Track and Trace: How far can it go?
Track and Trace has become a popular buzzword these days. Proponents describe it as a powerful solution to a myriad of problems, including illicit trade, tax evasion and counterfeit, while doubters point to the limitations and costs of such systems. So, which is it? The truth, as always, is much more complicated and in actuality reflects the complexity of the very problems Track and Trace is intended to help address.
Article originally published on Reconnaissance Tax Stamp News™.
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Paradigm Shift is needed For Track and Trace to be successful in the illicit trade context, a paradigm shift is needed away from the current technology first, provider-government- only model towards a multi-stakeholder process, which precisely identifies, quantifies and defines the illicit trade issues and then designs custom solutions combing policy and technology, which acknowledges and integrates into existing manufacturing, distribution and technology systems and processes. Very few systems in use today are truly Track and Trace systems, which can track where the item is going, trace origin and route and serve as authentication tool. The most well known systems in commercial use are mostly shipping or navigation applications (e.g. FedEx™).
Track and Trace systems designed to address illicit trade issues to date are virtually non-existent. Many systems are advertised as Track and Trace systems, but in actuality are either tracing-only systems, serialization systems or production and tax verification systems.
Why is that?
Commercial Track and Trace shipment systems were designed to solve a business problem in the most effective and cost efficient manner for a single company with closed distribution systems (e.g. FedEx™), allowing for a very controllable environment. In stark contrast, applying Track and Trace in the illicit trade context involves a variety of stakeholders (i.e. Government, Manufacturers, Distributors, Retailers and Technology Providers) and open distribution systems, which have various layers and entities. So, how can such a paradigm shift be accomplished? The history of Track and Trace for Pharmaceuticals in the United States provides a great case study.
Track and Trace for Pharmaceuticals in the United States
In the early 1990's, counterfeit versions of popular pharmaceuticals started to appear in the United States. Many of these counterfeit drugs were imported and distributed by organized criminal organizations, sold on the street and almost never entered the licensed distribution chain. Worried about the potential health effects of such counterfeit drugs, various stakeholders started to take action. Pharmaceutical manufacturers and distributors strengthened reporting requirements and required their distributors to only buy from licensed entities. State legislators and regulators started to enact various legislative and regulatory reforms, including licensing, increased penalties and pedigree legislation.
Pedigree legislation is often referred to as Track and Trace legislation. Pedigree legislation came in various forms; some required “one-back- one-forward” documentation for each step in the distribution chain, some just required documentation of the sale, some only required inventory controls. The accuracy requirements also varied; most just required lot level, while some required lower levels.
By 2010 the United States had a patchwork of over 20 varying state pedigree requirements with no Federal standard. Each state had enacted requirements depending on who had been involved in the process. A paradigm shift was needed to provide a unified system. The introduction of the 2011 e-Pedigree legislation in California provided the needed catalyst. The introduced California bill required Track and Trace down to the smallest unit of sale throughout the distribution system utilizing RFID technology. While such a solution might have ensured that pharmaceuticals in licensed pharmacies were genuine, the approach had significant issues.
• The solution did not address the illicit trade issue: Counterfeit pharmaceuticals were estimated to make up less than 1% of the market and were sold almost exclusively outside of the legitimate distribution chain
• Licensing requirements were needed: The legislation did not address the fundamental issue that pharmaceutical distribution was an open distribution system, which needed to be closed through licensing requirement, i.e. where only licensed and registered entities are allowed to trade with each other.
• The technology had significant limitations: RFID, even today, is unproven, extremely costly and difficult to apply. RFID chips cannot be applied to various packaging shapes used by Pharmaceutical companies, especially syringes and vials. RFID chips provided inaccurate readings when applied to packaging with metal foils, used in many creams and blister packs.
One pharmaceutical CEO allegedly described the legislation as “hunting mosquitoes with a bazooka” during discussions with legislators. A coalition was formed to involve all stakeholders, including manufacturers, distributors, pharmacies, public health and technology providers to develop a comprehensive Federal approach. The FDA emerged as a leader to ensure patient safety concerns were adequately addressed and in 2013 the Drug Supply Chain Security Act (DSCSA) was enacted. The DSCSA provides a national Track and Trace system and product identifier for pharmaceuticals and promotes, but does not prescribe a National Technology Standard and prohibits any conflicting state standards. In addition, the law includes increased licensing requirements with increased penalties, effectively making pharmaceutical distribution in the United States a closed system. The law also provides a reasonable implementation timeline over 10 years.
The U.S. Pharmaceutical experience provides key lessons on how to successfully develop and implement Track and Trace regimes: • The process needs to be public involving all stakeholders • Clearly identify, quantify and understand the illicit trade issue(s) to be addressed. Does the illicit trade occur inside the legitimate distribution system or outside, where Track and Trace has limited application?
• Provide a gap analysis of existing data, systems and policy to identify what is truly needed.
• The most effective approach will integrate policy and technology into one comprehensive system.
• New technology is deployed only as needed to augment existing systems, is cost effective and integrates with existing systems, business models and distribution processes.
• Track and Trace systems are only effective, if they endorse interoperable open standards, which allow tie-ins of various technology solutions without prescription of technology used. This is especially important in diverse, open distribution systems where various low-tech and high-tech systems co-exist.
If this paradigm shift occurs, the opportunities for Track and Trace in the areas of Military Technology, Luxury Goods, Food, Liquor and Tobacco can truly be significant and leave only one questions: How far can it go?
Sven Bergmann is a Managing Partner at Venture Global Consulting and advises brand owners, technology providers and governments on anti-counterfeit strategies, programmes and technologies.
Send your comments to SBergmann@VentureGlobalCo.com.