The state of California has postponed its e-pedigree requirement to 2011, giving manufacturers more time to assure that all drugs distributed within the state's borders are accompanied by electronic pedigrees that document their history.
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.
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."
Part of the reason for that situation is that companies can’t adjust to tariffs overnight by finding new suppliers. “Supply chains are complex. Retailers continue to engage in diversification efforts. Unfortunately, it takes significant time to move supply chains, even if you can find available capacity,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a release.
“While we support the need to address the fentanyl crisis at our borders, new tariffs on China and other countries will mean higher prices for American families,” Gold said. “Retailers have engaged in mitigation strategies to minimize the potential impact of tariffs, including frontloading of some products, but that can lead to increased challenges because of added warehousing and related costs. We hope to resolve our outstanding border security issues as quickly as possible because there will be a significant impact on the economy if increased tariffs are maintained and expanded.”
Hackett Associates Founder Ben Hackett said tariffs on Canada and Mexico would initially have minimal impact at ports because most imports from either country move by truck, rail or pipeline. In the long term, tariffs on goods that receive final manufacturing in Canada or Mexico but originate elsewhere could prompt an increase in direct maritime imports to the U.S. In the meantime, port cargo “could be badly hit” if tariffs on overseas Asian and European nations increase prices and prompt consumers to buy less, he said.
“At this stage, the situation is fluid, and it’s too early to know if the tariffs will be implemented, removed or further delayed,” Hackett said. “As such, our view of North American imports has not changed significantly for the next six months.”
U.S. ports covered by Global Port Tracker handled 2.14 million twenty-foot equivalent units (TEUs) in December, although the Port of New York and New Jersey and the Port of Miami have yet to report final data. That was down 0.9% from November but up 14.4% year over year, and would be the busiest December on record. For the year, December brought 2024 to a total of 25.5 million TEU, up 14.8% from 2023 and the highest level since 2021’s record of 25.8 million TEU during the pandemic.
Global Port Tracker provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.
Having reported on the supply chain world for some 25 years, I've seen technologies come and go. Many were once touted as the best thing since sliced bread but either failed to live up to the hype or else had to simmer a few years before they caught on.
Remember the hoopla surrounding dot-com retail? In the late 1990s, we were told that stores as we knew them would eventually go away, to be totally replaced by online shopping. The ease and convenience of e-commerce made that a reasonable expectation. But in March 2000, the bubble burst, and a host of online retailers closed their virtual doors forever. Of course, online shopping is still very much with us, and its share of total retail sales is growing by the year. Maybe we'll get to that retail seventh heaven someday, but it's taking much longer than originally predicted.
Then there's RFID (radio-frequency identification). These small electronic tags were going to replace barcodes largely because of the vast amount of data they can hold and their capacity to update information.
In 2003, Walmart famously demanded that its top 100 suppliers affix RFID tags to all pallets and cases shipped to its DCs. We figured that if Walmart had gone all in on RFID, the rest of the industry would automatically follow. Well, not so fast. It's true that after years of stutter-step progress, Walmart today is more heavily invested in RFID than ever. But in the rest of the world, the humble barcode is still king.
A more recently hyped technology is blockchain. It was actually conceived back in 1982 but remained just a concept until 2008, when a person (or persons) using the name "Satoshi Nakamoto" created an actual blockchain to serve as the public distributed ledger for cryptocurrency transactions. Blockchain was expected to revolutionize the way supply chain partners do business. But it, too, has been a bit slow to take off, and it's still unclear how the blockchain story will play out.
That brings us to the latest potentially game-changing technology: artificial intelligence (AI). In some ways, AI is really just data analytics on steroids. Supply chains have relied on data analytics for decades—the difference now is the promise of greater accuracy and better simulations. Will it ultimately change everything we do in supply chain management? Maybe. But it may take a while. A November report from workplace tools developer Slack showed that AI adoption rates among U.S. workers had slowed in the last quarter, while a recent analysis of open supply chain jobs by software integration specialist Cleo found that only 2% of open jobs required AI skills.
So is AI just another fad or a truly transformative technology? It appears we'll need a few good use cases before we can make that call.
Economic activity in the logistics industry expanded in January, growing at its fastest clip in more than two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI jumped nearly five points from December to a reading of 62, reflecting continued steady growth in the U.S. economy along with faster-than-expected inventory growth across the sector as retailers, wholesalers, and manufacturers attempted to manage the uncertainty of tariffs and a changing regulatory environment. The January reading represented the fastest rate of expansion since June 2022, the LMI researchers said.
