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Ask anyone to name the leaders in the pharmaceutical industry and the companies immediately mentioned are Pfizer, Merck and the other very large manufacturers of prescription drugs. But from a supply chain standpoint, the real leaders are the pharmaceutical wholesalers that link the manufacturers with thousands of hospitals, pharmacies and clinics to ensure that these medications are genuine, unexpired, and properly handled all the way into the hands of patients. In addition to overall responsibility for this outbound supply chain, wholesalers manage all returns and recalls. They also are the key financial intermediaries among trading partners, which requires maintaining a huge database of sales down to the unit level that can support charge-backs, special pricing, volume-based incentives and other transactions common in the pharmaceutical supply chain. And as more and more states mandate electronic pedigree programs to track every bottle of pills throughout the supply chain, it is the wholesalers that are now managing the process. Unseen and unknown by the general public, the pharmaceutical wholesalers are the ones that manage the complexity of the pharmaceutical supply chain.
One of the technology leaders among these drug wholesalers is H. D. Smith. The Springfield, Ill.-based company has eight centers around the country distributing medical devices, prescription medications, and over-the-counter products to its commercial customers. The 50-year-old company is the fourth-largest national pharmaceutical wholesaler in the U.S., with annual sales topping $3bn. What makes H.D. Smith a leader is its pioneering efforts to apply technology to its supply chain.
According to Robert Kashmer, vice president of information technology for H. D. Smith, the company has long recognized the need for serialization of pharmaceuticals at the item level to track product moving through its supply chain to deal with safety, regulatory compliance and operational efficiency. Applications based on 2D barcodes have been the industry standard for tracking cases of product since the 1990s, but given the growing complexity of the business and the coming of e-pedigree regulations, Kashmer anticipated the need for something better-something that can do serialization of individual bottles and vials, not just cases.
"The only viable option was radio frequency identification," says Kashmer. "We developed our RFID strategy in 2003, rolled it out in 2004, and we have been using it ever since."
Even before Wal-Mart and the Department of Defense talked about RFID and electronic product code (EPC) compliance, H. D. Smith was already scanning RFID-tagged product at the item level into its warehouse, as well as tagging high-profile drugs that came in untagged, which were then shipped to pharmacies in the first true RFID-based supply chain pilot. Between 2004 and 2005, it was also piloting an innovative supply chain anti-counterfeiting and security system, using electronic pedigree software by SupplyScape. The data management application gathers and stores a multitude of information about drug shipments, including product name, National Drug Code number, lot number, EPC and the purchase order under which it was shipped. It tracks and authenticates the pedigree for each incoming drug so the data can be passed on to the downstream customer.
In 2006, Florida became the first state to enact an e-pedigree law. At least 20 other states have initiatives planned or under consideration. An electronic pedigree is a secure record documenting that a drug was manufactured and distributed under safe and secure conditions. The aim is to try to reduce the introduction of counterfeit drugs into the legitimate pharmaceutical supply chain. Florida's law does not specifically require RFID tags or electronic data transfers, but California and other states will be implementing laws that do. Their rationale is that by sealing a bottle at the manufacturing plant, affixing a tag with a unique EPC and using RFID readers to track it to the wholesaler and eventually to the pharmacy, the manufacturer, wholesaler and pharmacy can ensure that the product is genuine. H. D. Smith installed SupplyScape's Product Security software in its Pompano Beach, Florida distribution center well before the state's mid-year 2006 deadline for its e-pedigree regulations. Initially the pilot tracked RFID-labeled bottles and their pedigree documents for Purdue Pharma's narcotic pain medication, OxyContin, which is a frequent target for diversion and has very tight regulatory requirements of its own.
"We targeted narcotics because this supply chain has to be extremely secure, and the DEA requires that every order be perfect," he says. "There is no room for any deviation, so if the technology could meet this standard, we would have a baseline to work from for all products."
The test was flawless, and it was ahead of schedule. Even though the system was initially operated as a pilot, the company committed to integrating the software with its enterprise, WMS and RFID systems.
"When we had to decide which software to use, it was a no-brainer for us," says Kashmer. "The SupplyScape software met every one of our requirements, as well as the regulatory compliance needs at all levels."
