Innovation and the “Authenticating Wholesaler” Idea

I have my own theory of innovation.  Almost everyone agrees that innovation is a key ingredient in growth and prosperity but in our current times, few companies are able to cause it to happen.  I think that’s because people misunderstand innovation, and particularly how to get it going.  With all the belt-tightening going on as the result of lean times, innovation could not be more essential, but at the same time, seemingly more out of reach.

In my view, there are three main stages to innovation:  experimentation, enlightenment and transformation.   Experimentation is the most assured pathway to innovation but it is also one of the first things to get cut when belt-tightening occurs.  It requires an organization to spend time on lots of things that eventually get discarded because they end up never taking root.  To an accountant, experimentation looks a lot like “play-time” activity that isn’t needed.  Innovation can occur without an experimentation stage, but reliance on “bolts-out-of-the-blue” to kick-start innovation will ensure that you will almost never actually get there.

Enlightenment is nothing more than an improved understanding of reality.  It occurs when a series of experiments from the experimentation stage are accepted by a group as having special significance because they reveal a part of reality that was previously hidden from view.  Enlightenment is the removal of blind-spots.  Once the blind-spots are removed, easier or more profitable paths become more obvious—or at least one of them becomes less foggy.

To actually benefit from enlightenment, and thus achieve the final stage of innovation, transformation, you need the courage to take a path that has been revealed by the enlightenment stage.  Without courage, innovation won’t occur and stagnation will result.  What a shame, after the experimentation and enlightenment stages and being able to see a better path but fail to innovate due to lack of courage to transform.  I suspect it happens a lot.


In hard sciences, the experimentation stage of innovation is literally that:  running a bunch of laboratory experiments.  But in a lot of other areas, experimentation is simply the raising of a lot of ideas and debating their merits and drawbacks.  Good ideas, bad ideas, stupid ideas, new ideas, old ideas—it doesn’t matter.  You just need a lot of them.  I think “supply chain architecture” is one of those kind of areas and essays in blogs like this one are an excellent way of raising and debating those kinds of ideas.

When it works right, an idea is exposed to a larger audience who’s role is to respond through comments with improvements, alternate perspectives and corrections.  In the rare instance when it results in “improved understanding of reality”, it is on its way to becoming “innovation”.  The only question is whether someone will have the courage to act on it.

Generally, what I write about in this blog are my own ideas that I think should be considered and debated.  Some of them just might end up getting someone to the enlightenment stage and then perhaps, with some courage, to true innovation.


But today I have a potentially innovative idea to expose that is not mine.  The first time I heard the idea of the “authenticating wholesaler” I didn’t like it.  At that time, I was purely focused on industry adoption of an interoperable approach for complying with existing pedigree laws, including the federal PDMA, Florida and California laws.  The idea of an “authenticating wholesaler” would clearly not comply with those existing laws, so I wasn’t interested in the idea at the time.

An “authenticating wholesaler” is a pharmaceutical wholesaler who pledges (probably through a contract) to validate all of the prior sales and shipment transactions on the pedigrees of all drugs sold to their customers, and who is willing to absorb their customer’s liability for doing so.  Unlike an Authorized Distributor of Record (ADR) designation (for the definition of ADR, see § 203.3 Definitions of the Prescription Drug Marketing section of 21 CFR Part 203), any wholesaler could become an authenticating wholesaler (let’s now call it an “AW” for short), even a wholesaler who buys from another wholesaler.  In this way, the concept solves the big clash between the big and small wholesalers.

The AW concept would provide the pharmacy segment with the ability to forego all serialization and pedigree activities.  Instead, they would pledge to only buy pharmaceuticals from an AW.  This would nearly eliminate the estimated high costs associated with deploying the hardware, software and high-speed internet access (and perhaps GS1 fees for GLN’s too) to every pharmacy in the U.S..  Although, wholesalers who offer the service will need to be compensated somehow for taking on greater risk.  How that might be done is not yet part of the idea as documented here.

