Revolutionizing Pharma Supply Chains with Blockchain & Smart Contracts (Part 1)
This is a continuation of our blog series concerning supply chains, and we will focus on automation for the pharmaceutical industry using Blockchain and Smart Contracts. We will first introduce the requirements that the U. S. Food and Drug Administration (FDA) has dictated for big pharma and in our next blog we will introduce how to achieve these FDA mandates with the use of Smart Contracts over Blockchain.
Supply chains for the pharmaceutical industry have very special characteristics which are typically not seen in the supply chains of non-pharmaceutical companies like department stores, grocery stores, consumer products, etc. These special characteristics include the need for higher security, complete traceability and secured record keeping. The United States government passed a law in 2013 called the Drug Supply Chain Security Act of 2013 to codify these requirements related to pharmaceutical supply chains. 
A recent study by McKinsey & Company found that in the United States:
1) Supply chains account for nearly 25% ($230 billion) of pharmaceutical costs.
2) Drug shortages have tripled, security breaches have increased by 33%, and medication errors contribute $20-90 billion in costs globally. 
It is expected that the high cost of pharmaceutical supply chains will be contained by implementing a more secure and traceable capability in the pharmaceutical supply chain. Currently, Tier-1 pharmaceutical companies in the United States like Merck, Pfizer and pharmacy chains like CVS and Walgreens have very sophisticated ERP systems to manage and track its supply chain. However, for Tier-2 pharmaceutical companies like local compounders and pharmacies, the record keeping & tracking systems for its supply chain can be very primitive making them vulnerable to security breaches and counterfeit drugs.
The FDA’s model of a typical pharma supply chain flow is as shown in Figure 1 above. It illustrates the flow of goods from the manufacturer to the retailers such as local pharmacies through various intermediate stops like wholesalers and distributors. As the pharmaceutical product shipments travel through the value chain of various stake holders in the supply chain, associated record keeping needs to be done in a secure manner so that the data is not altered by hackers or the shipped pharmaceutical goods are not substituted by counterfeit drugs somewhere in the supply chain. These vulnerability points are highlighted in the red arcs in Figure 1.
The goal of the Drug Supply Chain Security Act of 2013 is to make every transaction between various stakeholders in the pharmaceutical supply chain secure, traceable & protected from external manipulations like introducing counterfeit drugs. The IT system associated with of the pharmaceutical supply chain must address these new requirements for all the companies in United States.
At DomaniSystems, we are developing a unique IT system to support the pharmaceutical supply chain systems that uses Blockchain technology to incorporate all the requirements of the Drug Supply Chain Security Act of 2013. This law mandates various requirements to be implemented on a timeline and should be fully implemented by the year 2023, when any drug sold in U.S. must be completely traceable from its source of manufacturing to the end customer. In our next blog we will introduce the details of a supply chain scheme that conforms to the Drug Supply Chain Security Act of 2013. We have implemented this using Smart Contracts over Blockchain.