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The Value of Product Identity

The shift towards item-level traceability coupled with the development of intelligent consumer interfaces and smart phone technology offers manufacturers the opportunity to drive competitive differentiation from the personification of their products. This paper examines the process of creating Product Identity and the enterprisewide returns that can be derived from it.

Product Identity As with human identity, the concept of product identity relates to the combination of characteristics that make one product uniquely recognizable over another. Establishing a product’s identity involves the collection of multiple data points throughout its lifecycle to render it unique. Historically, it has been difficult to establish a product’s identity. Standard packaging practice has been to mark and identify products according to their lot or batch. In this scenario, products are distinguishable only as part of the group to which they belong and each item could find its way to any consumer. While initiatives, such as warranty cards and loyalty programs, have had some success in linking products to individual consumers, in general, a many-to-many relationship exists between products and consumers (Figure 1).

Figure 1: Many-to-Many

Two trends have emerged that are set to change this relationship:

Figure 2: One-to-One

Item-level traceability: Recent consumer safety

concerns have caused manufacturers to rethink standard packaging practices and whole industries have been moving towards item-level traceability and the allocation of unique identifiers (serial numbers) to each product.

Intelligent interfaces: The development of mobile

technology and smart spaces in which intelligent interfaces can be used to connect and communicate with 1 consumers in social and environmental contexts. The convergence of these trends offers the opportunity to link uniquely identifiable products to individual consumers. In creating these connections, manufacturers are provided with a novel means of driving value and competitive differentiation, while substantiating their needs for authentic and safe product (Figure 2).

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Internet of Things - EPoSS

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Creating Product Identity Establishing product identity involves the collection of multiple data points relating to a product as it moves through its life cycle. The breadth and depth of product data collected is largely dictated by the value it can provide to a brand owner. The four primary sources of this data can be categorized as follows. JJ

Input sourcing: Tracing the ingredients, materials or sub-components utilized in production.

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Internal operations: Receipt of inputs into the internal production process incorporating manufacturing, packaging, and shipping.

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External supply chain transactions: Movement of product through the external supply chain en route to sale in designated markets.

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Consumer interaction: Post-sale communication between consumers and brand owners.

In order to collect this data, a number of different technologies must be deployed and integrated into the enterprise’s central information system: JJ

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Track & Trace: Relates to the recording of current and past locations of a product or group of products as they pass through the supply chain. The manufacturer determines the fixed points at which tracking occurs. Serialization: Process in which a unique number is assigned and marked directly on a product or its packaging typically achieved through barcoding or RFID technology. This unique identifier forms the base to which other product information is tied. Authentication: Practice in which the integrity of a product is confirmed. Authentication can form part of the track & trace process within the supply chain or with the development of mobile solutions by consumers post sale.

Data Gathered

Data Capture Technology Sample Data Captured

Sourcing

• Supplier details (supplier identifier, name, and location)

Track & Trace

• Batch information (batch identifier, and production/date)

• Lot informaion (sourcing information, and mfg./ expiration time & date)

Manufacturing/ Packaging

External Supply Chain

Consumer Interaction

Serialization

• Product information (GTIN, and parameters) • Item data (serial number, aggregation, rework history, covert/overt security feature, weights, time out of refrigeration, etc.)

• Supply chain (EPOS/ ERP/ WMS data/transactions, product returns, and reclamation)

Track & Trace

• EPCIS events (object, aggregation, transaction, and quantity events) • Authentication events (requests, responses, regulatory reporting, and pedigrees)

Authentication

• Consumer details (name, address, email, cell phone, IP) • Geo-location data

The extent to which these technologies are deployed and product data is collected is largely driven by the commercial challenges individual brand owners are trying to address.

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Driving Value from Product Identity Initial industry investment in establishing product identity has been largely driven from a defensive perspective – in response to consumer safety issues or concerns about brand protection. While the value created by product identity varies by industry and brand, it goes far beyond this defensive positioning. Product identity can be used to solve real business problems, offering tangible returns through cost reduction, revenue protection and revenue generation.

It is important to consider the totality of these benefits, when determining the value of product identity to a given brand-owner. We will consider each of these benefits in turn.

