Friday, April 20, 2007

RFID Un-Hype

More bad news for RFID, while e-pedigree looks more like the real deal

Health Industry Insights (HII) just released a very eye-opening survey of RFID adoption of pharmaceutical manufacturers. Eric Newmark, the report’s author, was kind enough to share the full report with me. Unless you are a customer of HII, I’m afraid you will have to pay to read it. Order it here.

Based on a survey of 143 "industry leaders" ("95% manufacturers," Eric tells me), the study found:
  • Only one in five (16%) pharmaceutical companies are currently evaluating the benefits of RFID technology
  • Only (15%) companies are adopting RFID in some capacity
So, what’s the hold-up? Three reasons averaged more than 7 on a 1-10 scale:

  1. Tag cost/Lack of demonstrated ROI
  2. Lack of frequency standard
  3. Security/privacy concerns
The report indicates average life science company spend on RFID technology is a surprisingly low $25,000! Perhaps the average reflects a few big spenders combined with the majority who are just evaluating RFID.

Reality Bites

To date, the benefits of RFID appear to be greatest when used within a single company on specific projects. For example, independent research by professors at the University of Arkansas found that RFID reduced stock outs in Wal-Mart stores by 30% by improving shelf replenishment from the backroom to store shelves. (I discuss RFID in wholesale distribution in my new Facing the Forces of Change study.)

I encourage you to read The RFID Revolution Starts... Soon?, a nice overview article from Industry Week with a sober look at the real-world benefits from RFID. Key quotes:
  • “RFID remains a niche technology, whose broader deployment has been stymied by the usual suspects: high equipment costs, low return-on-investment and a workforce skills shortage.”
  • “RFID remains a finicky technology that can behave differently based on any number of factors, such as the orientation of the RFID tag on the box, carton or pallet; the type of products being tagged; and the environment in which the tagged product is stored.”
  • “The bottom line for RFID is that it's all about process change and the business case. In the end, business owners, and not the IT department, will be the decision-makers when it comes to adopting RFID.”
IMHO, technology vendors successfully bamboozled the FDA in 2004 into endorsing (but not mandating) RFID as the magic bullet against counterfeits. The FDA’s June 2006 follow-up report contained this classic bit of nonsense: “The technology vendors uniformly told us that their RFID and e-pedigree solutions and technologies are ready to go, but manufacturers, wholesalers, and retailers are slow to implement them.

Vendors really said that? How ... shocking. Check out An Odd RFID-Importation Connection to read how technology vendors will now be delivering the hype unfiltered to Senators now looking to push importation legislation.

Ready for Pedigree

Given the FDA’s statement above, I want to contrast RFID with e-pedigree, which is a functional technology/process that is ready to go.

California has set the pace for the pharmaceutical industry adoption by explicitly stating that pedigree must be " electronic form…" (See for yourself by perusing the fascinating Business and Professions Code – page down to section 4034.) Barring any unexpected delays, California’s pedigree law will take effect in 2009.

Note that RFID will not be required or mandatory to comply with CA code. The only requirement is electronic track-and-trace using a “standardized nonproprietary data format and architecture.”

At the Federal level, some people still think RFID and e-pedigree are synonymous, but that’s simply not true. The Prescription Drug Marketing Act is completely technology agnostic. The FDA was unambiguous on this point Last November: “Both paper and electronic documents and signatures may be used to meet the pedigree requirement of the Act, provided that the requirements of 21 CFR 203.60 are met.” (Neither the FDA nor CA have addressed retail pharmacists' desire or willingness to authenticate inbound product at the point of dispensation -- our demand-side problem.)

Like Norma Desmond, RFID may be ready for its close-up, but e-pedigree will turn out to be the real deal for technology-enhanced supply chain security.

P.S. See me at the TRAX Summit to hear more. You may also get to see RFID vendors throw tomatoes during my keynote...


  1. Given the way California's pedigree law is presently written, who will they prosecute for violations of the pedigree law if there is no interoperable system? It seems to me that implementing regulation will be required in order to carry out the statute's intent...thoughts?

  2. Yes, I agree that the regulations are needed in order to implement, although I'm note sure how much guidance the CA Board of Pharmacy will provide.

    At a March 8 meeting with EPC Global regarding pedigree, a CA deputy attorney general commented that "...there is no requirement for the Board of Pharmacy to adopt the [EPCGlobal] standard...The standard itself is the industry's way to comply with the law." this implies that the Board *may* establish a single standard...or not. (Yes, I'm confused, too.)

    Regardless, RFID has been "next year's big thing" every year for the past 5 years. Rapid adoption of RFID by 2009 would be the triumph of hope over experience, whereas it is possible to implement e-pedigree right now.

  3. Adam, calling the HII report "bad news" for RFID makes you a glass-half-empty kinda guy. Let me explain: your own citation translates into 31% doing something with RFID. I think that that's an encouragingly high figure.

    The next issue of Pharmaceutical Commerce (out in about 10 days) will have a report that includes some of the HII conclusions, as well as reporting from RFID World. One "development" of sorts is that there appears to be a consensus that the January 2009 California deadline is "real"--meaning that industry will have to offer a substantive program by that date. Given how IT/technology projects go, January 2009 is not that far off.

