Inspired by technology innovations and a push from some industry heavyweights, radio frequency identification (RFID) has reached the supply chain's center stage. On the innovation side, electronic product codes (EPCs) now can store and communicate extensive amounts of information in RFID "tags." As a result, every case and item has the potential to become an intelligent, communicative object, sending information contained in those tags via antennae out over the Internet, where it can be accessed by any number of supply chain management applications.

Seeking to leverage these advancements, the market's power players are starting to weigh in. Wal-Mart recently announced that its top 100 consumer packaged-goods suppliers must attach RFID tags to cases and pallets by 2005. Target has announced similar plans with its core suppliers, as have U.K.-based retailer Tesco and Germany's Metro. Outside the retail arena, the U.S. Department of Defense is requiring all of its suppliers to put RFID tags on their shipping pallets and cases by January 2005.

Despite this progress, it's clear that some companies and industries will benefit more dramatically and directly than others. For example, RFID is particularly appealing to markets with a preponderance of medium- and high-value products, such as pharmaceuticals. In addition, RFID's value increases when companies work to share insights and understand its potential.

Not all industries have approached RFID in such a rational, collaborative manner. But the major pharmaceutical players have, and some of the world's largest pharmaceutical manufacturers, wholesale distributors, and chain drugstores are working together as a group to explore key uses for EPC applications, including:

Returns management: improving expiration date management, lot and batch tracking, returns management, and recall expediting;

Operational productivity: monitoring and controlling shipping accuracy, receiving accuracy, and operational productivity; and

Product security and consumer safety: supporting anti-counterfeiting measures, product security, consumer safety, and theft/shrinkage management.

This pharma industry group also has created three working teams to build a whole-industry perspective on issues relating to counterfeiting, shrinkage, and theft. The mission of the Regulatory and Enforcement Measures Group is to assess legislative and regulatory changes that may be required to enhance counterfeit prevention across supply chain segments. The Business Policies and Practices Group is exploring the strategic and procedural actions that ought to be taken by each supply chain segment. Lastly, the Technology Prevention Measures Group is investigating high-potential technologies that could be implemented to combat counterfeiting. All three organizations will work together to develop points of view concerning realistic short- and longer-term approaches to implementation.

The industry group already has reached several milestones. It has identified key business challenges that can be addressed by RFID technology. It also has developed an "adoption roadmap" that describes how industry players might approach RFID adoption. (See chart, page 31.)

The road map forged by the pharma industry group offers potential benefits for many other industries. And although the group's efforts may have helped members gain insights in advance of other industries, the prospective RFID benefits it has identified are largely ubiquitous. These include:

Significant reductions in the cost of goods sold, resulting from increased labor productivity and reduced product shrinkage;

Large declines in working and fixed capital—the result of reduced inventory levels and improved asset utilization;

Improved inventory visibility for wholesalers/distributors, creating an environment conducive to better planning;

The opportunity for manufacturers to be able to more accurately ascertain product and pricing information;

Less need for all of the parties in the supply chain to (re)check, (re)audit, and (re)verify their order accuracy;

Lower personnel expenses, since less labor and time are needed to complete tasks; and

Improved in-stock positions for replenishments and refills.

The leading pharmaceutical players clearly have set themselves apart by emphasizing a view that encompasses the entire supply chain, with everyone working openly and collaboratively to understand an emerging technology's benefits and pitfalls. Perhaps most important, they have avoided "us versus them" scenarios that foster suspicion and horde the rewards. It's "collaboration without collusion"—a model that other industries may wish to emulate.