Improved Visibility of Internal Operations Under a batch production methodology, the reconciliation of physical product information and the associated data record is a complex and often impossible practice. The process of moving towards item-level traceability through serialization enforces data integrity through a series of strict process rules and adherence. Serialization provides manufacturers with the potential to gain improved visibility and control over internal operations, leading to efficiencies that can generate significant cost savings.

Inventory Management: A multitude of factors impact inventory leakage as products move from manufacturing to packaging and on to shipment – these include labeling issues, quality sampling, human error and employee theft. Under batch packaging, reconciliation of production and shipped product is an arduous and often impossible task. The process of creating product identity through serialization offers manufacturers a means of tracing a product’s journey through each stage of the packaging process and internal movement. In capturing this information, manufacturers can gain the requisite insight to quantify the root causes of product leakage. Once these causes have been identified corrective action can be taken. The automated inspection and verification that forms parts of the serialization process allows manufacturers the ability to reduce if not eliminate the need for manual counting and data entry, thereby driving a higher degree of accuracy and timeliness in inventory reporting and reconciliation.

Label & Artwork Management: Mislabeling is a common cause of product recalls. Printer management and inspection as part of the serialization process allows manufacturers to ensure that each product is appropriately labeled and reduce the potential for recalls.

Managing Packaging Assets: Data collected through serialization can be utilized to accurately capture and manage the economy, efficiency and capacity of different packaging lines’ internal and outsourced assets. In addition, the overall equipment effectiveness (OEE) can be monitored with a much greater level of accuracy by using the serialized data for root cause analysis.

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Protect the Integrity of the External Supply Chain Internationalization, outsourcing, e-Retailing and the expansion of international trade zones have significantly complicated the modern supply chain. This added complexity has led to a loss in supply chain control and has vastly increased the opportunities for supply chain abuse which can manifest in the form of the introduction of counterfeit goods, product diversion and reimbursement fraud. The ability to uniquely mark, track and identify products is a powerful tool in helping manufacturers mitigate against these risks and furthermore drive value through revenue protection.

Anti-counterfeiting: In recent years, there has been a dramatic increase in global counterfeiting with an everwidening range of products being targeted. The broadening of counterfeiter focus into areas such as pharmaceuticals, medical devices and food & beverage has meant that counterfeiting is now more than just a threat to a company’s brand and bottom line, it’s a significant risk to public health and safety. A major impact of the rise in counterfeiting is the impact on consumer safety. While it is extremely difficult to calculate the overall health risk from counterfeiting, the threats are wellillustrated by the pharmaceutical industry. Here, counterfeit drugs with incorrect formulation, dosage or simply no active API has led to poisoning, therapeutic failure and even death. It is thought that in Africa alone 700,000 die every year from malaria and tuberculosis as a result of receiving counterfeit medicines.2 In response to this threat, the pharmaceutical industry has already mandated serialization combined with varying forms of track & trace and authentication as a means of protecting consumer safety. Used concurrently, these techniques act as a sizeable impediment to counterfeiting and other industries (medical devices, crop sciences, and food & beverage) have already begun to follow suit. The effect of counterfeiting goes beyond impacts to consumer safety. The direct commercial cost of counterfeiting to industry is significant. While these costs vary by company and by product, the consolidated, global impact of counterfeiting could be as high as $1.7 trillion per annum by 20153 - equating to approximately 2% of global economic output.

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International Policy Network ICC, Frontier Economics 2011

More difficult to quantify is the indirect cost of damages to a brand’s equity arising from the unknowing consumption of inferior counterfeit goods and the subsequent reduction in perceived consumer utility. Brand owners can use product identity to enable the detection of counterfeit product – thereby reducing the opportunity cost of sales lost to counterfeiters and preventing consumer dissatisfaction and consequent brand erosion.

Diversion Control: Diversion relates to the transfer of product from its intended point of distribution. The diversion process capitalizes on arbitrage opportunities arising between different geographies or sales channels. While the practice may not be illegal, it can have a significant impact on a company’s distribution strategy – undermining pricing policy and potentially compromising product integrity. Diversion can also result in supply shortages which, as is the case with the parallel importation of medicines in Europe, can have a detrimental impact on consumer safety. The degree of diversion differs by product and industry. While the direct costs are difficult to quantify, research suggests that anywhere between 5-10% of sales can be impacted by diversion with an average of 9% erosion of profitability on impacted sales.4 The ability to uniquely identify and track products allows manufacturers to identify at what juncture in the supply chain that product is being diverted. Corrective action can be taken against the offending parties and future margin erosion can be avoided.