An LMI reading above 50 indicates growth across warehousing and transportation markets, and a reading below 50 indicates contraction. The LMI has remained in the mid- to high 50s range for most of the past year, indicating moderate, consistent growth in logistics markets.
Inventory levels rose 8.5 points from December, driven by downstream retailers stocking up ahead of the Trump administration’s potential tariffs on imports from Mexico, Canada, and China. Those increases led to higher costs throughout the industry: inventory costs, warehousing prices, and transportation prices all expanded to readings above 70, indicating strong growth. This occurred alongside slowing growth in warehousing and transportation capacity, suggesting that prices are up due to demand rather than other factors, such as inflation, according to the LMI researchers.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
As commodities go, furniture presents its share of manufacturing and distribution challenges. For one thing, it's bulky. Second, its main components—wood and cloth—are easily damaged in transit. Third, much of it is manufactured overseas, making for some very long supply chains with all the associated risks. And finally, completed pieces can sit on the showroom floor for weeks or months, tying up inventory dollars and valuable retail space.
In other words, the furniture market is ripe for disruption. And John "Jay" Rogers wants to be the catalyst. In 2022, he cofounded a company that takes a whole new approach to furniture manufacturing—one that leverages the power of 3D printing and robotics. Rogers serves as CEO of that company, Haddy, which essentially aims to transform how furniture—and all elements of the "built environment"—are designed, manufactured, distributed, and, ultimately, recycled.
Rogers graduated from Princeton University and went to work for a medical device startup in China before moving to a hedge fund company, where he became a Chartered Financial Analyst (CFA). After that, he joined the U.S. Marine Corps, serving eight years in the infantry. Following two combat tours, he earned an MBA from the Harvard Business School and became a consultant for McKinsey & Co.
During this time, he founded Local Motors, a next-generation vehicle manufacturer that launched the world's first 3D-printed car, the Strati, in 2014. In 2021, he brought the technology to the furniture industry to launch Haddy. The father of four boys, Rogers is also a director of the RBR Foundation, a philanthropic organization focused on education and health care.
Rogers spoke recently with DC Velocity Group Editorial Director David Maloney on an episode of the "Logistics Matters" podcast.
Q: Could you tell us about Haddy and how this unique company came to be?
A: Absolutely. We have believed in the future of distributed digital manufacturing for a long time. The world has gone from being heavily globalized to one where lengthy supply chains are a liability—thanks to factors like the growing risk of terrorist attacks and the threat of tariffs. At the same time, there are more capabilities to produce things locally. Haddy is an outgrowth of those general trends.
Adoption of the technologies used in 3D printing has been decidedly uneven, although we do hear about applications like tissue bioprinting and food printing as well as the printing of trays for dental aligners. At Haddy, we saw an opportunity to take advantage of large-scale structural printing to approach the furniture and furnishings industry. The technology and software that make this possible are already here.
Q: Furniture is a very mature market. Why did you see this as a market that was ripe for disruption?
A:The furniture market has actually been disrupted many times in the last 200 years. The manufacturing of furniture for U.S. consumption originally took place in England. It then moved to Boston and from there to New Amsterdam, the Midwest, and North Carolina. Eventually, it went to Taiwan, then China, and now Vietnam, Indonesia, and Thailand. And each of those moves brought some type of disruption.
Other disruptions have been based on design. You can look at things like the advent of glue-laminated wood with Herman Miller, MillerKnoll, and the Eames [furniture design and manufacturing] movement. And you can look at changes in the way manufacturing is powered—the move from manual operations to machine-driven operations powered by steam and electricity. So the furniture industry has been continuously disrupted, sometimes by labor markets and sometimes by machines and methods.
What's happening now is that we're seeing changes in the way that labor is applied in furniture manufacturing. Furniture has traditionally been put together by human hands. But today, we have an opportunity to reassign those hands to processes that take place around the edges of furniture production. The hands are now directing robotics through programming and design; they're not actually making the furniture.
And so, we see this mature market as being one that's been continuously disrupted during the last 200 years. And this disruption now has a lot to do with changing the way that labor interacts with the making of furniture.
Q: How do your 3D printers actually create the furniture?
