The “ABC’s” of Drug Traceability – How Digitalizing the Pharmaceutical Supply Chain Can Enhance Compliance and Financial Performance

New legislation mandates that drugs be traceable at the unit level as they move through the pharmaceutical supply chain. AmerisourceBergen Corporation – a private label pharmaceutical manufacturer, distributor, wholesaler, and 3PL provider – is on the right track by prioritizing supply chain digitalization.

What is the Issue and Why Should AmerisourceBergen Corporation (ABC) Care?

In late 2013, the U.S. Congress passed the Drug Supply Chain Security Act (DSCSA), which sets forth new requirements for firms along the pharmaceutical supply chain to improve “traceability” as a drug moves from manufacturer to its point of dispensation.  The legislation, which is being implemented by the Food and Drug Administration (FDA), began to take effect in late 2014 and will be phased in through 2023.  Regulators believe that improving drug traceability – also referred to as “serialization”, “pedigree”, or “track and trace” – will reduce the incidence of counterfeiting, black/gray market drug distribution, and adulterated or incorrect orders, which will lead to a safer healthcare system [1].

Why should ABC care?  The company quite literally operates at all points along the supply chain, with diverse operations spanning private label drug manufacturing, re-packaging, distribution and wholesaling, and 3PL.  ABC also conducts business upstream – with manufacturers and intermediate distributors – and downstream with customers [2].  ABC should continue to prioritize supply chain digitalization to stay ahead of DSCSA serialization regulations and capture the following benefits [3]:

  • Improved patient safety and protection against reputational risk of harming patients
  • Ability to rapidly identify and isolate issues, leading to a more efficient recall process
  • Optimized inventory levels, resulting in fewer supply disruptions and improved cash flow
  • Market share gains from competitors who are behind on DSCSA readiness
  • Additional revenue from “productizing” ABC’s own supply chain solutions to sell to other players
  • Improved sales and marketing effectiveness

What is Management Doing About the Issue?

Implementing Traceability Strategy.  ABC has openly articulated its intention to stay ahead of regulations to differentiate itself.  For example, ABC participated in a customer co-innovation project with SAP, in which the two companies developed a new enterprise traceability solution from the ground up.  The resulting product – Advanced Track and Trace for Pharmaceuticals – is being implemented across all of ABC’s business units.  This will be hosted in the cloud to accommodate the massive amount of data anticipated from the tracking of drugs to and from trading partners and within ABC.  In addition to working with SAP, the company is also pursuing serialization pilots with other relevant players, including the Healthcare Distribution Management Association, GS1, and the Pharmaceutical Distribution Security Alliance [4].

Pilot with Johnson and Johnson Supply Chain (JJSC).  Earlier this year, ABC teamed up with JJSC to run a 4-week pilot program in a live production setting.  At the manufacturer (J&J), a 2-D DataMatrix barcode was affixed to each unit to collect the drug’s pedigree information (e.g. batch/lot, expiration date) as well as GS1 data (e.g. Global Trade Item Numbers and Global Location Numbers).  Once the shipments reached downstream supply chain stops, automated vision systems captured the data, and transactions were recorded with GS1 EPCIS (Electronic Product Code Information Services) codes.  This system enabled ABC to know the details of shipments in transit and to confirm receipt of the proper orders without ever opening a package [5].

Additional Suggestions for Management

In addition to ensuring compliance, ABC should capture the opportunity to generate revenue from “productizing” the traceability systems and know-how that it develops.  According to experts, many small- and medium-sized pharmaceutical companies are very behind on implementing serialization systems [6].  By selling solutions to help these companies get up to speed, ABC could generate revenue as well as ensure the continuity of its supplier base, as non-compliant firms will not be able to operate.  ABC could also work downstream, helping customers implement these systems to improve satisfaction.

Productizing supply chain solutions is not foreign to ABC.  ABC has long marketed its Cubixx inventory management solution, a refrigeration unit sold to dispensers of temperature-sensitive drugs.  Recently, ABC updated Cubixx to include RFID sensors connected to a cloud-based portal, enabling clients (or ABC as outsourced inventory manager) to monitor the status of drugs stored in the units [7].  It recently announced a partnership with Suzuken, a Japanese pharmaceutical distribution and logistics company, to implement the Cubixx system [8].

Open Questions

If and How Blockchain Will Impact Pharmaceutical Supply Chain.  IBM recently announced a partnership with a Chinese firm to launch a new blockchain platform designed to trace drugs along the supply chain while cataloguing trading records to authenticate transactions [9].  How may blockchain play into the future of the pharmaceutical supply chain?  What are the barriers to adoption?

Understanding the Impact of Digital Traceability on Drug Prices.  The requirements of the DSCSA are burdensome for smaller players in the supply chain.  If these organizations – particularly manufacturers – are unable to successfully implement the infrastructure to accommodate unit-level traceability, will downstream players encounter supply shortages, causing drug prices to rise?

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[1] U.S. Food & Drug Administration.  “Are you ready for the Drug Supply Chain Security Act?”

[2] Bylo, Greg.  “Piloting Traceability with GS1 Standards”.  April 4, 2017.

[3] Zirkle, Michael.  “Serialization: Driving Business Value Beyond Compliance”.  April 4, 2017.

