Serialization: Driving Business Value Beyond Compliance

April 4, 2017
The availability of information about serialized products provides an opportunity to take a data- and analytics-driven approach to supply chain improvements

As serialization and track-and-trace capabilities go mainstream to meet regulatory compliance mandates, pharmaceutical companies should explore how these capabilities can improve supply chain planning and operations, elevate patient and doctor engagement, and increase sales and marketing effectiveness.

High-value products, complex supply chains and dependence on multiple organizations for distribution all expose the pharmaceutical industry to threats such as counterfeiting, theft and illegal diversions. According to the Pharmaceutical Security Institute, 2,177 incidents of counterfeiting occurred worldwide in 2014 alone. To counter these threats and ensure supply chain integrity, global regulatory initiatives mandating serialization of products as well as tracking and tracing products throughout the supply chain are currently underway. Within the next five years, approximately 65 percent of the global market is expected to require serialization in the supply chain.

While regulatory compliance remains a top priority, the availability of information about serialized products throughout the supply chain provides a unique opportunity to take a data- and analytics-driven approach to supply chain improvements through greater visibility and collaboration.

It is important that pharma looks beyond regulatory compliance and design underlying infrastructure, applications and processes that drive value through new and supplemental business capabilities. There are many ways that serialization capabilities can be used to drive business value and enhance the return on investment (ROI) of achieving global regulatory compliance.

Ensuring the integrity of products as they move across the supply chain remains a challenge. Pharma supply chains are becoming increasingly complex, making it more difficult to create secure supply chain strategies.

According to the World Health Organization (WHO), the pharmaceutical industry loses nearly $40 billion each year globally due to counterfeiting. Product theft has also increased, according to Freight Watch International, with drugs accounting for about 15 percent of the estimated $8-$12 billion in annual cargo theft.

A serialization compliance infrastructure enables two primary capabilities — supply chain and consumption visibility — that can be leveraged for additional use cases and as value drivers.

A recent Cognizant benchmarking study evaluated the current state of pharmaceutical supply chains against those of fast-moving consumer goods (FMCG) companies. The study found that pharma is serving its market as reliably as the FMCG industry but at a much higher service cost. While metrics indicate that pharma is generally on par with FMCG in on-time-in-full (OTIF) and forecast accuracy, when compared against asset efficiency measures, the actual cost of attaining the same level of supply chain reliability was much higher for the pharmaceutical industry. FMCG supply chains, on average, completed conversion of asset resources to cash five times faster than pharma. In terms of actual inventory turnover, FMCG was three times faster than pharma. By focusing on asset efficiency, pharmaceutical companies can directly improve ROI.

Combining serialization and track-and-trace supply chain event recording that is compliant with the Electronic Product Code Information Services (EPCIS) standard, enables pharma to gauge product movement, facilitate collaboration and improve supply chain planning. The same infrastructure deployed for serialization track-and-trace regulatory compliance can serve a broader group of stakeholders by increasing agility and responsiveness, and optimizing inventory levels and costs across various supply chain levels or inventory-stocking locations.

While supply chain planners strive to optimize inventory while improving customer service, in a 2013 report, Premier Healthcare Alliance estimated that the annual cost of drug shortages for U.S. hospitals was $416 million. Implementing serialization technologies that enable inventory visibility across the supply chain provides near-real-time inventory event data that can be used to optimize inventory levels, shorten replenishment lead times and avoid stockouts.

The ability to increase supply chain visibility and quickly respond to specific events creates significant competitive advantage. Externalization of supply chain activities has increased dependence on service providers in areas such as logistics. It is important to develop performance metrics and benchmarks to manage external service providers and monitor key performance indicators (KPIs). A serialization infrastructure captures and extracts transaction events and provides real-time data and event management feedback to support monitoring, enable performance-driven supply chains and allow real-time decision-making.

These capabilities also enable companies to monitor underlying business processes, leverage process improvement opportunities, and benchmark and improve service delivery standards across the organization. Cross-organizational collaboration provides visibility to relevant stakeholders, improving the overall supply chain ecosystem.

Processing returns, expirations and recalls costs the pharmaceutical industry about $2 billion annually. A lack of accurate audit trails and product authentication capabilities for reverse logistics exposes the industry to fraud and inefficiencies. Serialization and track-and-trace capabilities fill these gaps and can be used to redesign reverse logistics processes.

Product authentication can help supply chain partners verify products when initiating returns. Once authenticated, a product can be returned to the manufacturer, and supplemental information can flow throughout the supply chain based on the details of the serialized product, saving both time and money. An authentication process can help companies identify and stop scenarios arising from fraudulent activities that exploit loopholes in the returns/recall process.

