The pharmaceutical supply chain moves billions of dollars worth of drugs and medical products each year in the U.S. alone. Like other supply chains handling high-value, time-sensitive goods, it faces increasing demands from shippers and consignees to maintain product integrity, and from the federal government to comply with regulations. All the while, it is striving to prevent theft and counterfeiting.

The financial impact is enormous. The flow of counterfeit pharmaceuticals is on pace to equal 5 percent of the global drug market by 2016 and to cost the pharmaceutical industry about $70 billion in worldwide sales, according to a 2013 study, "Building New Strengths in the Healthcare Supply Chain," by consultancy McKinsey & Co. But the problem goes beyond money. People suffering from diabetes, heart disease, HIV, and other diseases can become seriously ill if their medication lacks therapeutic value because it is fake or stale.

The solution to the twin challenges of improved compliance and reduced counterfeiting may lie with improving the supply chain's track and trace capabilities, an obligation that will fall partly on the shoulders of logistics professionals. The Drug Supply Chain Security Act (DSCSA)—a section of the Drug Quality and Security Act (DQSA) of 2013—calls for the 10-year phase-in of an array of requirements that will lead to the creation of an electronic track and trace system. Through this system, the Food and Drug Administration (FDA) will be able to pinpoint the location of any drug throughout the supply chain and drill down to the individual package level.

However, few in the field understand how to manage the flood of data that will need to be generated, stored, and retrieved in support of this ambitious system. Experts say that if companies want to avoid stiff fines for noncompliance, they will have to make significant investments in information technology and in increased training for supply chain personnel.

That's not to say shippers will have to cope with all this on their own. Many will turn to third-party logistics service providers (3PLs) for help. Although the new law relieves 3PLs of the most onerous regulatory burdens by identifying them as having only temporary possession of the drugs (not full product ownership as drug manufacturers, wholesale drug distributors, re-packagers, and pharmacies do), many have nonetheless developed state-of-the-art tracking and tracing capabilities.

"From a 3PL standpoint, we don't purchase or take ownership, but we are in possession of the shipment; it is stored in our facility and tracked in our WMS (warehouse management system)," said Tim Bishop, healthcare compliance manager for UPS Inc., the Atlanta-based transportation and logistics giant. "So the details of that particular drug are known to us: where it came from, where it went, when we shipped it, [and] how much we sent."

By working with a 3PL, pharmaceutical shippers can take advantage of that tracking data and work in concert with their carrier to stay in compliance with the new regulations. Some of the largest providers are already preparing for those partnerships.

Contract logistics firm Exel and its sister company DHL Supply Chain, both of which have worked in the healthcare supply chain for many years, have developed serialization systems to help life science and healthcare (LSH) companies manage the cost of complying with the new regulations. UPS has contracted with an unidentified technology provider to transact DSCSA-mandated shipping data, a service Bishop said will be invaluable to small to mid-sized businesses. UPS is also creating a digital repository to store the three types of required reports—transaction history, transaction information, and transaction statements—known in the industry by the abbreviation TH/TI/TS, or by the shorthand "T3."

Although the FDA will not require companies to shift from paper to electronic T3 records until 2017, many drug firms are making the switch now to be ready for the huge volumes of data that will need to be processed. Big healthcare distribution specialists like Dublin, Ohio-based Cardinal Health Inc., San Francisco-based McKesson Corp., and Chesterbrook, Pa.-based AmerisourceBergen Corp. have already migrated to digital systems to enable the transfer of data between supply chain partners.

"Paper is great ... but there are not enough filing cabinets in the world to store this much data," Bishop said. "And the law requires that you keep the data for six years and [be able to] produce it on 24-hour notice ... it's a little mind-blowing."

The current industry standard for handling digital records is through advance shipping notices (ASNs) transmitted via electronic data interchange (EDI). However, many smaller companies continue to use paper packing slips. That practice will evolve in coming years toward the EPCIS (electronic product code information services) data standard as shippers prepare for the full implementation of DSCSA regulations, tracking every saleable unit of prescription drugs by a unique serial number.

Investing in the adoption of a global data standard for pharmaceutical logistics could be money well spent, according to the McKinsey study. Establishing a single track and trace technology for medical products could cut counterfeiting in half, yielding $15 billion to $30 billion in sales by 2016 that would otherwise be lost to counterfeits, the study showed.

The DSCSA regulations also benefit pharmaceutical product distributors and 3PLs by setting a uniform set of supply chain rules, replacing the patchwork of state regulations that preceded the federal standard, according to Eric Newmark, program director for industry cloud and commercial life sciences at IDC Health Insights.

But the major benefits won't arrive until 2023, when the FDA fully implements its item-level and package-level visibility requirements. This will foster an efficient product recall process and enhance law enforcement efforts, experts said.

"There are enormous inefficiencies ... throughout the industry; this is a problem in the billions of the dollars per year in the global industry," Newmark said. "This is a huge guessing game. If you don't have visibility, you have to recall 10 times as many drugs."

When healthcare companies choose a 3PL to distribute their life science products, they should make sure the partner can overcome some common hurdles.

One problem with the precision tracking requirements is that warehouse workers can't retract a published ASN to correct a simple loading mistake. If workers ship 11 crates instead of 10, the transaction histories won't match up and the shipment will have to sit idle until the corrected paperwork catches up. That can be a slow and costly process.

Another common problem is shipping a load to the proper customer but to the wrong location. Some pharmaceutical products are temperature controlled, and the receiver may not want to return a valuable product and risk its becoming stale in warm weather. That can result in another costly delay while replacements are sent.

A third challenge may be training a warehouse management system (WMS) to recognize exceptions to DSCSA-controlled products. Most WMS platforms have no trouble tracking a batch of prescription pills, but the same pharmaceutical manufacturer may also ship related materials that do not fall under the act, such as over-the-counter medicines and simple medical devices that do not require strict tracking.

Distribution center managers may not have to buy new material handling or tracking systems to comply with the pharmaceutical tracking law, but they will probably need to train floor workers and logistics coordinators to manage the immense amount of data that will be created.

"Visualization of products stops now at the lot level, but when you get down to the case and pallet level, and then the item level, you will be looking at a thousand or ten thousand times as much data being created, so there will be an enormous influx of data," said Newmark of IDC. "And they will need the ability to handle, organize, sort, and store all that data. That will be interesting."

That is why many businesses are choosing to bypass on-site servers entirely and subscribe to cloud-based supply chain transaction management solutions from providers like Axway, rfXcel Corp., and SAP.

"When the FDA comes calling, you'd better have maintained those documents," said Shabbir Dahod, CEO of North Reading, Mass.-based TraceLink, which offers a cloud-based track and trace network to subscribers. "As you pick and pack from your DC, you have to correlate that with the transaction history to prove the link to the product or ... that it was shipped to customers A to Z."

Smaller companies may not have the budget for these requirements, and even larger players may choose to avoid incurring the extra cost of IT support. By using a cloud-based solution, a 3PL provider can use a Web browser to track and trace all of its products, manage large-scale serialization of drug units, and exchange data with its trading partners, experts said.