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Product Serialization: The Key to Protecting Your Supply Chain — and Your Brand

by Andre Pino

January 2, 2009

For manufacturers, product recalls can lower stock ratings, trigger lost revenue, and threaten customer loyalty. Find out how serialization technology allows more nimble responses to recalls, inventory problems, and other supply chain events. Learn lessons from the experiences of the pharmaceutical industry, which is on the leading edge of serialization adoption.

Every manufacturing business worries about losing control of its supply chain. Companies lose revenue and market share if products are unaccounted for, damaged, or become defective or defunct. But in industries like pharmaceuticals, consumer goods, and food and beverage, we’ve seen cases where manufacturers have surrendered their products, customer loyalty, and even stock ratings in the wake of voluntary recalls.

The pharmaceutical industry is no stranger to high-profile cases of tampering and defective or unsafe products. Yet although every manufacturer talks about visibility, risk management, quality, and performance optimization, the reality for many companies nowadays is that the information they collect and share is not enough to manage risk in today’s global supply chains.

You can’t completely avoid recalls and similar events in your supply chain, but you can optimize your processes to better respond to them. While pressures grow — including counterfeiting, diversion, authentication challenges, regulations, and mandates — supply chain globalization, outsourced operations, and disparate supplier processes heighten the risks. Companies across all industries are challenged to better collect, track, and trace the products and information that traverse their supply chains. There is no better example of this than pharmaceutical manufacturers, upon whom these issues weigh heavily. So how can drug companies know exactly which drug from which batch needs to be recalled or has expired? How can they pinpoint exactly which pharmacies, hospitals, or stores end up with tainted products on their shelves?

To respond to this challenge, most of the world’s top pharmaceutical companies are devoting millions to experiment with new technologies to battle the rising tide of phony drugs that are making their way into medicine cabinets — and to be able to respond quickly when they detect problems. Serialization technology is the key to enabling track-and-trace capabilities to keep counterfeiting from thriving and enabling focused recalls.

Responding to Recalls, Counterfeits, Tampering — and Regulation

The more a product changes hands, the easier it is to introduce problems in the system and the more enterprises need the ability to trace the movement of goods in production at each stage in the process, including activities at contract manufacturers or third-party packaging sites. Each process involved in creating a product, from inception through packing and shipping, provides an opportunity for foul play to enter the system.

Nowhere is this clearer than in the pharmaceutical industry, which faces threats from counterfeit medicines, now a $32 billion global threat according to the World Health Organization.

Counterfeit products are also behind many recalls — including a recent recall of 10,000 bottles of cholesterol medicine, which cost a major North American pharmaceutical manufacturer $55 million. The FDA reports that for the US alone, there were more than 1,200 Type I and Type II drug recalls from 1997 to 2002 — a rate of nearly four per week. And with the rise of Internet pharmacies, an ever-growing number of off-shore manufacturers are pushing unlicensed generic drugs into the US pharmaceutical market. The ease with which goods move throughout the world permits counterfeit products made in one region to be moved to another at very high profit, and with very little risk.

In addition to monitoring counterfeits, the pharmaceutical industry has to closely manage products based on expiration date. The Healthcare Distribution Management Association reports that the pharmaceutical industry incurs $2 billion a year in returns and product losses and incurs another $2 billion annually in the costs associated with processing returns, expirations, and recalls.

To help combat diversion and counterfeiting, the US Prescription Drug Marketing Act, passed in the late 1980s, contained a “pedigree” rule mandating that manufacturers must produce a detailed record of a drug’s movement from their plants to the point of dispensing. Since then, several states have enacted similar regulations, and the industry as a whole is working on standards to support the effort to secure the pharmaceutical supply chain. For example, one of the most stringent regulations, California’s ePedigree mandate that goes into effect in 2015, would require item-level serialization and ePedigree or chain of custody documentation.

So how does a global supply chain meet this level of regulatory scrutiny?

The First Step: Move Away from Batch Materials Management

Across all industries, companies often manage their product materials at the batch level, providing limited visibility at the pallet, case, or item level. While this seems to keep costs low and streamlines data management, it simply does not provide the level of information granularity needed to track products through the supply chain and minimize risks. For example, if a defect is discovered, the only prudent way to recall the right items is to take back everything that has been shipped during a particular timeframe — essentially clearing the entire supply chain of the product and making the recall wider in scope than necessary. In the auto industry, this could mean recalling an entire fleet of cars rather than just those manufactured at a specifically pinpointed site. In the life sciences, this might mean an entire batch of valuable lifesaving drugs.

These extensive recalls add costs for the manufacturer and retailer in lost inventory and sales, as well as the greatest detriment, brand image and consumer confidence. With globalized supply chains, the problem is further exacerbated. The initial product is created in one location but can be shipped to multiple locations for finishing.

Serialization Technology: What Is It?

Serialization technology is a way to uniquely identify products in the supply chain down to the item level (rather than at the batch level), and is implemented with tags — using either barcode or RFID technology. Devices along the supply chain read these serialized tags and send information into your back-end system. This in turn feeds data to a serialized management system like SAP Auto-ID Infrastructure.

SAP solutions that support serialization technology include SAP Auto-ID Infrastructure and SAP object event repository (SAP OER). SAP Auto-ID Infrastructure, a component of SAP NetWeaver, connects directly with business processes that require signal data and helps companies manage and integrate all serialized data with their SAP systems.

SAP OER is an integrated event manager that provides the basic platform for tracking uniquely identified objects and events relevant to those objects. By using it to compare expected and actual events, companies can develop track-and-trace applications, identify exceptions, and trigger alerts.

Among their support for features like recall management (see the table on the next page), these SAP solutions for serialization also enable thirdparty track-and-trace applications. Companies use these applications to automatically track intra- and inter-enterprise movement and storage of finished goods through the use of barcodes and RFID tags from receipt into inventory to the picking, packing, and shipping processes.