To comply with Florida's law, H. D. Smith has to generate the pedigree, which is based on information electronically received from the drug manufacturer, including the manufacturer and product ID, lot and date data, NDC number, and expiration date. SupplyScape's Product Security e-pedigree software allows H. D. Smith to initiate the pedigree, certify it with a digital signature, and provide it to downstream customers.
California's e-pedigree law, which goes into effect in January 2009, requires that the manufacturer initiate a pedigree that is "interoperable" and that meets a new GS1 EPCglobal Drug Pedigree Standard. A unique serialized identifier must be on the smallest package, which is usually a bottle. Interoperable means that the e-pedigree systems must be able to exchange electronic records among all trading partners in the supply chain.
While many manufacturers are scrambling to meet all aspects of the new California law, H.D. Smith says it is ready. It can handle 2D barcodes, which many manufacturers still use. It can read every RFID frequency and interface it with its WMS for receiving and shipping to customers that may have their own requirements for specific tags.
To ensure every order is perfect and meets regulatory requirements, each H.D. Smith DC has a pre-shipping area that mirrors the electronic receiving operations for every customer. Before an order is shipped, it is scanned and verified using software that the customer will use. If the order is not perfect, the discrepancy is resolved before it leaves the DC. H. D. Smith has developed its own advanced shipping notice (ASN) containing serial numbers so customers can ensure they have received the correct products. For certain customers, this information is contained in a tag that is applied to each bottle or item in the order.
"The manufacturer may be selling in full cases, but the wholesaler sells bottles or eaches, so that is how it must serialized," says Kashmer. Serialization at the item level allows more granular tracking for shipping and recalls. Cases do not have to be opened for verification as each item has an RFID tag. Inventory management is precise. Track-and-trace is perfect.
Orders with only 2D barcodes or RFID tags on the cases present a problem. The receiver has to infer that a case supposedly containing 24 bottles of a specific product actually does. So far, no state pedigree law has ruled that "inference" is inadequate, but that may change.
"I think customers will come to the conclusion that inference is not good enough," says Kashmer. "They want to know exactly what they have received without opening the case."
Kashmer points out that his company broke up a theft ring that was taking product out of cases and putting weights back in so the cases would be verified by scales at the receiving dock.
"Crooks are very sophisticated, which is a good reason to have the best processes and the best e-pedigree system possible," he says. "We would like to see RFID at the item level become a required technology."
Searching for Efficiency
Ironically, only a small percentage of product going through H.D. Smith DCs requires RFID, and that creates significant inefficiencies for the wholesaler. Tags now have to be applied just in time for customers requiring them to avoid the need to have redundant inventories of the same products-tagged and untagged. So, as orders come in from customers requiring tags for certain items, a separate internal purchase order is created. Those items are picked, moved to a special location and then tagged. The actual order is then picked from that tagged inventory and moved through the pre-shipping area for verification separate from the rest of the order that is being scanned manually with barcode technology.
"These procedures have increased handling and reduced the efficiency," says Kashmer, "As we learn how to work with the technology and the compliance requirements, we are looking for more efficiency. Increasing use of RFID and serialization will help."
For these reasons, Kashmer says the current benefits of RFID and the e-pedigree systems are better product safety, compliance and order accuracy. Operational savings have not yet been addressed. "We have a long way to go," says Kashmer, "but we are working with many manufacturers and customers to achieve benefits for the entire supply chain."
According to Shabbir Dahod, founder and chairman of SupplyScape, the e-pedigree application-especially if used with RFID serialization capabilities-creates a foundation for additional functions. For example, using pedigree information at the item level allows the wholesaler to do price reconciliation for charge-backs when a product is returned for any reason.
"The wholesaler will know the exact prices paid for the specific bottles returned," says Dahod. "There will never be any question about the transactional value, and the entire process can be automated. That is a major efficiency."
SupplyScape is available either as packaged software for local hosting or as software as a service (SaaS) that allows all trading partners to be on SupplyScape's On Demand Value Network. H.D. Smith is using the system.
"Most new customers are using the SaaS version," says Dahod. "The network can be leveraged to share information among trading partners for any reason such as authentication at the serial number level or a recall. Inventory visibility is highly granular, so a specific bottle anywhere in the entire supply chain network can be located immediately. We are upgrading the server-based systems as well to allow these functions."
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