Always Looking, Never DoingBy Larry Barrett | Posted 2005-02-01 Print
Your distribution network is vast. You sell your product to distributors. You have no way to track what happens after that. So how can you be held accountable for how your cartons and packages hit the stores—or the street? A $1.25 billion settlemen
Always Looking, Never Doing
Altria has been reluctant in the past to move to more advanced and expensive technologies, say experts such as Wolfgang Partsch, co-author of the book Supercharging Supply Chains, and John Thorpe, former managing director of the product security division of Swiss security firm SICPA.
Philip Morris and other tobacco firms previously investigated another, arguably simpler, technology for tracking cigarettes that uses special ink markings on packages. The state of California is planning to implement the system this year to uniquely identify every pack of cigarettes that enters the state legally, which will help authorities combat the smuggling of cigarettes to avoid state taxes. California will use the high-tech ink to replace the standard adhesive stamps, which smugglers find easy to duplicate.
SICPA, a producer of anti-counterfeiting inks for currencies including the U.S. dollar, offers a variation on that technology that places unique markings on the packaging of high-value or highly controlled products. Tobacco and alcohol were among the first markets it targeted, says Thorpe, who set up SICPA's product-security division in the U.S. eight years ago.
"Any company that makes anything that is high tax, and therefore the target of criminals, is a potential good customer for us," Thorpe says. Initially, he saw the opportunity as preventing interstate smuggling within the U.S. Tobacco companies were also interested because they thought they might be required to implement a track-and-trace system to combat smuggling as part of the class-action lawsuit settlement they were negotiating with state authorities. But when the settlement, announced in 1998, didn't include that requirement, their interest cooled, he says.
Originally dubbed Project Hawkeye and later named SICPATrace, this system uses a form of bar code covertly printed on product packaging with inks that are invisible to the naked eye. It has a sophisticated matrix of dark and light squares, placed in a crossword puzzle-like pattern. Like an RFID tag, this printed code is capable of storing far more information than a standard bar code. But unlike an RFID tag, it requires no electronic components—just ink.
With SICPA's approach, a Pocket PC-based scanner can read thousands of codes at a time, storing the identifiers in the handheld computer's memory. But although the codes are machine-readable, this technology doesn't have the range of RFID—the scanner needs to be held within about 6 inches of each product to read its code.
Yet Thorpe argues this would be an economical and practical option for spot-checking merchandise—potentially down to individual cigarette packs. A serial number encoded on each item, and recorded in a database along with sales and tax history data, would provide track-and-trace capability.
Even with a limited selection of products scanned, Philip Morris employees and government officials would be able to use the absence of the code as a clue to possible counterfeits. If the code were present, a search of Philip Morris' database could detect smuggling—products turning up in New York or London that were recorded as sold for distribution to some low-tax area.
Philip Morris got as far as testing SICPA technology on simulated production lines in the U.S. and at PMI headquarters in Switzerland. The company later stated in a letter to the International Conference on Illicit Tobacco Trade, which met in New York in summer 2002, that the package-marking technology would not function at the speed of its production lines.
"Typically, modern cigarette packing equipment operates at between 450 and 700 packs per minute," the company wrote. "Accordingly, the development of a reliable marking system at such speeds is technically quite challenging. As far as the costs of such systems are concerned, clearly any discussion is academic until a feasible system is developed."
Philip Morris USA's Holleran says the implementation of SICPA technology or any other plan to improve the tracking of cigarettes would not be used if it slowed down production.
But Thorpe insists it would have worked. "We achieved all of the requirements that were set out for the system," he says. "They would have done anything to discredit the system at that point."
What it suggests to him is that the tobacco companies aren't really interested in solving the smuggling problem, preferring to remain ignorant of what happens to its products once they leave the warehouse.
After retiring from SICPA in 2000, Thorpe was approached by anti-tobacco groups such as Europe's ASH (Action on Smoking and Health) and agreed to speak publicly about his experience with the tobacco companies. His point was simply to counter the tobacco industry's argument that there is no practical, affordable technology that can cover the entire supply chain.
He suspects Philip Morris would rather fiddle with RFID for a few more years. With SICPATrace, he claims, "You could track and trace every single pack of cigarettes in the world today, and it would cost about one penny a pack."
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