Prevention of Drug Counterfeiting: A Study of RFID Implementation in Pharmaceutical Logistics Part – 1

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The pharmaceutical industry is very huge and has interconnections between partners all over the world. Since the advent of globalization, many of them have operations all over the world. The global sales of the industry in 2007 were approximately US$ 712 Billion in 2007. The major market for Pharmaceutical industry is America followed by Europe, Japan and Latin America. The huge supply chain requirements and logistics movement is an issue which needs to be concerned by such companies while dealing with such huge revenue. On the other hand, there many threats in terms of counterfeiting, theft and stock misplacement which results in major revenue losses and bad good will. In order to overcome such situations, companies had to implement a tracking system which can effectively monitor and track their goods. Two readily available technologies are barcode system and RFID technology. Barcode system needs the product in the vicinity and scans the code using optical scanners, while RFID technology uses tags which carry the product information and works wirelessly by scanning the item information and passing it through a middle ware to the enterprise system(Erdemet al., 2009). However, there are only few articles and journals which discuss the application of RFID in manufacturing and logistics of pharmaceutical products. Erdemet al. (2009)explains the key characteristics of RFID which decides the application of the technology in different areas of the business. He states that ultra-high frequency (UHF) is used in the pallet level tagging since its range is higher than the normal standards. Many of the large businesses are using this system (UHF Generation 2 tags) such as Wal-Mart which tags their shipments with these tags. However, discussions are still going on about the type of tags to be used in pharmaceutical products. The 2004 FDA report suggests companies to implement High Frequency (HF) tags in product level packages and UHF in pallet level shipments. One major conflict is that UHF systems have longer read range, faster read rate and lower cost per tag. Although these products are believed to be good, they do have issues when operating near metal and liquid. It is noticeable since most pharmaceutical products have metal body and a considerable amount of pharmaceutical products are in liquid form (for example, bottles, syringes, tubes etc.).On top of that, these frequencies have issues with the thermal effect; most of the pharmaceutical products are strictly advised to maintain their temperature levels at lower levels. UHF produce higher microwave frequency hence it can affect the temperature level of the product. A higher temperature level may increase the efficacy, purity and effectiveness of the medicine and may affect the patients’ health in a negative manner. FDA is still investigating the effects of this system over pharmaceutical products hence making the right decision at this point of time is rather an impossible task(Erdemet al., 2009).

Despite such confusions and issues people and experts are still asking for implementation of RFID in healthcare and medical products (Reiner and Sullivan, 2005). However, the experts who identify the problems in implementing this technology are ignoring the above mentioned fact of its hazardous impact over medicines. They believe that the adoption is still in its early stages due to investment and ROI barriers. But Koroneos (2005)gives three major examples of companies who have already done with RFID tagging to prevent counterfeiting in pharmaceutical products. US Food and Drug Administration (FDA) has relaxed labeling regulations to allow manufacturers and suppliers to test new tagging technologies to prevent this and Pfizaer, Purdue Pharma and GlaxoSmithKline have started testing RFID in their products, especially on those which are highly susceptible to counterfeiting. It was noticed that counterfeiting in the domestic market was increasing and FDA came up with supporting device classifications in compliance with EPC Global. According to Koroneos (2005) most of the pharmaceutical manufacturers are using Class 1 RFID Tags which are passive and can be written once the package is filled and read multiple times. This class has got less problems described above such as thermal effect and liquid problems since they are not supplied with power and can only be activated using the reader’s magnetic field. Pharmaceutical companies were also forced by top retailers like Wal-Mart and Target Corporation to use pallet level tagging so that retailers can scan them while they receive packaging through the conveyor belt itself. However, the system is getting a new dimension now being adopted with individual package level tagging for added security.

Harrop (2007) argues that RFID in healthcare is a growing business and is expected to reach US$ 2.1 Billion by 2016.