A:All 3D printing is not the same. The 3D printers we use are so-called "hybrid" systems. When we say hybrid, what we mean is that they're not just printers—they are holders, printers, polishers, and cutters, and they also do milling and things like that. We measure things and then print things, which is the additive portion. Then we can do subtractive and polishing work—re-measuring, moving, and printing parts again. And so, these hybrid systems are the actual makers of the furniture.
Q: What types of products are you making?
A: We've started with hardline or case goods, as they're sometimes known, for both residential and commercial use—cabinets, wall bookshelves, freestanding bookshelves, tables, rigid chairs, planters, and the like. Basically, we've been concentrating on products that don't have upholstery.
It's not that upholstery isn't necessary in furniture, as it is used in many pieces. But right now, we have found that digital furniture manufacturing becomes analog again when you have to factor in the sewing process. And so, to move quickly and fully leverage the advantages of digital manufacturing, we're sticking to the hardline groups, except for a couple of pieces that we have debuted that have 3D-printed cushions, which are super cool.
Q: Of course, 3D printers create objects in layers. What types of materials are you running through your 3D printers to create this furniture?
A: We use recycled materials, primarily polymer composites—a bio-compostable polymer or a synthetic polymer. We look for either recycled or bio-compostable [materials], which we then reinforce with fibers and fillers, and that's what makes them composites. To create the bio-compostables, we marry them with bio-fibers, such as hemp or bamboo. For synthetic materials, we marry them with things like glass or carbon fibers.
Q: Does producing goods via 3D printing allow you to customize products easily?
A: Absolutely. The real problem in the furniture and furnishings industries is that when you tool up to make something with a jig, a fixture, or a mold, you tend to be less creative because you now feel you have to make and sell a lot of that item to justify the investment.
One of the great promises of 3D printing is that it doesn't have a mold and doesn't require tooling. It exists in the digital realm before it becomes physical, and so customization is part and parcel of the process.
I would also add that people aren't necessarily looking for one-off furniture. Just because we can customize doesn't mean we're telling customers that once we've delivered a product, we break the digital mold, so to speak. We still feel that people like styles and trends created by designers, but the customization really allows enterprise clients—like businesses, retailers, and architects—to think more freely.
Customization is most useful in allowing people to "iterate" quickly. Our designers can do something digitally first without having to build a tool, which frees them to be more creative. Plus, because our material is fully recyclable, if we print something for the first time and find it doesn't work, we can just recycle it. So there's really no penalty for a failed first printing—in fact, those failures bring their own rewards in the form of lessons we can apply in future digital and physical iterations.
Q: You currently produce your furniture in an automated microfactory in Florida, with plans to set up several more. Could you talk a little about what your microfactory looks like and how you distribute the finished goods?
A: Our microfactory is a 30,000-square-foot box that mainly contains the robots that make our furniture along with shipping docks. But we don't intend for our microfactories to be storage warehouses and trans-shipment facilities like the kind you'd typically see in the furniture industry—all of the trappings of a global supply chain. Instead, a microfactory is meant to be a site where you print the product, put it on a dock, and then ship it out. So a microfactory is essentially an enabler of regional manufacturing and distribution.
Q: Do you manufacture your products on a print-to-order basis as opposed to a print-to-stock model?
A: No. We may someday get to the point where we receive an order digitally, print it, and then send it out on a truck the next day. But right now, we aren't set up to do a mini-delivery to one customer out of a microfactory.
We are an enterprise company that partners with architects, designers, builders, and retailers, who then distribute our furnishings to their customers. We are not trying to go direct-to-consumer at this stage. It's not the way a microfactory is set up to distribute goods.
Q: You've mentioned your company's use of recycled materials. Could you talk a little bit about other ways you're looking to reduce waste and help support a circular economy?
A: Yes. Sustainability and a circular economy are really something that you have to plan for. In our case, our plans call for moving toward a distributed digital manufacturing model, where we establish microfactories in various regions around the world to serve customers within a 10-hour driving radius of the factory. That is a pretty large area, so we could cover the United States with just four or five microfactories.
That also means that we can credibly build our recycling network as part of our microfactory setup. As I mentioned, we use recycled polymer stock in our production, so we're keeping that material out of a landfill. And then we tell our enterprise customers that while the furniture they're buying is extremely durable, when they're ready to run a special and offer customers a credit for turning in their used furniture, we'll buy back the material. Buying back that material actually reduces our costs because it's already been composited and created and recaptured. So our microfactory network is well designed for circularity in concert with our enterprise customers.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.