An AW would take on additional risk because if they fail to fulfill their pledged duty, and an illegitimate drug makes it through to a pharmacy or a patient, they would be the party responsible for the results.  The risk would pass from the pharmacy to the AW so it would be in the best interest of the AW to take their pledge very seriously.  In fact, this would require the regulatory body to acknowledge and enforce the liability arrangement that underlies the AW concept.

Some characteristics of the AW idea are:

  • Provide the option to pharmacies to not have to deal with the complexities of reading standardized numeric identifiers (SNI’s), and validating and updating pedigrees.  If they wouldn’t want to be limited to buying only from an AW they could choose to deploy the necessary technology and take on the responsibility to do those things for themselves.
  • Provide the option to wholesalers to offer the AW service to their customers.  If they don’t want to take on the extra liability then they would simply not offer the AW service.  They would still be responsible for validating all incoming SNI’s and pedigrees, but they would only be liable to themselves for those steps.  The optional AW service offering would simply be to take over the liability of their customers.
  • It is possible that the AW service would be offered by a given wholesaler—or accepted by a given customer—on certain drugs but not others, although that may defeat the purpose of the pharmacy not having to invest in new systems.  The AW concept would have to be contract-based since liability is transferred.

The second time I heard someone pitch the AW idea my mind was more open to ideas that might be offered as a better industry adoption model than the existing pedigree laws.  That is, ideas that the U.S. Congress or FDA might consider as they develop their regulations in the future.  Even though it’s not my idea, I decided to write it up and put it out there because both of the individuals who told it to me are not likely to ever carry it any further.  The first person is no longer in this industry and the second person is an executive in a large organization in the supply chain.  This executive is too busy dealing with other things to submit an idea like this for consideration by a wider audience.

I’m still not sure the concept could actually work in a regulated supply chain, but as an initial idea for consideration, I think it is definitely worthy.  What do you think?  Could the AW concept help lower the cost of starting up a nationwide drug pedigree system?

5 thoughts on “Innovation and the “Authenticating Wholesaler” Idea”

  1. Dirk – this is certainly an interesting idea. Solving this problem via a business mechanism rather than a preponderance of technology has some appeal. It seems there is a gap though.

    The parties to which the AW sells may pledge to buy only from the AW, but how can that be enforced? With the AW ‘on the hook’ the AW would want to know with some certainty that a questionable product was not actually procured from another party. Doesn’t the AW then end up in a situation where they somehow need a degree of tracking to know what was sent where to protect itself against the possibility of a questionable product coming from an alternate source? At the very least the AW’s customer would have some work to do to segregate products that it may have needed to procure from an alternate source.

    Is this kind of scenario being thought about or am I missing something? Its an interesting idea – thanks for sharing it.

    1. Peter,
      Your points are well-taken, thanks. I didn’t mention it, but the AW concept would only work if all Rx drugs were serialized so you could theoretically tell which units came from the AW and which did not. That’s only “theoretical” because it would require some means to track which patient was dispensed from which serialized source supply chain bottle. Since U.S. pharmacies typically repackage drugs into those amber prescription bottles, there could be a dispute over which wholesaler supplied a given drug if the pharmacy buys from multiple sources. My assumption is, if a pharmacy is routinely sourcing drugs from multiple wholesalers, and not all of them are AW’s, then the AW provides no benefit to the pharmacy and they should not make use of that service offering from the wholesaler.

      Regarding your question about who might be thinking about this kind of scenario, I can tell you that the AW concept is NOT currently being discussed in any group that I participate in. The first time I heard of the idea was from a participant in an industry-adoption-type meeting several years ago but the idea was not picked up by the group. I only raise it now as an idea because I think the problem of high costs of serialization and pedigree for the pharmacy segment is problem that needs an innovative solution. This may not be it, but, like I said, I think it deserves some consideration.


