barcode technologies.
In other words, the challenge of integrating RFID effectively and efficiently is there. Pharmaceutical firms will have to rise to meet it.
