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Most RFID implementations and rollouts have happened in the consumer packaged
goods industry (Thanks to the big daddy, Wal*Mart!). Of late, the pharmaceutical
industry worldwide has also begun to take advantage of the RFID technology.
According to the Meta Group, the pharma industry will outstrip the consumer
packaged goods (CPG) industry in RFID implementation by the end of 2006. In
Europe alone, the RFID revenues from the pharma industry will cross over $400 mn
by 2007, as compared to a measly $33 mn in 2004.
According to Frost & Sullivan, RFID's application in the pharmaceutical
and healthcare verticals, globally, will grow to about $2.3 bn in 2011, clocking
a healthy CAGR of 30%. This includes money spent on hardware and software,
professional services, integration, and applications. The report divides the
market into three segments: medical equipment tracking, patient tracking, and
pharmaceutical tracking. The latter will constitute the biggest chunk of the
overall market, says the report. 
It's Not Wait and Watch
Wal*Mart created a robust business case for RFID implementation and in
effect wrote new chapter on technology adoption. And this is not the first
instance that Wal*Mart has backed a technology successfully. Bar codes are just
one case in point. It was in 1973 that the bar code standards were approved. And
just about 15,000 suppliers were using bar codes on their products by 1984. And
it was in 1984 that Wal*Mart issued a similar edict. In a short span of three
years, 75,000 suppliers started to use the bar codes. And therefore, it is with
this lineage in mind that a lot of pharma companies are waiting and watching.
They are expecting to replicate the Wal*Mart success. But the CPG story is
strikingly different from the pharma story.
Different Strokes
The average value of a pharmaceutical product is far higher than packed
consumer goods. Thus, the math becomes extremely simple. So the tag costs become
as low as 1% in the pharma case on an average as opposed to 7-8% for consumer
goods. Extending the calculation, it looks that the logistics' spend as a
percentage of revenue is lower in the pharma industry also. Therefore, the
opportunity to drive efficiencies and associated savings from improved logistics
is lower and has far-reaching consequences.
The issue of the expiry date is also significant to the pharma industry. RFID
will help create a dual edged sword to fight this bane of the industry. While on
one side it will provide ease of manageability at the distributors' warehouses
and on the other it will provide a great deal of insight into the inventory
management practices of the distributors. This will help the industry manage
stock, and also losses incurred due to expired products. The loss, from both
these factors globally, stands at around $2 bn.
The Biggest Bane
The World Health Organization estimates that about 6% of the world's drugs
are counterfeit. But the loss of $30 bn incurred by the industry, globally, on
this account is on an annual basis? And an average email user everyday sees this
in the inbox. All of us are inundated with spam peddling counterfeit
formulations ranging from Viagra to other spurious drugs. The problem faced by
pharma industry is a two-pronged one. It puts patient's safety at risk and can
wreck havoc with the company's reputation and brand image, at large. And loss
of consumer's confidence in the drug leads to loss of valuable time spent in
research and millions of dollars spent earlier as marketing expenditure.
 RFID can be a good friend of the industry. But it is true that putting a tag
on the product will not guarantee that the consumers get the genuine product.
More so, since consumers cannot read the tag, there is no way they can find out
the authenticity of the product. How then does RFID come to the rescue? The
solution is simple. RFID will create a trail, as the product leaves the point of
manufacture and goes right up to the final consumer. It can help validation at
any point in this trail at a very low cost with tagging at the pallet or the
case level. This will vastly improve the bulk validation process that happens
along this chain. For this process in particular, RFID capability as a
read-write solution versus a read only for bar code provides a huge advantage.
In effect, the point where the counterfeit drugs are injected into the
distribution channel can be pointed out with a fair amount of ease. So RFID is
not the solution but the enabler thereof.
It is prudent for the pharma CIO to build a contextual case for RFID
deployment, as the drivers are not the same as those that pushed Wal*Mart to
back the technology. The pharma industry has its own standards for the bar code
too. The pharmacode! And it was therefore not without reason that the US FDA
wants the industry to adopt RFID by 2007. To help companies meet this deadline,
it even published a compliance policy guide in late 2004.
Many a Slip
The marketplace for RFID technologies is still immature. While the hardware
market is fast approaching stability, there are a host of issues with middleware
that integrate RFID with legacy systems, which both mid-sized and large vendors
are resolving. Also many ERP databases are not equipped to handle the granular
data that each article tagging will generate. Many of the technical hurdles have
to be addressed at the industry level also. For instance, the industry must come
to a consensus on electronic product code (EPC), the standard that RFID uses.
Issues regarding sharing of information also have to be addressed. It's not
before long that the pressures to implement RFID, both from regulators and
customers, will mount and the industry must work together and with their
suppliers to reap full benefits of the technology.
Mohit Chhabra
maildqindia@cybermedia.co.in
The author is Principal Consultant with FiNoble Advisors Page(s) 1
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