RFID Adoption Challenges Remain in Pharmaceuticals


Natick, Massachusetts - February 16, 2006 - According to Venture Development Corporation's recently released Pharmaceutical Supply Chain Vertical Market volume of its annual RFID Business Planning Service, the global market for RFID systems in the pharmaceutical vertical reached an estimated $9.3 million in 2005, with hardware accounting for approximately 42%. VDC anticipates a compounded annual growth rate (CAGR) of nearly 118% over the next three years, with revenue shipments exceeding $96 million in 2008.

Global Shipments of HF and EPC UHF RFID Systems for the Pharmaceutical Supply Chain
(Millions of Dollars)
2005
Products: 4.4
Services: 5.0
2008
Products: 48.7
Services: 48.1

With the Wal-Mart and US DoD mandates, pharmaceutical suppliers are required to tag a subset of the pallets and cases shipped to select distribution centers. However, most pharmaceutical manufacturers and distributors struggle with determining how RFID technology can benefit their operations and provide an internal ROI.

In fact, the potential benefits from RFID vary greatly among supply chain operations. Among RFID's core value propositions are increased operational efficiency, real-time visibility, reduced labor costs, and enhanced security. However, RFID implementations are unique to each user and application environment.

As a result, pharmaceutical manufacturers and distributors are increasingly turning to solutions providers and systems integrators for assistance with determining their specific business case for RFID and resolving key end-user adoption and integration challenges, including:
o Evaluating whether RFID will solely be used for outbound compliance or if it will become a part of the overall enterprise operation;
o Determining the RFID 'friendliness' of their products - for example, evaluating performance in the presence or water, metal, RF interference, etc.; transponder form factor design; and tagged object properties (i.e., packaging materials, contents, etc.);
o Identifying at which points in the manufacturing and distribution flow tags should be applied (and read);
o Selecting the best physical location for the tag on the pallet, case, and/or item (placement and orientation);
o Deciding how the RFID system should interface with existing host systems such as AIDC, ERP, and SCE systems;
o Selecting the best technology and partner(s) based on specific application requirements; and
o Managing and leveraging the influx of real-time RFID data effectively to improve business processes.

A common misconception among several pharmaceutical manufacturers and distributors is the view of RFID as a silver bullet solution to supply chain problems. Any organization using, testing, or evaluating RFID in the pharmaceutical industry faces some significant challenges. RFID is one way to tighten the supply chain, but it is not a panacea.

While wide-scale deployments are limited today, the increasing number of pilots and small-scale rollouts suggest users are becoming more aggressive with RFID adoption. According Michael J. Liard, Director of VDC's RFID Practice, "Even if the true benefits will not be realized for several years, establishing the base RFID infrastructure today is critical for future supply chain integration."

About VDC
Venture Development Corporation (VDC) is an independent technology market research and strategy consulting firm that specializes in a number of retail automation, RFID, AIDC, embedded, component, industrial, and defense markets. VDC has been operating since 1971, when the firm was founded by graduates of the Harvard Business School and Massachusetts Institute of Technology. Today, we employ a talented collection of analysts and consultants who offer a rare combination of expertise in the market research process; experience in technology product and program management; and formal training in engineering and marketing. VDC's clients include thousands of the largest and fastest-growing tech suppliers in the world and the most successful investors participating in the markets we cover.

The pharmaceutical supply chain discussed here is currently under investigation by VDC as part of its 2005-2006 RFID Business Planning Service. To view the program proposal, go to:
http://vdc-corp.com/autoid/annual/05/br05-21.html
For further information about the "RFID Business Planning Service 2005-2006: Global Asset and Transaction Management Systems Market Analysis" or any other VDC service, contact:
Marc Regberg, Vice President, 508-653-9000 ext. 111, msr@vdc-corp.com
Join the VDC mailing list to receive future updates at:
http://vdc-corp.com/subscriptions

Venture Development Corporation
Technology Market Researchers and Strategists Since 1971
http://vdc-corp.com; 508-653-9000

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