  2. Dirk, this is an interesting idea. Before reading Peter’s comment, the same issue popped to mind. I may need additional think time on this, but after this initial consideration, I would think that if there were an issue that needed to be investigated, serialization would still be a useful (required?) tool to verify whether the product in question was indeed, procured through the AW or not.
    Perhaps, rather than eliminating serialization from the solution equation, the AW concept provides an answer to the question of “who runs that authentication database in the sky” in the evolving European anti-counterfeiting/reimbursement fraud solution proposals.

    I love your theory of innovation description, BTW.

  3. Dirk,

    You seem to almost always write on a topic that I must respond to. How do you do that? 🙂

    You propose that an authenticating wholesaler (AW) would be willing to absorb their supply chain suppliers’ liabilities by validating all of the prior sales and shipment transactions on the pedigrees of all drugs then sold to the AW’s customers.

    But how would the AW know what the liabilities are without their first being granular supply chain traceability in place for determining those liabilities?

    I don’t know the pharmaceutical supply chain. And I am not asking a rhetorical question. I do know the beef supply chain and I know from personal experience that there is a catch 22 in insuring against liabilities that are not definable from a risk analysis standpoint because there is no critical mass of supply chain traceability data available from which to do such analysis. In other words, liabilities can’t be covered because they can’t be known.

    Having asked this question, I hastened to add that I really like the idea of an AW. With a critical mass of authenticated data upon which to do risk analysis, it seems like a viable business model. Very interested to see where this thread of comments leads us.

    [Also posting this comment to my post of your blog to The Data Ownership in the Cloud group at

    1. Steve,
      Your question about liability is a good one, but I think the liability would be known in the pharmaceutical supply chain. If an AW performed the proper analysis of the incoming pedigrees for the drugs they sell, and if they were able to respond to and resolve any anomaly that analysis detects before the drugs are sold, then they have fulfilled their contractual obligation as an AW. Those are the steps that the pharmacy would have been obligated to perform if they had not contracted with an AW.

      Now, if an illegitimate drug is able to slip into the legitimate supply chain prior to the AW and it is done in such a way that the pedigree is perfectly constructed so that proper analysis of it finds nothing wrong, I assume that the AW would not have any more or less liability than if this had happened without the use of the AW concept. In that instance, they fulfilled their contractual obligation but the bad drug made it into the system somehow anyway. My belief is that this would be extremely hard to do, but still within the realm of possibility. The point is, the AW concept did not fail, the pedigree concept itself failed. Hopefully one of the other layers in the multi-layer protection system will catch this type of failure.

      On the other hand, if an bad drug is introduced somehow prior to the AW and the pedigree is also bad and easily detectable through the proper analysis, but the AW fails to properly analyze it, and therefore the bad drug is passed on to the unsuspecting pharmacy, this would be a serious contract violation as well as a clear failure of the AW to fulfill the presumed law. The way I have defined the AW, the pharmacy would not be liable for whatever toll the bad drug takes and the AW would be fully liable.

      Let’s also consider what might happen if the AW does the proper analysis of all pedigrees but the bad drug is inserted into the supply chain downstream of (after) the AW. The AW would have fulfilled its contractual obligation but the downstream trading partner who bought the bad drug from someone that is not an AW would be liable for the problems that follow. The AW would not be liable since they fulfilled their obligation and had nothing to do with the introduction of the bad drug.

      No one has yet asked about how returns might be handled by the AW. I don’t know. Should the AW only take returns that are resellable if their customer is willing and able to provide them with a fully updated pedigree, or should the AW trust that their customer has not done something unexpected with the product while it is in their possession? The AW could update the pedigree to indicate that their customer received it and then shipped it back to them, but that means that the customer who returned it would not necessarily add their own digital signature on the pedigree, which means they could later repudiate that the transaction actually occurred.

      I need to make one more point about your comment. You indicate that the AW concept is something that I “propose”. Actually, I’m not really proposing it. I’m simply saying that it should be considered as an idea. It would need to be fully explored, debated and documented much more than we have here before it should become a part of any official proposal. I’m still not convinced that it works, but thanks for your comment. It helped shed some more light on the concept.


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