unique device identification and gs1: defining elements in the future of global healthcare logistics

Unique Device Identification and GS1:Defining Elements in the Future of Global Healthcare Logistics

First Quarter 2010

166 Corporate DrivePortsmouth, NH, 03801 USAwww.loftware.com1.603.766.3630

WHITE PAPER

A Loftware, Inc. White PaperChristopher Piela, Director of Healthcare Solutions

This white paper, as the title suggests, is about new national and international mandates for a global standard to be used

in the Unique Device Identification (UDI) of medical devices and other healthcare products. It examines the global trading

opportunities, on an enormous scale, that can be captured by early adopters or forfeited by default by those who wait,

dismiss the idea, or discount the powerful market and competitive forces that UDI developments are driving. Also offered

is a starting blueprint for regulatory compliance professionals, packaging engineers, C-suite executives and manufacturing

experts who agree the time to start meeting the UDI opportunity has clearly arrived.

Copyright © 2010 Loftware, Inc. All Rights Reserved. Loftware, Loftware Print Server, LPS, Loftware Label Manager, LLM and Loftware Connector are registered trademarks of Loftware, Inc. All other marks are the property of their respective owners.

In defense of forward thinking supply chain executives in the healthcare industry... Over many years, the inevitability of a global system of standards for the unique identification of medical devices and products didn’t begin nor end

in Washington, DC. on a late September day in 2007. Yes, that was the day, on September 27th, that the U.S. Food and Drug Administration’s (FDA)

Amendments Act was signed into law. Included in that Act, as everyone now knows, was language related to the eventual establishment, for the first

time in the history of healthcare products and medical device regulation, of a Unique Device Identification standard.

But for years in advance of this Act, healthcare manufacturers, suppliers, and providers have been constantly analyzing opportunities for improving,

streamlining, and bringing more efficiency to the healthcare supply chain, both independently and collaboratively. What the Amendments Act did

signal, however, were two very important milestones: One, for the first time, it was seen that the implications to patient safety of a UDI standard – of

chief interest to the FDA -- could potentially align, co-exist and fuel supply chain efficiencies as well. And two, the FDA’s decision vanquished one of

the biggest and longest-standing concerns among manufacturers to the adoption of any would-be standard: whether or not enough manufactur-

ers – eventually all manufacturers everywhere – would adopt the same standard solution. After all, for a standard to be effective, it has to be in

standard use. For it to be useful, it has to have common currency in the supply chain from end-to-end and across and among trading partners. The

2007 Amendments Act set aside the possibility of purely voluntary adoption and upon closer examination began to be seen as a way forward that

promises significant logistics benefits and safety features.

Other factors leading up to 2007, and gaining momentum since, have also increased the inevitability of a UDI standard. These include significant

consumer and mainstream media interest in patient safety, medical device recall effectiveness, and overall healthcare reform with particular em-

phasis on lower costs (i.e., more efficiency in the system). This means even if the FDA were not moving to impose new safety standards on medical

products and devices, consumer tolerance for the status quo is diminishing rapidly, making change a foregone conclusion. But perhaps the most sig-

nificant turn of events, which may have been only peripherally noticed by some domestic healthcare products manufacturers prior to 2007, occurred

when a global, long-established, standards-driven and non-profit product marking movement by the name of GS1 turned its sights for the first time

on the healthcare supply chain.

GS1’s Timely Healthcare Initiative Brings Voluntary Momentum and VelocityGS1, which is a 30-year-old organization with offices today in more than 100 countries, is driven by more than a million companies executing more

than six billion transactions a day with the GS1 System of Standards that are used in and across virtually every industry. However, prior to mid-

2005, the GS1 system of standards had never been used in, or adopted by, the healthcare industry. But a brief review of the organization’s major

milestones since then demonstrates a readiness on the part of healthcare industry experts for an appropriate and workable set of product marking

standards worldwide. For example, consider the timeline of events and announcements made by GS1 since 2005 shown in the highlighted Chronol-

ogy Overview.

Additional evidence of GS1’s success and visibility to date includes two additional points: As of November 13 of this year, GS1 Healthcare US alone

had 109 member companies. Twenty six of these member companies, including some of the largest multinational healthcare products companies in

the world, use Loftware solutions in addition to dozens of other non-member healthcare manufacturers. Due to this unique perspective, a Loftware

imitative in October of this year brought representatives of the FDA and GS1 Healthcare US together at a major industry event for a panel discussion

on GS1, FDA, and UDI synergies.

