Rumors of Item-Level RFID’s Death in Pharma Are Exaggerated

An article by Dirk Rogers, co-chair of the GS1 EPCglobal Drug Pedigree Messaging work group, suggests RFID is dead at the item level in the pharmaceutical industry. Here’s why his death notice is premature.
Published: April 26, 2010

In an interesting article on the RxTrace Web site, Dirk Rogers, co-chair of the GS1 EPCglobal Drug Pedigree Messaging work group, suggests RFID will never be implemented at the item level in the pharmaceutical industry (see RFID is DEAD…at Unit-Level in Pharma ).

Rogers uses relative cost graphs to make his point. Basically, he argues that manufacturers would have high upfront costs and high ongoing costs for tagging each unit with RFID. Wholesalers would have high upfront costs, but achieve a return on investment in later years because of improved efficiencies in receiving goods into warehouses and then picking and shipping them. Pharmacies would have the highest upfront costs, because of the need to outfit all their stores with RFID, but then would break even because of some improved efficiencies in their warehouses.

With bar codes, he argues, the manufacturer would have high upfront costs and then little ongoing cost. The wholesaler would have high upfront costs and high ongoing costs, because of the need to scan bar codes manually. Pharmacies would have the highest upfront costs again, and then have some ongoing costs due to greater complexity in their operations.

His point seems to be that while RFID delivers the greatest benefit to the wholesalers, they don’t have the power to mandate RFID, and since they don’t, the manufacturers won’t do it because it drives up their costs. It sort of makes sense, but it really depends on how the regulations are implemented. Also, it doesn’t take into account other benefits for manufacturers, such as internal efficiencies and anti-counterfeiting, which is why many started looking at RFID in the first place

Let’s say a manufacturer is required to confirm that a case of 48 bottles of pills actually has 48 bottles of pills, and that they have the right serial numbers associated with the serial number on the case. This is required today for narcotics, such as Oxycontin, in the United States. The manufacturer fills the bottles, reads the serialized 2-D bar codes automatically (it can control the orientation of the bar-code label to a scanner on a manufacturing line), and puts the bottles in a case.

The case is put into the warehouse. When an order comes from a pharmacy or a wholesaler, the case is picked. At this point, the manufacturer is required to confirm that no bottles have been removed from the case and that the serial numbers that are supposed to be in the case actually are in the case. The only way to do that is to open the case, scan the bar codes and reseal the case. It costs about 7 cents in labor to scan a bar code. So for a manufacturer shipping a billion units a year, the estimated cost would be $70 million a year.

If the same operation is done with RFID, the tags might also cost 7 cents each (in volumes of 1 billion a year, that is certainly possible), but there is no labor cost, since you can read all 48 bottles in the case automatically. So the cost of doing RFID and bar codes would be the same for the manufacturer. If the manufacturer does a lot of direct-to-pharmacy shipping, which requires breaking cases and putting items into totes, the manufacturer would achieve some of the same savings from RFID that the wholesaler gets. So RFID would be cheaper than bar codes, if the manufacturer were required to capture data that requires each bar code to be scanned individually. And the manufacturer might be able to reduce lost sales from counterfeiting.

Rogers also seems to grossly underestimate the labor costs for the pharmacy and the benefits RFID can provide. Scanning bar codes on each item flowing through a pharmacy’s warehouse and to the stores will require an enormous amount of labor. There is some talk that hospitals and pharmacies might be required to record the temperature of temperature-sensitive drugs every two hours. Think about the labor cost.

Moreover, bar codes are inaccurate because they rely on human beings, and human beings make mistakes. In studies done by the University of Arkansas’s RFID Research Center, people scanned the bar code correctly only about 80 percent of the time in an apparel store, while RFID was more than 99 percent accurate. If pedigree laws are willing to accept that the data will be wrong 20 percent of the time, it might make sense to use bar codes. But somehow I doubt that will be acceptable. So, despite Rogers’s analysis, my view is that RFID still might make a lot of sense at the item level in pharma. It will depend on how the regulations are implemented and what data is required.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog, RFID Connect or the Editor’s Note archive.