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Source: Harrop (2007)

                  According to him, a major reason for RFID adoption in the Pharmaceutical and healthcare industry is compliance and safety. But, some theories collide with the safety factors of RFID and medicines. Here, compliance based systems use self-powered Class 5 tags which can create thermal hazards to the medicines and drugs. However, if this system is implemented, users can track the frequency of the medicine intake and related details easily. As Harrop (2007)argues 50% of patients take their medicine incorrectly at incorrect intervals and frequency; each time pill is removed from the package it will be recorded by the RFID system at the base of package, so that healthcare professionals can monitor their patient’s behavior related to medicine intake. This is huge benefit that pharmaceutical companies can provide to healthcare industry. Apart from this, there are many other major advantages to this system. This system can not only save their customer time, but can also save them from health hazards caused by counterfeited drug consumption. According to WHO, counterfeited drugs results in a loss of US$ 40 billion in pharmaceutical sector worldwide. According to them 6-10% of the world wide drug sales happen through counterfeited medicines and is accountable for the death of more than 100000 people every year. So, in order to overcome this situation, Pedigree was introduced, which make sure even the tiniest package of the medicine is equipped with RFID systems which are reverse auditable and their origin and destination is always known to the companies.

                  The pedigree system is much more convincing in practice. PurduePharma has employed a pilot program to test the various implications of RFID at product levels partnering with one of their major distributor H D Smith, where Oxycontin (a powerful pain reliever) was tagged with RFID tags. HD Smith receives a pedigree notice with the items’ list which is set to ship. So when the distributor receives the shipment, they can reconcile the received items against the previously received pedigree notice by scanning the EPC Global Tags. Also, human intervention is restricted in this method, once the scanning is completed and all products match the advance pedigree notice, the machine produce a digital signature and send it to the manufacturer.If any sort of intrusion happens at any point of the supply chain, it will be notified at the receiving end and the supplier can prevent counterfeiting. Another problem is hacking the RFID chips. But this is a mere impossible scenario because now chip manufacturers are making chips with encrypted unique codes and private keys which makes them hack proof says Koroneos (2005).

                  The pharmaceutical industry’s basic need and urge for implementing RFID in their supply chain operation is to prevent and eliminate counterfeiting completely. The industry has very complex characteristics beyond the need for counterfeit prevention. As an important and regulated industry a considerable amount of management action and capital investment goes to meet good manufacturing practices as regulated by FDA. Extensive product lines which include customers, suppliers, retailers and distributers are very vital in their process. An out-of stock or stock out item may create complicated situation since drugs are very important in our day-to-day life. Therefore it is very important to cross hands with all these different entities to make sure the product supply is adequate and proportionate to the demand and trend. Implementing RFID at the supply chain level will help companies to achieve this goal with ease, since the manufacturer will know the status of their product even after it leaves the manufacturing facility(Schuster et al., 2007).The growing interest in Pharmaceutical supply chain is initiated by Government and other agencies to ensure non-adulterated products to the customers and thereby creating more value to their products. Many would argue the potential of creating such a safe value chain system, but Schuster et al. (2007)described the story of an NY teenager who consumed counterfeited drugs after his liver transplant. His case has brought much attention to this issue. They not only result in loss of revenue and trust but also cost human lives. Even if the companies are able to prevent the counterfeiting issue in their physical supply chain system, a rather more disturbing fact is that internet is also becoming an emerging medium of counterfeited drug sales. According to Forcinio (2007), this problem can only be solved by implementing RFID system in end-to-end process. Some other great examples of successful RFID implementation isSchiff Nutrition International which is SME who is specialized in manufacturing vitamins and nutritional supplements. Like the other major companies, they also rely on UHF system which helped them to improve product visibility and compliance assurance(Forcinio, 2007).