More Than a Voluntary Organization of Like-Minded Business PeopleAs important as U.S.-based medical device and healthcare products manufacturers are, and have historically been, to world markets, trends and

technology innovations and global product acceptance, and as critical a role as the FDA has played in the past in vetting products in a way that has

essentially cleared them for worldwide commerce and use, GS1 has established a reach and an appeal among sovereign nations that has gained

traction in advance of any FDA action in healthcare UDI rulings and that today, transcends in importance anything our own federal agencies may

mandate. This is because as you learn from this list of GS1 member countries, the adoption of the GS1 standard has been backed or driven in many


cases by government fiat. What this means for U.S.-based manufacturers is that within a very short period of time, medical products and devices that

do not carry GS1 compliant product markings may be barred from these nations.

Many of these nations represent all-important emerging markets. This is a key consideration because more and more major healthcare product

manufacturers believe their greatest near-term potential growth will come from emerging market nations while their customary developed markets

regain their economic footing. All of these considerations are critical data points in examining how manufacturers are responding to current market

and regulatory issues while continuing to optimize their supply chain efficiencies and factoring the implications of an FDA/GS1 standard.

What Do The Most Important Experts – Supply Chain Professionals – Think?While important associations and provider organizations have rallied in support of a GS1-driven solution, the most important evidence of the inevi-

tability of the standard must include a review of the current perception among healthcare supply chain and logistics executives toward this solution.

To that point, recent independent university-driven research provides an illuminating look at today’s prevailing attitudes… and current as well as

planned actions -- among the people most critical to the adoption cycle.

Specifically, in November 2008, the Center for Innovation in Healthcare Logistics at the University of Arkansas in conjunction with the Association for

Healthcare Resource & Materials Management (AHRMM) administered an industry wide survey to assess the current state of the healthcare supply

chain from a cost and quality perspective. The survey involved 1381 healthcare supply chain professionals from all major sectors of the supply chain.

Their findings, presented in a report entitled The State of Healthcare Logistics captures the urgency for, and current adoption of, universal product

data standards, their critical importance to elevated supply chain efficiency levels, and the prevailing preference for GS1.

Here, first, is an overview of the survey’s most seminal findings of the overarching baseline concerns among healthcare supply chain executives:

1. The healthcare supply chain is starved for accurate and accessible data. Access to the desired quantity

and quality of data is indicated as the primary barriers to supply chain excellence, collaboration, and data standards

adoption. There is a clear movement towards data standards adoption across the healthcare supply chain. However,

the readiness of healthcare organizations to implement data standard systems in the near future is not obvious.

2. The lack of data standardization was the most common challenge to achieving supply chain excellence faced

by the survey respondents regardless of their organization. The most frequent challenge faced by healthcare provid-

ers is the current separation between procurement, clinicians, and payers. The high variation in their customer and

client preferences is given as a dominant challenge for respondents employed by GPOs, distributors, and providers.

Manufacturer, GPO, and distributor respondents indicate that having no visibility into the end-to-end performance of

their business processes is one of their top three challenges.

3. Survey findings indicate that group purchasing organizations are leading the way in successfully

attempting supply chain improvement initiatives. [In fact, this is true. The nation’s three largest GPOs -- Premier,

Novation and Amerinet -- have announced their advocacy for, adoption, and near-term implementation timetables,

for GS1.

4. The average healthcare provider organization in the survey reported spending more than $100

million each year on supply chain functions, nearly one-third of their annual operating budget. Manufacturers,

GPOs, and distributors are spending even greater percentages of their annual budgets to operate their supply chains.

Much of this expense is being driven by inventory and order management functions.


Leading Companies are not Waiting for the Dust to SettleHowever, does this mean there is momentum among these executives for GS1 as the preferred solution? Here are the most telling stats from the

survey in response to that question and that capture the opportunity for those ahead of the curve versus the potential difficulty ahead for those

taking a wait and see approach. In these statistics two classes of companies seem to emerge: those that have identified the opportunity, know what

it implies globally, and are actively pursuing a known plan and strategy for GS1 adoption; and, another class of companies that are not sure where

they are going or what they will do or exactly how. The first or most important specific finding was:

“Greater than one out of three healthcare professionals that participated in the survey are moving towards the adoption

of a data standards system with an overwhelming majority of those (88 percent) moving towards adoption of the GS1

system. “

These are the manufacturers that know they will, at some future date, have to comply with an FDA mandate. But in the meantime, they also have

to meet international market demands and opportunities. Like everyone else, their supply chain budgets are strained. They know that in the medical

products and device world every change in process has to be tested, documented and validated...that a ‘change’ extends all the way down to a

change in a product’s label. The average medical device manufacturer makes 1000s of products, as defined by multiple configurations and packaging

options. In many cases, even for these early adopters, their current product labeling solutions have grown organically and by acquisition over time via

the implementation of disparate systems, including standalone functions dedicated to a single process or product. Many naturally worry that compli-

ance will dictate a wholesale change in systems across the board, or they’ll be forced to purchase yet more, new, and so-called ‘all-in one’ solutions

that merely layer yet more redundant functions (and expense) on top of what is already in place. But they are pressing ahead now for competitive

advantage while these same factors probably explain the following survey findings that some manufacturers are hoping the whole thing will just go

away:

- The majority of those that indicate that they are moving towards a data standards system other than GS1 do not know which

system their organization is moving towards.

