Sometimes, you can't wait for industry titans to lead the way with the latest technology. Take H.D. Smith Wholesale Drug Co., the seventh largest pharmaceuticals distributor in the U.S., which earlier this year made the leap into radio frequency identification (RFID) technology. Employees at one of the Springfield, Ill.–based company's five warehouses began to attach one-inch-square tags embedded with electromagnetic microchips carrying an elec- tronic product code (EPC) to all the prescription narcotics it distributes. Using RFID technology, the EPC chips make it possible to identify and track every single package separately.
Admittedly, all this comes at a cost to H.D. Smith, but the company says it's worth it for the customer service benefits it will bring. In fact, the company is planning to expand RFID tagging to its four other warehouses. "People don't understand. They're looking at [RFID] as something they have to do and not something 'I want to do,'" says Robert Kashmer, vice president of information technology at H.D. Smith. "We chose to be out ahead of everybody."
And for now, the company is–although the U.S. Food and Drug Administration is beginning to put pressure on the pharmaceutical industry, which loses millions each year from theft, diversion of drugs and counterfeiting, to follow suit. In November, the FDA created a compliance guide policy and a work group to ease RFID adoption by 2007.
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For early adopters, especially among small and midsize companies like H.D. Smith, the near-term costs can greatly exceed the benefits. Companies should expect to pay upwards of $300,000 for adopting EPC-based RFID technology, according to Bruce Hudson, an analyst at Meta Group Inc. There are also expenses for setting up the software and hardware infrastructure. Readers run about $2,000 apiece, he estimates, and software runs upwards of $50,000 plus maintenance. "You can do all this with bar codes, it just becomes more onerous in the warehouse if you have to scan individual items," says Hudson. "RFID is the convenience factor. The real power is the data, and the serialization and maintenance of that and how it's handled."
Of course, the exercise would be more economical for H.D. Smith if some of the larger drugmakers would come on board. In November, Stamford, Conn.–based Perdue Pharma LP became the first to ship RFID-labeled bottles of OxyContin(R) to H.D. Smith and Wal-Mart Stores Inc.–a step toward what's expected to be widespread adoption by the industry within the next three years. According to Accenture, which has been working on an industry pilot, full-scale implementation on an industry-wide basis will be more complex than expected until requirements for systems and packaging, especially data sharing, are ironed out. Maybe they should call in H.D. Smith.
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