Earlier this month, retail giant Wal-Mart and eight product manufacturers began testing RFID (radio frequency identification) technology tags bearing electronic product codes (EPCs) at eight supercentres across the US. By early 2005 every one of the firm's top 100 suppliers will have adopted the technology, and new rules concerning traceability will be in force within the EU.
Everyone involved in the food and pharmaceutical industries will therefore need to be RFID-literate.
RFID technology is based on a relatively simple concept. It consists of two elements that communicate through radio transmission - a tag and a reader. The tag contains a small chip and an antenna and can be placed on any object. The information on the tag, such as an identification number, can be transmitted to an RFID reader over a distance of a few metres.
The concept has been in use since the 1940s. Anyone using a toll tag or unlocking a car door using a keyless remote is already using RFID. But now that the chips can now be manufactured economically to such a microscopic size, RFID technology can be applied right through the distribution chain, from the factory floor to the shop shelf.
In an international study undertaken by IT consultancy LogicaCMG, the majority of the companies interviewed in the Netherlands, UK, Ireland, Germany, France and Belgium, gave RFID top priority in terms of planned IT investment. The study shows that half of the 50 companies interviewed in Europe have or are planning to deploy RFID pilot projects throughout 2004, with the vast majority planning to start implementing the technology within the next three years.
"The research shows that we are on the threshold of a breakthrough of RFID technology in the European market," said Paul Stam de Jonge, director sales and marketing at LogicaCMG.
Stringent legislation, consumer concerns about food safety and growing pressure from retailers have forced food and pharmaceutical manufacturers and retailers to look at every possible means of ensuring traceability and efficiency throughout the supply chain. RFID has been identified as a key enabling technology.
In the EU, legislation on food traceability is coming into force in January 2005 that will enforce food traceability through the supply chain. This will become a legal responsibility of manufacturers, and under the new laws, food producers must be able to identify products by batch, lot or consignment numbers.
Major retailers such as Wal-Mart have also been highly significant in attempts to standardise the technology. This, they hope, will help them mitigate the financial, technical and business risk associated with adopting the new technology.
RFID technology has numerous applications for the food processing industry. It can be used to identify and track batches of raw materials that enter the plant, and the pallet and cases full of products that leave for distribution warehouses and supermarket shelves.
In the meat processing industry, tags can be used to locate animals, which following the Foot and Mouth Disease outbreak in the UK, is a major concern in Europe. Residual chemicals in slaughtered livestock can also be more accurately calculated.
RFID has also been identified as a means of combating counterfeiting, a significant concern in the pharmaceutical industry. The US Food and Drug Administration recently concluded that unit dose packaging (such as blister packs) is not enough of a cost deterrent to counterfeiters, even when combined with tamper-evident technologies.
"The adoption and common use of reliable track and trace technology is feasible in 2007, and would help secure the integrity of the drug supply chain by providing an accurate drug 'pedigree', which is a secure record documenting the drug was manufactured and distributed under safe and secure conditions," it said in a recent report.
RFID technology can also be used to track the use of medication. A sensor embedded in the bottle closure records when the bottle is opened and closed, and the usage data can be read by a scanner for review by the physician, researcher or pharmacist. The system is designed to provide early warning that a patient is not complying with their medication.
Cap Gemini Ernst and Young, a Paris-based provider of outsourcing, consulting and technology services, attempted to assess the cost for pharma companies of implementing the technology. "In our research we used conservative figures - 25 cents for an RFID tag and another 25 cents to put it on the product - and we still came up with a return on investment for these companies," said Colin Towner, CGE&Y's life sciences RFID leader.
Despite the findings of the CGE&Y's report, cost remains an undetermined factor. Some drugmakers have expressed concerns about the cost of deploying RFID systems, but it will be consumer packaged goods companies that will be affected most. This is because the value of pharmaceuticals is higher, and they are in a better position to make large distributors - such as McKesson - deploy and absorb the cost of the tag.
One major challenge will therefore be to convince food manufacturers of the benefits of RFID. A number of companies believe that they already have supply chain information systems in place and don't need to invest in new technology.
In fact, some argue that supply chain RFID projects can distract from efforts to match supply to demand. "RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain," said one manufacturer interviewed by market analyst Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks.
As a result, there is a 'slap-and-ship' approach developing in order to meet RFID mandates. By putting on RFID tags as late in the supply chain as possible - usually right before shipping - firms can satisfy the mandate without changing their established processes.
The limitation of this approach is that it's only a cost - there will never be any return of investment. A business case for RFID therefore needs to be put together advocating why manufacturers should invest in installing RFID infrastructure throughout the supply chain.
In addition, retailers will want to be careful that RFID technology is not used against them. A report from Wireless Healthcare indicated that third parties might be able to overlay alternative databases over their business. Some of the services provided by other organisations might be relatively benign but others, such as ethical shopping services and Kelkoo-type price comparators, could disrupt business models.
"The technology is still not known enough," said Chris Regan, marketing executive for UK-based RFID specialist Mannings. "If you look at the micro chip, you might not realise that the information from this can be put into a database, and that this can then be linked to other computers - with RFID we can generate information at an exponential rate."
For those seeking instant navigation, FoodProductionDaily.com and In-Pharmatechnologist.com have put together a feature that examines the impact of RFID on the food and pharma industries.