Track-and-trace applications facilitate greater control over product recalls and product quality. It’s become especially important for pharmaceutical companies that are facing state-level mandates to follow the detailed “pedigree” of a drug — which requires that manufacturers track every point of custody for each drug. Track-and-trace applications offer an effective pedigree and serialization solution that is technology-agnostic and can be customized to meet individual enterprise needs.

Serialization technology also supports more accurate pinpointing of products and all their components so you can accurately target the right products for recall. For example, a worldwide developer, manufacturer, and marketer of medical devices once faced a voluntary recall of one of its stent delivery systems. The company turned to serialization and it was able to pull the units in question and resupply the market within 48 hours with virtually no back orders. This prompt and effective response helped to greatly minimize bad publicity. Their quick reaction was due in large part to the company’s commitment to supply chain optimization. This type of efficiency and responsiveness affects the bottom line and saves lives.

Capability Why You Need It Benefit
Recall Management Recalling tainted or defective products is a challenge common to many manufacturing industries. If the distribution of batches or lots is not tracked through distribution and retail channels, then the recall cannot be done precisely, requiring a costly general recall of all products.
  • Reduce impact of recall
  • Reduce time to complete recall
  • Improve — or even save — the brand
Alerting You can use this data to alert appropriate parties when things are not going according to plan, enabling earlier intervention. The sooner you know something went wrong, the broader the choices for mitigation and containment.
  • Reduce costs/errors
  • Predict problems before they happen
Process Improvements Analysis of auto-captured data can be used to improve end-to-end processes and to look for excess dwell times, unnecessary handling or poor execution. The rise of RFID has encouraged the development of these types of analytic tools.
  • Cycle time reductions
  • Quality improvements
  • Increased productivity
  • Improved handling
Expiration Management For limited shelf-life products, the batch number can be used to determine End Of Life (EOL) and help enforce management disciplines across the supply chain including: First Expired, First Out (FEFO); First In, First Out (FIFO); or no sell after sale date. This may require various supply chain partners (e.g., thirdparty distributors and retailers) to capture, monitor, communicate, and act on expiration data.
  • Reduce obsolescence
  • Reduce returns
  • Improve replenishment planning and accuracy
Supply Chain Planning Inventory visibility allows firms to better predict when and where to replenish products. It allows them to assess all types of merchandizing issues, from displays to distribution patterns.
  • Accurate and timely source data
Table 1 SAP solutions for serialization features and benefits

Combining RFID and Serialization

In the pharmaceutical world, many leading drug makers are using RFID tags to verify the authenticity of their products. They can follow the chain of custody of individual products in an technology to enable track-and-trace applications, effort to combat counterfeiting and mishandling of medications. In these cases, serialized tags are affixed directly to the product itself, so that individual items can be monitored throughout the entire supply chain and life cycle.

RFID can be implemented both to complement barcode labeling and to automate SAP transactions and processes that are not already automated — providing additional efficiencies by creating a “hands-off” operational approach and avoiding manual data entry as each item travels from production line to store shelf.

Companies can facilitate the authentication of serialized drug products by distributors or retailers, which provides manufacturers with real-time visibility into where a specific product physically resides at a certain time in the downstream supply chain. This visibility and data helps manufacturers recognize counterfeit situations, identify expired products, and perform targeted recalls. With regulations calling for a unique serial number (along with expiration date and lot number) on each saleable unit, companies can easily identify counterfeit products as a foreign unit or batch.

Additionally, manufacturers would not only have visibility into where the product physically resides, but also have a record of the specific path it took to get there through the supply chain, and this data is invaluable to a manufacturer.

Business Benefits: Efficiency, Not Just Mandates

It’s become increasingly clear that track-and-trace technologies have the potential to do more than simply ensure regulatory compliance.

While many businesses were motivated to implement serialization technology for workforce and production efficiency, research from the 2008 Aberdeen Research Report “RFID in Chemicals and Pharmaceuticals” suggests that manufacturers may realize even greater benefits from visibility into the supply chain by curbing counterfeiting and reducing the impact of returns processing and product recalls.

The Aberdeen Research Report respondents cited high-level, business-centric goals such as improvements in operational efficiency, customer service, organizational agility and responsiveness, and communications as their main goals. According to the report: “Traditional drivers such as supply chain visibility and efficiencies or increased regulatory compliance did not even make the top ten drivers cited by current survey respondents.”

Creating item identification and then tracking those items through the supply chain is one step to reaping business benefits from serialization technology. The value of changing your processes and technology to uniquely identify items down to the individual item level lies in how you can assure a secure, traceable, and auditable supply chain that is also highly efficient. This is mass serialization, and it represents the business value of fine-grained data provided by serialization.

The Path to Increased ROI

Track-and-trace technologies deliver positive ROI across the entire supply chain — and not just for life science industries.

The tighter the grasp manufacturers have on their supply chains, the better they’ll be able to identify with pinpoint accuracy exactly which items are affected when problems arise — minimizing the effects on the bottom line. Comprehensive trackand- trace solutions that integrate the entire supply chain may be initiated by regulators, but businesses are seeing a significant return on investment because they are able to recoup the costs of these systems by minimizing product recalls, enhancing consumer confidence in product quality, and ensuring their continued brand loyalty.


Andre Pino is the executive vice president and chief marketing officer for Acsis, Inc. Andre possesses over 20 years of experience in product marketing, channels marketing, marketing communications, and pipeline development in the IT industry with a focus on software and business solutions. He earned a BS in Chemistry from Eastern College, St. David’s, PA and also a degree in Electrical Engineering from Drexel University in Philadelphia, PA.

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