                  Despite the few early adopters, many of the major and small scale pharmaceutical manufacturers are holding off the implementation process until the returns are guaranteed. The basic problem relies in the standards, especially the frequency range to be used in these tags. Read Right scenario will be in question if the two partners use different tag system. The retailer will not be able to read the distributor’s tags. However, the advent of Gen 2 tags, the next generation RFID tags are intended to eliminate this issue permanently. With the help of EPC Global, a global standard will be implemented in this system, so that unity and standardization will happen in the fieldCIO, (2006). David Graham, the VP of Purdue Pharma explains the unholy nexus between the wholesalers and distributers who results in major revenue loss to the manufacturer and the Government. Prescription medicines are intended to sell at a discounted rate to nursing homes and subsidized customer groups, but grey market activities smuggles them back to the wholesalers for a small profit. Thus, the intended population is not getting any benefits from such Government initiatives and the Manufacturer has to suffer from loss of revenue as well. Also, as he states, the source of these medicines are hard to find, sometimes, the official supply chain will have loop holes that enables counterfeited drugsto get into the actual shipment. It not only creates health hazards, but also spoils the reputation of the company and result in loss of revenue. It is necessary for manufacturers to hold control over the distribution networks to prevent this from happening. Many of the drug companies started experimenting with different system to prevent counterfeiting such as color shifting inks, holograms, and watermarks which can distinguish original products from counterfeited ones. Genzyme, a major distributor has come up with a web based system to track such products with the help of UPS in the UK and Ireland; however, it is still arguable that RFID and Barcode systems are much reliable as far as the overall operations are concerned(CIO, 2006).

                  Many distributors and manufacturers are in a dilemma sine they cannot determine which standard to be used. According to the Material Handling Management Magazine (2005),manufacturers have agreed upon terms that they will introduce this system once the standards have been finalized. At present many manufacturers are not keen on using RFID, but many of the distributors are. As Kempfer (2005) suggests, manufacturers need to put RFID tags as soon as it came out of the production plant since there are many opportunities where counterfeited products can be introduced to the supply chain. Small scale manufacturers are also finding difficulties in implementing such systems since the implementation costs associated with RFID is huge and the requirement for human resource to apply these tags are large; says, Kempfer (2005). Privacy issues are also a very big concern associated with RFID implementation. Many organizations and NGOs are against RFID implementation that they argue that the implementation may result in the invasion over customers’ privacy. CASPIAN, an NGO have raised concerns about the use of RFID in retail sector; they fear that the technology is used to track what individuals are purchasing and taking home. On the contrary, pharmaceutical industry so far have not developed such a practice that they only tag wholesale boxes and packages which are intended to sell to retailers and distributers. These packages are not directly sold to customers (CIO, 2005). Mullen (2004) says RFID should be implemented in all access levels, not only in production and distribution level, but in human resource level as well. He also suggests organizations to use a Slap-and-Ship operation method. These methods make use of pre-programmed tags, smart labels or meta-tags encoded online. These tags can be manually or automatically be applied onto the products once they came out of the manufacturing facility(Mullen, 2004).

                  GlaxoSmithKline, a major pharmaceutical manufacturer in the USA is one of the early adopters of this technology. They applied this technology on the bottles of Trizivir, as part of their pilot program. Moreover, this product was listed among the 30 most susceptible to counterfeiting. When these tags were scanned in close range, the reader can identify whether this product is authentic or not(Healthcare Purchasing News, 2006). All the given examples evidentially prove that RFID technology can fight counterfeiting at all levels of supply chain and goods movement, thus save more revenue to the companies. A comprehensive review of the available literatures shows that counterfeiting is a growing issue in the field of pharmaceutical products. It not only creates issues to companies but also raise a significant social problem related to patient’s health. Implementing RFID at pallet and product level not only benefit to prevent counterfeiting but also in many other ways such as core integration between partners and distributers, tracking the products and forecasting demand and supply ratios etc.(Coustasse, 2010). The literatures show that RFID can also be used as a marketing and inventory management tool. Wal-Mart and Target Corporation are successful examples of this argument.Pharmaceutical industry may see advanced movements in the near future as regulatory organizations are testing the new standard and more companies are adopting the technology. Companies are now aware of the many advantages that RFID can offer to their operations and successful examples are believed to provide them with more inspiration. Implementing a fool-proof value chain is the backbone of any pharmaceutical company and along with that inventory management and marketing integration with their operational partners can provide them competitive advantage in the competitive market.