    Your comments about the CA regs, RFID and e-pedigree are sort of right, in my view, but there's another element to this. The conflict is not between RFID and e-pedigree, but rather pedigree documentation (whether electronic or paper-based) and a for-real track-and-trace system. Pedigree is mostly a system that trails a product through the supply chain, so that a product and its records arrive at a destination more or less together. Track-and-trace is mostly a database that allows both backward looking views (to produce a pedigree) and forward-looking views to, for example, do better forecasting, inventory management or contract monitoring. That flexibility is where the business value will come from. Pedigree documentation is a negative-value regulatory burden (but necessary); track-and-trace has potential to be a postive-value business practice (while complying with pedigree requirements).

    The kicker to all this is that RFID, in its fullest flowering, makes track-and-trace easier to do. You're right--neither pedigree (nor track-and-trace) necessarily depend on RFID. But RFID makes track-and-trace easier to perform.

    I recommend the HII report to anyone in the pharma industry who's trying to get a meaningful assessment of what's going on; it presents the business case without the RFID hype coming from many other directions.

    See you at TRAX!
    --Nick Basta, Pharmaceutical Commerce

  4. Nick,

    Great articulation of the difference between a “compliance cost” (pedigree) versus “business value” (track-and-trace)!

    I am only glass-half-full for RFID because the technology has been so oversold relative to its stage of development and actual cross-company supply chain application. Hey, I know that everyone has to sell – I’m just trying to balance out the hype. Read these verbatim quotes from an industry web site's email this morning:

    a) “Like other CPG producers, pharmaceutical manufacturers must meet retail or government mandates for RFID tagging at the pallet and case levels.” [Opening paragraph in email]
    b) “The U.S. Food and Drug Administration is actively promoting the use of RFID to improve the safety and security of the drug supply.” [vendor statement]
    c) “Fight Phonies: Send Counterfeits and Generics to The Jailhouse With [vendor’s name] RFID” [vendor headline]

    As for being a glass-half-full kind of guy…depends what’s in the glass. Buy me a pint of Guinness and you’ll see that I can also be a glass empty kind of guy!


  5. With the Board stating that EPCGlobal represents "one way" to meet the CA pedigree requirements does that not (especially when EPCGlobal's standards process represents the only thing close to an interoperable system) sound like underground regulation? Specifically, to say one thing meets the requirements when there are no other (presently known)alternatives and then to refuse rulemaking on the matter seems inconsistent with the requirements of CA's APA.

  6. The reality is that RFID and Pedigree both provide data flows that, only if applied properly through detailed analytics, provide enough value to drive proper decision making within pharma. The manufacturers today have a tremendous wealth of information about product flows within their demand side supply chain...namely 852, 867 and 844 data. It is only now that they are beginning to unlock the value of these data sets. RFID and pedigree data flows, when integrated with other data sets and the proper analytics, will finally allow the pharma industry to properly manage inventories, reduce diversion and impact counterfeit product into the legitimate US supply chain.

    Kevin Leininger

  7. AnonymousMay 16, 2007

    On assessing the true value of RFID to drug companies: Do manufacturers of legitimate drugs not see RFID as a mechanism to fight erosion of their business by the illegitimate suppliers? It seems to me that there is some value in the ability of RFID to allow drug manufacturers to actively police illicit activity. If they want to call the cops at that point they can with the caveat that it is virtually impossible to deter this activity through enforcement and prosecution of illegal traffickers. The bottom line is that all the enforcement in the world will never be able to detract from illegimate marketing of drugs and will not adequately protect the public. This is about protecting commerce, nothing else, and there must be a motivating factor in there somewhere for those paying for RFID to justify their cost.

  8. To Anonymous (from May 16):

    RFID would only have value as an after-the-fact tracing device if the tag is read and authenticated at the end of the supply chain, i.e., the pharmacy. SO far, that does not seem to imminent.

    The tags would also have to be applied at the right unit. IOW, tags applied to a pallet would have no value once the pallet is broken down and shipped. Hence, the discussions around mass serialization followed by pharmacy authentication.

    Check out the comments on my follow-up post: More RFID Unhype


  9. AnonymousMay 17, 2007

    Mr. Fein,

    Your Note about RFID not being required for compliance is misleading. California law does not mandate a specific data carrier.

    The California law does mandate manufacturers provide a unique indentifer to Track pharmaceuticals at the Smallest Packaging Level. The tracking data/ information will need to be put in to interoperable electronic system.

    The best data carrier to use to provide the unique identification required is to use RFID with serialization. The RFID tag delivers the supply chain levels an increased level of security that is within the spirit of the California pedigree law. We need to design a pedigree system that utilizes the latest in AIDC technology. Lets begin the migration from line-of-sight/bar-code technology.

  10. Dear Anonymous (5/17):

    RFID *may* have certain advantages, but I stand by my statement that it is *not* required or mandatory for compliance.

    To be clear, paragraph 4034(i) of the statute does not stipulate how to create "an electronic track and trace system for dangerous drugs that uses a unique identification number." RFID may be better/faster/stronger, but it is inaccurate to say that RFID is legally required by statute.

    You are correct that the CA statute calls for serialization at "the smallest package or immediate container." My $0.02: This probably means case-level serialization to start, with item-level serialization being the next logical step.

    Disclaimer: I am not a lawyer.


  11. Most of the benefits of RFID for supply chain track and trace can be had at lower technology risk by using 2D data matrices that can also meet the EPCglobal standard.

    RFID is an expensive data carrier that is unfamiliar whilst a 2D data matrix is cheap and well understood.