-Almost half of the respondents surveyed (48 percent) indicate that they do not know if their organization is moving towards

the adoption of data standards.

- When asked about their timeline for adoption, a small percentage of these respondents (10 percent) have already adopted

a location identification standard such as the Global Location Number in the GS1 system, while even fewer have already

adopted a product location identification standard such as GS1’s Global Trade Item Number.

- There is also an indication of unreadiness among planned adopters where many survey participants (43 percent) indicate

that their organizations are only marginally ready or not ready at all to adopt data standards.

Probing Questions Every Undecided Healthcare Products Manufacturer Should AskThree questions come immediately to mind: One, which class of company do you think has the better chance for global market share gains in the

coming 12 to 24 months as GS1 standards meet their sunrise dates worldwide? Two, how does the cost of compliance now compare to the cost

of compliance later and lost market opportunities between now and then? Three, what are the early adopters doing, and how are they doing it, to

implement their solutions at the lowest possible cost, in the shortest period of time, and while optimizing what is currently in place?


Survey respondents listed no fewer than 814 distinct items as the most significant barrier that inhibits the adoption of data standards in their

organization. These items include all the usual and familiar suspects: lack of resources, absence of available IT infrastructure, supply chain partners

not willing to collaborate. But here’s what we know from working with 26 GS1 Healthcare US member companies, and many other non-member

healthcare organizations worldwide.

Forging a Real Solution, in Partnership, for the Real WorldThe following is derived from more than 26 years experience in product marking with more than 25,000 customers, most of which are global

enterprises, and from our more recent work with some of the world’s most significant and forward-thinking healthcare products companies currently

adopting GS1. The five leading Group Purchasing Organizations in the U.S. and Canada alone – who are mandating GS1 compliance – represent

$63.4 billion in sales. But while approximately 70% of all major GPOs everywhere have announced their support of GS1, 50% of manufactures have

signed on. The healthcare products companies we’re working with realize their early adoption grants them a meaningful competitive advantage over

the laggards when it comes to doing business with GPOs.

The leading companies are also seeing this period as a time to once and for all make a lasting change, across the board, to at long last integrate

and optimize all their current systems versus making yet more piecemeal attempts to patch together some accommodation or worse, to layer their

infrastructure with yet another black box technology. These companies are not interested in depreciating their current investments in IT infrastruc-

ture; they are not interested in any solution that doesn’t or can’t leverage their installed suite of critical business applications; and they are wary of

any so-called single-source solution that claims to solve all problems, across all geographies and IT topologies singlehandedly. Instead, what they are

seeking is a technology partner that can bring to bear a ‘best of breed’ set of solutions, forged from multiple subject matter and technology product

experts, for the fastest, lowest-cost implementation in the shortest amount of time with the least disruption to existing systems, processes and

methodologies. Impossible? Not at all.

Why Loftware?With a ‘master contractor’ like Loftware, these companies are getting a long-experienced subject matter expert with solutions designed to sup-

port global enterprises that refuse to compromise or otherwise diminish their Current Good Manufacturing Processes. They want solutions that are

designed to integrate, not replace or discard, their long-term investment in existing enterprise systems. If there is a word that captures the essence of

the Loftware approach, it is ‘connectivity,’ meaning high-speed, bi-directional connectivity bridges between enterprise applications and print servers;

connectivity to data filtering and decision-making tools that remove the complexities of high volume label printing from enterprise applications;

connectivity to high-speed queuing systems that support label printing on a large to massive scale across hundreds to thousands of printers. In short,

Loftware products require no change to current production workflow.

Our contribution to meeting the need is tailored for the enterprise architecture, with centralized and decentralized control options for high- and low-

volume throughout, with fault tolerance safeguards and native support for 500+ barcode and smart label printers. But everyone in the healthcare

supply chain and with logistics experience and responsibility knows the complete solution can never be met by just a software product, no matter

how extraordinary it is or how well it performs. In the real world, there are label consolidation issues, ERP/ECM/PLM integration issues, proof of

concept and process validation requirements, project management demands and divisional roll out scenarios to develop and implement along with

enterprise-wide deployment support. This is where Loftware Global Professional Services comes in and manages these concerns directly or brings to

fore our partners with specialized expertise.

Certainly there are contemporary providers of labeling solutions that paint a more simplistic approach; that sound attractive due to claims that some

all-in-one box will result in overnight plug and play relief. Few with any real experience in supply chain logistics, in any industry, believe in this prom-

ise anymore. The real solution comes from a significantly more collaborative, partnered approach with a significantly more realistic understanding of

the current infrastructure and the future objective.

unique device identification and gs1: defining elements in the future of global healthcare logistics

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