Over the last few years I’ve taken part in many conversations that touched on the question of how to achieve a Return On Investment (ROI) with serialization in the pharmaceutical supply chain. It seems intuitive that there should be an ROI because serial numbers provide increased data granularity and accuracy, but those characteristics in themselves do not guarantee a positive return.
For that, you must figure out a way to take advantage of those things in a way that increases productivity through decreased errors and reduced physical handling. Serialization might do that if you can increase the amount of automation in supply chain operations within your own facilities. Without automatic serial number reading and material handling, dealing with serial numbers will likely have the opposite effect on productivity.
Another way to take advantage of mass serialization of pharmaceuticals in the supply chain is to use it to help automate certain existing business processes between trading partners. Whenever it is valuable to identify exact information about a given set of drug packages between trading partners, serialization may provide a return through increased efficiency and accuracy. For example, returns, recalls and chargebacks are all processes between trading partners where data accuracy is very important. Properly integrated, serialization can efficiently provide that accuracy.
To maximize the advantage of serialization in these processes it is necessary for both you and your trading partners to:
- read all serial numbers using Automatic Identification and Data Capture (AIDC) devices (for example, barcode or RFID readers);
- have software deployed that makes sense of the numbers in the specific application context;
- and be able to communicate the numbers between organizations through some kind of efficient data exchange (like EDI, ePedigrees or web services for example).
Serialization will not be viable if any of your business processes necessitate a human being to verbally read even a single serial number over the telephone. These numbers are too long and complex, so to maintain the level of accuracy needed for these applications, serial numbers in context must be exchanged electronically.
ANOTHER WAY TO LOOK AT SERIALIZATION ROI
But I suggest that there is a more fundamental way to look at the ROI for serialization in our supply chain–a way that elevates the return on investment to the breakeven point so that any additional return from the applications mentioned above, no matter how slight, will result in an overall positive ROI. My suggestion is to view the ROI through the lens of the regulatory requirements. People generally discount the regulatory mandates as being negative, and not related to ROI—in fact, mandates are typically viewed as being the cause of a loss rather than providing a return.
Here is how I think the situation should be viewed. First of all, the fact that all drugs will soon be serialized using the same standards within a given market due to regulatory mandates is precisely what opens the door to the non-regulatory applications of serialization. Without existing or approaching serialization mandates in multiple countries around the world—such as Brazil, Turkey, Korea, China and the state of California—these other business applications that take advantage of serial numbers would not offer a return big enough to justify large scale serialization of all drugs by all manufacturers.
Second, and the thing I think people gloss over too rapidly, is that these regulatory mandates carry their own ROI. Manufacturers still have a choice. They don’t have to go through the expense of applying serial numbers. They could choose to stop supplying drugs in the markets that mandate them. Of course, that would cause a reduction in their revenues and could allow competitors to gain marketshare in those markets (assuming those competitors choose to serialize their products). So the ROI for manufacturers comes from avoidance…avoidance of a sudden permanent loss of significant revenue and marketshare. For most companies, that’s a return that is not small.
Here’s another way to describe it. When faced with a serialization mandate, the first thing your company has to do is decide whether you would be better off if you simply “go out of business” in that market rather than spend the money to meet the mandate by dealing with serialization. In most cases, I think the decision will be a no-brainer. Of course you will be better off to remain in business in most markets. Of course you can deal with serialization, even without any of the non-regulatory business applications that enhance the ROI. Of course you can achieve a return on your investment, because you will retain a significant part of your revenue stream and marketshare. The non-regulatory uses of serialization are just icing on the cake of remaining in business.
One might counter with the argument that remaining in business is not just a matter of maintaining a revenue stream and marketshare if serialization kills profitability. True. I get that. But that only means that you need to be very careful when you deploy the technology to ensure that it is integrated tightly and naturally with your existing IT systems and business processes, and that your people are trained to know how to work in a serialized environment.
Profitability and ROI in a regulated serialized pharma environment will certainly not be easy or automatic. But I don’t think it will be impossible for companies who take the mandates seriously and approach them intelligently.