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RFID Use by Pharma Firms Will Surpass That by CPG Companies, Providing Cost Savings in Five Key Areas
STAMFORD, Conn. (Aug 26, 2004) - Potential cost savings from the use of radio frequency identification (RFID) will spur increasing use of the technology within pharmaceutical company supply chains during the next 18 months, according to research by META Group (Nasdaq: METG), a leading provider of information technology (IT) research, advisory services, and strategic consulting.
Although pharmaceutical organizations have been using RFID technology for years in niche applications such as tracking lab samples, these companies have recently begun examining the potential benefits of using RFID to track finished products. Because of the high value of pharmaceutical products, the cost barrier for tagging products within the supply chain is relatively low. In addition, the Food and Drug Administration (FDA) has acknowledged the benefits of a universal electronic pedigree, which will identify and track individual pharmaceutical products throughout the supply chain.
In a recent report by the FDA, the agency estimated that pharmaceutical companies would complete full-scale, pallet- and case-level RFID tagging of most pharmaceutical products within a three-year timeline, using electronic product code (EPC)-compliant RFID tags. META Group analysts believe this timeline is overly optimistic, given the immaturity of EPC tag technology. According to META Group analysts, challenges surrounding EPC technology are the most limiting factors to use of EPC-based RFID technology.
"The inherent problem with EPC technology, from a pharmaceutical perspective, is the lack of anti-cloning features in the EPC chip itself," said Bruce Hudson, program director with META Group's Enterprise Application Strategies service. "With current EPC specifications, it is possible to program one chip with the exact data of another, effectively cloning the first chip. Without guaranteed authentication, the usefulness of RFID is significantly reduced."
META Group analysts believe RFID use within the pharmaceutical industry will be limited to a "track and trace" role until EPC specifications are revised, which could take up to two years. Once implemented, META Group predicts that RFID will prove extremely beneficial to the pharmaceutical industry, offering ROI in the following five key areas:
1. Inventory Management: Along with enabling improved inventory visibility, RFID technology can merge identity with environmental information to create an individualized expiration date based on the environment's effects on the active ingredients. 2. Recalls: In the event that a product recall is initiated, pharmaceutical organizations would be able to respond more efficiently and quickly in identifying the recalled product. 3. Patient Safety: By combining RFID-tagged drugs with other positive identification measures (e.g., patient identification, unit-of-dose bar coding), the FDA estimates that most of the 1.25 million adverse reactions and 7,000 patient deaths annually in the United States due to drug errors could be prevented. 4. Product Diversion: Diverting drug shipments from low-cost regions to higher-cost regions costs pharmaceutical organizations millions of dollars annually. Positively identifying shipments and tracking them to their intended destinations could significantly reduce the size of the "gray market." 5. Counterfeiting: Drug counterfeiting is a serious health issue, particularly in poorer regions of the world. Current recommendations are to deploy two forms of anti-counterfeiting measures — one visible (e.g., holograms) and one invisible (e.g., RFID tags) — to implement formidable obstacles to counterfeiting.
"Because of the compelling ROI for pharmaceutical organizations and their distributors, RFID use in the pharma industry will surpass that of CPG companies within 18 months," said Hudson. "However, major issues need to be addressed before we see full-scale deployment. In addition to authentication issues, the industry must address the validation of RFID systems by the FDA, the unknown impact of radio frequency energy on drugs, and data management in light of competitors."
META Group's Enterprise Application Strategies features a staff of leading experts on ERP, supply chain management, and CRM, as well as brand management/product marketing executives, business managers, and recognized authorities on financial applications. With hundreds of years of combined real-world experience, these analysts have worked for major vendors, consultancies, defense organizations, startups, and firms in the pharmaceutical, healthcare, and manufacturing industries.
About META Group
META Group is a leading provider of information technology research, advisory services, and strategic consulting. Delivering objective and actionable guidance, META Group's experienced analysts and consultants are trusted advisors to IT and business executives around the world. Our unique collaborative models and dedicated customer service help clients be more efficient, effective, and timely in their use of IT to achieve their business goals. Visit metagroup.com for more details on our high-value approach.
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