Recall & Reimbursement Management: Product recalls present a significant to catastrophic risk to manufacturers. Research indicates that 52% of businesses experiencing a product recall have incurred costs in excess of $10 million.5 The direct costs of a recall include the logistical expenditure of returning product, the substitution cost of replacing product and any litigation expense arising from the use of a recalled product. The indirect costs of recalls include lost sales, increased regulatory scrutiny, damage to brand and a reduction in consumer trust. In the case of a genuine product quality issue, having information on a product’s identity allows manufacturers to more accurately determine the quantity and location of compromised products. Manufacturers can then minimize 4 5

The Grey Market - KPMG Capturing Recall Costs, EY, GMA, Covington

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the amount of product recalled, expedite the recall process, restrict consumer exposure to impacted product and consequently reduce recall costs. Another scenario may occur where a recall is triggered by substandard products that are either counterfeit or have been compromised by suboptimal storage in an unauthorized or diverted route to market. Combining serialization with an effective authentication solution allows brand owners to confirm the validity and origin of that product, thereby preventing baseless recalls. Many markets have complex payment models with numerous subsidy and rebate schemes. The complexity of these payment systems often leave them open to abuse, making it difficult for manufacturers to know what price-point a product should be reimbursed at when returned. This problem is compounded by sophisticated criminals who take advantage of recall scenarios to feed counterfeit product into the supply chain for reimbursement. Collecting information pertaining to a product’s identity offers manufacturers the improved transactional information so that the correct amount can be reimbursed when returns occur.

Enhance Brand Engagement The commercial returns to establishing a product’s identity are not limited to defensive and supply chain benefits. The development of smart phone technology that facilitates mass consumer authentication of product allows brand owners to drive targeted, effective and efficient sales and marketing.

Consumer Interaction: By offering end-consumers a means to authenticate serialized products via mobile applications, manufacturers can create a direct touch point to their customer base – effectively creating a one-to-one relationship between a product and the consumer. This relationship is invaluable in managing the lifecycle of a unique product, allowing brand owners to:

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Direct and enroll consumers into loyalty programs

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Receive customer feedback

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Provide product information and technical support

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Send tailored product messaging and marketing campaigns

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Reward customer loyalty and encourage reordering

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Improve compliance and persistence (Pharmaceuticals)

Post-Sale Safety Surveillance: All brand owners have a responsibility to monitor the safety of its products post sale. This duty is particularly significant where use or consumption of a product can impact consumer safety. The internationalization of trade coupled with grey/black market activities make safety surveillance an onerous task. Those products whose identity can be conclusively authenticated by consumers, offer brand owners a prompt and economic means of determining genuine product quality issues in the field.

Conclusion Data gathered through the deployment of serialization, track & trace, and authentication technologies can be utilized to create a holistic and unique view of a product’s identity. While the value proposition derived from product identity varies both by company and market, the opportunity for value creation is large – encompassing aspects of brand protection, supply chain management, marketing and sales. When considered in their entirety, these aspects can offer a compelling rationale for investing in product identity.

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About Systech International Systech International is a global leader in product identity innovation that helps customers protect their brands & gain valuable insight into their supply chains through enterprise serialization, track & trace, and authentication solutions. Systech solutions service a variety of industries – from pharmaceutical, medical device and healthcare, to food and beverage, crop sciences, and consumer goods. Systech has offices in the United States, United Kingdom, and Belgium, as well as dedicated sales, technical support, and a global partner network serving customers worldwide. As global supply chains become more complex and new threats to brands emerge, Systech will continue to be your Trusted Advisor in product identity innovation. To learn more about Systech, visit us at www.systech-tips.com or e-mail us at [email protected] Subscribe to our blog: www.systechinsight.com Follow us on LinkedIn or Twitter: h  ttp://www.linkedin.com/company/systech-international https://twitter.com/SystechES

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Proven Protection Powerful Insight ® ©2014 Systech International 06/2014

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