[4] Pharmaceutical Commerce.  “AmerisourceBergen defines its path forward in traceability”.  November 9, 2015.

[5] Bylo, Greg.  “Piloting Traceability with GS1 Standards”. April 4, 2017.

[6] Hroncich, Caroline.  “Serialization Challenges Facing Pharma Manufacturers”.  April 18, 2017.

[7] Pharmaceutical Commerce.  “AmerisourceBergen Updates its Cubixx Specialty Medication Container”.  April 2, 2017.

[8] AmerisourceBergen. “Suzuken Announces Decision to Use AmerisourceBergen’s Cubixx System to Enhance Specialty Drug Distribution in Japan”.   November 4, 2016.’s-cubixx-system-to-enhance-specialty-drug-distribution-in-japan.aspx

[9] Lo, Chris.  “Blockchain in pharma: opportunities in the supply chain”.  October 31, 2017.


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Student comments on The “ABC’s” of Drug Traceability – How Digitalizing the Pharmaceutical Supply Chain Can Enhance Compliance and Financial Performance

  1. I found it interesting to hear how AmerisourceBergen Corp. is staying ahead of the curve on the implementation of “track and trace” legislation. I think the idea of monetizing their supply chain solutions by selling their technology to competitors, while helpful to the top line in the short-run, may undermine their competitive advantage in the long-run. Instead of selling their solutions to competitors, perhaps ABC could enhance their relationships with independent pharmaceutical distributors at the end of the supply by sharing their data and technology. If better tracking and logistics can help ABC with their own inventory management, I bet it would also be valuable to the end distributor as well. It may not be worth premium pricing of ABC drugs but it would certainly make ABC a more appealing partner if they are able to help distributors optimize their own inventory levels. In fact, this could encourage distributors to be more forthcoming with their own point of sale data and forecasts as well.

    I also wonder if ABC could capitalize on it’s first-mover advantage by marketing it’s “ahead of the curve” solutions to the end consumer. Particularly as public sentiment has been tarnished by drug pricing schemes lately, ABC could garner respect and brand equity if it told it’s story of improved patient safety more broadly.

  2. I echo many of the questions you raise regarding the cost implications of developing a new enterprise traceability solution. While there will be cost benefits to ABC from staying ahead of the curve and not having to adapt to new regulations, I also worry how the costs of developing this solution will impact the bottom line of ABC. I like your suggestion that they generate revenue and sell the solution to other companies, however, I worry about the shifted focus and salesforce it would require to sell a technology solution. Similar to their partnership with Suzuken, ABC could partner with a technology company and outsource this revenue stream, rather than directly overseeing the sales of a technology product.

  3. It sounds like ABC is in a great position to capitalize on these regulatory changes. I’d push them to consider opportunities posed by combining their traceability solution (Advanced Track and Trace for Pharmaceuticals) with their inventory management product (Cubixx). They can likely extend beyond temperature sensitive pharmaceuticals with additional investments in the Internet of Things. Given their expertise and successful track record in this field, they may be able to offer solutions that trace drugs, sense their status (time to expiration, doses remaining), and facilitate streamlined orders via the Internet of Things. I imagine this product suite would be highly commercializable given regulatory requirements and other players; diminished appetite for making these sorts of investments on their own. ABC’s ability to innovate digitally and understand the regulatory and competitive environment seems like a tremendous advantage in an industry that meaningfully lags others sectors in digital adoption and progress. [1]

    Source: Harvard Business Review. (2017). Which Industries Are the Most Digital (and Why)?. [online] Available at: [Accessed Nov. 2017].

    (Thanks to “kurious koala” for the resource).

  4. This is a very interesting article and it was great to know that the FDA has mandated digitization of supply chain for drugs in the US as it has significant implications on the safety and has been an issue widely discussed in India as well.

    I agree with your analyses on compliance of ABC with regards to the regulations. It is a great strategy and could also be a competitive advantage for them, given their prior experience in inventory management software solutions. However, I would be careful before “productizing” this solution and selling it to smaller players in the pharmaceutical industry. Given the rapid changes in technology, I am not sure if this is their core competency and hence with the advances in block-chain etc that you rightly allude to, there can significant threat to any revenue stream generated through the commercialization of this technology. It would be better positioned as a “value-added” service that they may offer to other players in the supply-chain where they share strong relationships and not launch a full-blown strategy around it.

    Also, your question regarding whether the lack of adoption on technology changes by smaller players causing drug prices to rise up is a very interesting observation. My guess is that given the skew in sales by “big pharma” it is unlikely that large volume drug prices will be affected by this. However, there could be certain drugs which are impacted. My anticipation is that if the drug would fall in the “essential” medicine category, it is likely that government may intervene and introduce ‘price ceilings’ to protect consumer interests. However, it would be interesting to see how this plays out.

  5. Great article. I was unaware that there was a legislative mandate to increase traceability of drugs as they move towards the consumer. While in the short term this will have drug prices down. For example, being able to more efficiently conduct post-mark surveillance on drug safety will improve drug safety, patient outcomes, and ultimately make the drug more efficient with fewer resources. Additionally, given the tremendous cost required to produce a drug over several years, the cost of supply chain digitization is likely a relatively small one compared to R&D and clinical testing. Even if there is an increase in the price of the drug, it will likely be minimal.

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