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Home » California dreamin'
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California dreamin'

April 1, 2008
John R. Johnson
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Cardinal Health's state-of-theart distribution center in Sacramento, Calif., is all dressed up with nowhere to go. More than six months ago, the pharmaceutical and health-care products distributor fully equipped its DC with RFID technology to meet California's upcoming electronic pedigree (e-pedigree) requirement.

But now that Cardinal Health is fully compliant, it can't find a dance partner. Although it conducted successful RFID e-pedigree trials with several pharmaceutical manufacturers last year, none will be ready to apply RFID tags to all of the products they ship to Cardinal Health anytime soon. So while Cardinal Health is ready to move forward, it has no choice but to put its plans for full deployment on hold until its manufacturing partners are ready.

"In order to meet the California requirement, we'd have to receive all products with RFID tags and [the industry] just isn't there yet," says Tara Schumacher, a spokeswoman for Cardinal Health.

Currently scheduled to take effect on Jan. 1, 2011, California's law is by far the most aggressive drug pedigree law in the United States as well as the only one to require electronic tracking. As of that date, the state will require that all drugs distributed within its borders be accompanied by an electronic pedigree that documents their movement through the supply chain. The measure calls for pharmaceutical manufacturers to originate item-level e-pedigrees for their drugs and requires companies within the pharmaceutical supply chain (including distributors like Cardinal Health) to update those pedigrees upon each change of ownership. Although the law does not mandate the type of technology to be used, most manufacturers and wholesalers are turning to either RFID tags or two-dimensional (2D) bar codes, which hold more information than a traditional bar code.

Penalties for not falling into line could be severe. Dr. Paul Rudolf, a former senior adviser for the Food and Drug Administration who has been helping the drug industry decipher the California law, says that companies that don't comply face the possibility of fines of up to $5,000 per occurrence; for one shipment of 100 units that don't meet the e-pedigree standard, that equals a $500,000 fine. However, in a Webcast on the subject, he noted that it's possible that California will issue warnings first, allowing companies some additional time to meet the mandate.

Meeting the mandate appears to be a serious stumbling block right now. Although many drug wholesalers and distributors are prepared for the initiative, drug manufacturers have lagged. In fact, the California State Board of Pharmacy (CSBP) has been flooded with requests to postpone the effective date of the legislation for up to two years. As for why so many manufacturers are apparently unprepared, Carol Rozwell, vice president and distinguished analyst at Stamford, Conn.-based research and consulting firm Gartner, says it's partly because they haven't been drawn into the pedigree fray until now. Laws in other states don't require tracking until after the product has been shipped to a wholesaler.

The CSBP, however, is holding firm to its January date. The board believes that the e-pedigree mandate represents the best remedy for what ails the pharmaceutical supply chain—mainly, counterfeiting and theft. And it plans to go forward with the mandate this January.

Startup hurdles
But several things must fall into place for that to happen. Under the California law, drug makers must initiate e-pedigrees with unique identification numbers for each of their products at the smallest saleable unit level. For this to occur, the pharmaceutical industry must first agree on a standards-based approach and a single RFID protocol and technology, said Cardinal Health in a statement issued last year. Otherwise, the industry will be dogged by significant process and cost inefficiencies.

There are also some technical issues to be resolved with RFID. Steve Inacker, executive vice president of global supplier services at Cardinal Health, says that technology and process improvements are needed to consistently achieve acceptable read rates at all packaging levels.

And right now, cost remains a barrier—at least to RFID adoption. Greg Cathcart, senior vice president of sales, marketing, and services at SupplyScape, a Woburn, Mass. based e-pedigree-solutions provider, says that 80 percent of pharmaceutical manufacturers have adopted the less expensive 2D bar-code option. However, with new RFID-based solutions hitting the market at a fast pace, some analysts predict a wholesale shift from 2D bar codes to RFID over the next 12 months.

Though the masses may be flocking to bar codes, there are still a number of companies, including some industry heavyweights, that have been using RFID for some time now. Pharmaceutical giant Pfizer has been tagging every bottle of Viagra it produces since the end of 2005, and last year, the drug maker announced plans to begin tagging cases and pallets of overthe-counter pain reliever Celebrex. Speaking at the RFID Healthcare Industry Adoption Summit in Washington, D.C., last year, Byron Bond, director of trade operations and customer service for Pfizer, said the first RFID-enabled cases and pallets of Celebrex would be ready to roll off the manufacturing line by late last year, with tagged product working its way to wholesalers and pharmacies by early 2008.

Applying tags to cases and pallets of Celebrex is much more complicated than tagging Viagra, which is produced on a single production line in France. Celebrex is produced on four high-speed lines at Pfizer's manufacturing facility in Puerto Rico.

"We wanted to roll out the technology being applied to Viagra somewhere else. Celebrex far outsells Viagra and it's a high-volume product," Bond said at the time. "Within the next four to six years, we expect to have something close to a universal track and trace [e-pedigree mandate], so we realize we need to spread our RFID capabilities into other areas."

Another RFID veteran is Purdue Pharma L.P. Purdue has been using RFID as a security measure for its narcotic painkiller OxyContin since 2005. The drug maker has also been tagging another potent painkiller, Palladone, for just over three years.

A productivity cure, too
Once the industry settles on an e-pedigree solution, the benefits should go well beyond track and trace capabilities for drug wholesalers, especially those that embrace the change as an opportunity to do more than just meet a mandate.

"Unfortunately it's too easy to just focus on compliance, with the attitude that meeting the regulatory mandate is just going to be a lot of hassle and expense," says Gartner's Rozwell. "But many companies are taking advantage of having this new information at a very detailed level about their products, and the fact that they have much greater inventory visibility. The upside is actionable intelligence that can be used to maximize efficiencies and re-engineer the business."

Cardinal Health understands fully what that upside can look like. The company plans to leverage the new data made available by RFID technology to identify opportunities to boost efficiency in key areas, including returns and order accuracy, which can deliver value to the entire pharmaceutical supply chain.

Global Pharmaceutical Sourcing (GPS), a Bethesda, Md.-based wholesaler of drugs and medical supplies, is also benefiting from an e-pedigree solution. The company has invested in a pedigree system from SupplyScape that allows it to track products carrying 2D bar codes as they enter GPS's distribution centers across the country.

Hani Eshack, senior vice president of technology at GPS, says the company began pursuing an e-pedigree system long before the California law entered the picture. One upside of that decision is that today, in addition to being in compliance with the California measure, GPS has begun realizing some in-house process improvements.

Among other benefits, GPS is saving vast amounts of paper, says Eshack. Under the company's paper-based system, a stack of paperwork almost an inch thick accompanied most orders out the door of GPS's DCs. "There was a huge amount of photocopying, paperwork, and faxing," recalls Eshack. With e-pedigrees, that is eliminated entirely.

In addition, the company's e-pedigree solution has reduced labor and expedited order processing, resulting in greater throughput in its distribution facilities. Yet in Eshack's eyes, there's an even bigger benefit. "More importantly," he says, "this is helping our company to realize some of the high ethical standards we set for the company about assuring ourselves and our customers—particularly the patient—that they are getting what they paid for and that it is authentic."

Supply Chain Services Automatic Data Capture Bar Codes RFID Safety & Security
KEYWORDS Gartner, Inc. SupplyScape
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John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.

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