Product diversion from different countries or consumer segments is an issue for pharmaceutical companies, especially given arbitrage opportunities. As pharmaceutical companies adapt to the market-driven realities of tiered pricing and rebating across customer segments, they are increasingly challenged to ensure that discounts meant for specific customers or geographies are consumed by their intended targets.

Serialization can help companies identify and segregate products intended for specific market and customer segments. Authentication capabilities can validate whether products are consumed in the market or customer segment for which they were intended.

Similarly, pharmaceutical companies have responded to pricing pressures from group purchasing organizations (GPOs), whose influence on product volumes allows for price discount contracts. The process of placing price discount contracts with wholesalers that sell products to GPO members creates a chargeback process under which the wholesaler claims the extra discount provided to GPOs from pharmaceutical companies.

The challenge of the chargeback reconciliation process is that wholesaler sales data is usually unavailable to the manufacturer and must be obtained from third parties. Within the U.S. market, a serialization track-and-trace infrastructure and associated serialized lot level shipment capture can provide new ways for pharmaceutical companies and wholesalers to streamline the reconciliation processes and ensure chargeback payment accuracy.

Aided by advances in technology, patients are actively involved in decision-making processes, and pharma companies have scaled their strategic capabilities to engage patients digitally. Serialization provides a useful entry point and interface for pharma to capture patient behavior and create engagement opportunities.

Authentication based on serialization infrastructure is a key benefit of patient-focused functionality. Encouraging patients to authenticate products purchased can yield important information and will become easier with the rise in mobility. By 2018, half of the more than 3.4 billion smartphone and tablet users worldwide will have downloaded a mobile health app.

Geographic information about patient populations that consume a given product can help pharmaceutical companies design disease awareness and management programs for those communities. This enables active collaboration with healthcare practitioners, fostering a sense of partnership and increasing brand loyalty.

Authentication tools can also be used to capture product SKUs. When merged with patient prescription data, authentication data can track regimen compliance, predict refill timing and proactively send refill reminders. In addition, relevant supply side entities can be notified when a patient needs a product at a particular location, helping to transform the supply chain into a demand-driven engine that will power the emerging era of personalized medicine.

We believe that pharmaceutical companies should integrate serialization capabilities within patient-connected digital initiatives. The industry is just starting to develop mobile applications related to disease and products, so the time is right to launch and promote authentication services through remote platforms. To deliver personalized services for patients and practitioners, pharma must develop back-end business processes that leverage data collected through authentication workflows, a move that would benefit the entire healthcare ecosystem.

Pharma spends enormous amounts of money promoting and educating healthcare practitioners about their products. As of 2012, the industry spent $24 billion marketing to physicians.7 While secondary information sources from market research organizations (MROs) can be used to assess sales performance, serialization capabilities can gather performance-related indicators and generate intelligence that can increase sales and marketing effectiveness.

Serialization helps marketing departments identify micro-markets that need intervention and evaluate the effectiveness of such intervention. Both are important to assess the effectiveness of marketing spend. Patient authentication data can generate geographic information on patient populations to evaluate the effectiveness of brand promotions and determine specific actions that can be taken in areas that are lagging. These insights can then be used to design better, more personalized marketing programs.

There is a strong business case for using serialization data to optimize existing processes or develop new capabilities. But to successfully implement use cases, the industry needs to address the foundational issues that will provide a framework for developing serialization capabilities.

One challenge pharma faces is the limited focus on aggregating vast amounts of serialization data to enable business intelligence. Niche product vendors are providing capabilities that address regulatory compliance, while infrastructure providers are addressing activities that keep the business running. Once security and cost-related concerns are adequately addressed, technologies such as cloud-based big data analytics could provide some answers.

Also of concern is the lack of global/regional security guidelines for data access by supply chain partners. Visibility of serialization data is currently limited by regulatory constraints imposed by regional authorities who dictate the standards for data access and exchange.

Given external dependencies, a phased approach to implementing serialization initiatives is necessary. Technical capabilities, such as authentication services, geographical mapping and EPCIS event capturing can be leveraged to ensure higher ROI.
As pharmaceutical companies establish serialization capabilities, it is essential to establish future use cases where serialization can enable additional business processes to create value and scalability. We suggest that pharma proactively engages supply chain partners to drive consensus around common business benefits that can be enabled through serialization.

The pharmaceutical industry is projected to invest heavily to develop serialization capabilities to ensure regulatory compliance. While the immediate benefits around ensuring product integrity and eliminating counterfeiting are immense, there are compelling business scenarios in which serialization can be used to develop new processes and capabilities or supplement those already in existence.

About the Author

Michael Zirkle | Associate Vice President