International practices for track and trace systems are typically based on three different models
Government-led traceability programmes are long-term initiatives. They are introduced in stages, starting with a specific industry and then expanding to others. These systems are primarily implemented to address issues related to counterfeit and substandard products, and their goal is to prioritise public safety and the ability to track and recall hazardous items.
Public initiatives tend to target vulnerable industries, such as pharmaceuticals, alcohol, and tobacco. The rationale behind implementing traceability and enhancing market transparency in these sectors revolves around three main factors:
The corporate approach involves companies voluntarily establishing and using traceability systems to improve operational transparency and efficiency while cutting costs. For instance, when retailers can track product movements swiftly, it ensures that desired items are in stock for shoppers. It also prevents excessive unsold inventory, which can lead to waste and inefficiencies.
These technological enhancements lower transaction expenses for retailers. As a result, this leads to cost savings that are passed on to consumers through reduced prices.
In many countries, governments collaborate with private entities to implement traceability projects. For instance, in China, a subsidiary of Alibaba, and in Brazil, an independent Swiss company, are involved in such initiatives. These private operators invest their own resources and alleviate the burden on the state budget.
In such a hybrid system, the responsibility for implementing and maintaining traceability measures is shared. While the government sets regulations and standards, private entities handle the day-to-day operations and management. Following the implementation of the programme, the expenses associated with tracing goods from legal manufacturers tend to decline gradually. The cost of acquiring equipment is not passed on to consumers but is covered by the state or businesses themselves.
Moreover, the economic benefits stemming from the traceability system tend to outweigh these initial costs.
+ Compliance with regulations for consumer safety and product quality
+ Standardised protocols
+ Public trust
+ Comprehensive coverage
- Government processes slow down decision-making
- Struggles to adapt to industry changes or technology advancements
- Possible budget constraints
+ Adapts quickly
+ More efficient and less bureaucracy
+ Profit incentive
+ Tailors to specific industry needs and supply chain requirements
- Lack of standardised protocols and consistent enforcement
- Transparency concerns
- Unequal access, may favour larger companies with greater resources
- Limited scope
+ Combines government oversight and private-sector innovation
+ Faster implementation
+ Resource sharing, knowledge transfer from partners
+ Enhanced accountability
+ Reduced financial burden on governments and taxpayers
+ Lower total cost of ownership
+ Varied viewpoints from different stakeholders
- Complex governance
- May create conflicts of interest
- Possible funding and liability issues
Here is how some countries and regions approached their traceability programmes.
In 2011, the European Union adopted a directive to combat counterfeit medicines, requiring all member states to implement a traceability system within five years. However, the system was launched in 2019, involving the then 28 EU countries, plus Iceland, Norway, Switzerland, and Liechtenstein.
Under this system, manufacturers are required to submit track and trace data for their products to a centralised pan-European database. Distributors have the option to conduct product testing to mitigate risks, and pharmacists are mandated to verify product numbers before dispensing to patients.
By December 2019, operator REKS in Estonia reported no instances of counterfeit medicines entering the country during the first ten months of system operation. SecurMed in the UK had the same results.
China implemented a public-private model for its traceability programme through the PIATS (Product Identification Authentication Tracking System) launched in 2007. The programme initially covered 69 product categories, including food, beverages, and pharmaceuticals. It then shifted focus to drugs, specifically targeting 275 therapeutic classes by 2015. The operator, initially China Credit Information Technology and later Alibaba-owned Alihealth, charges manufacturers and distributors annual fees.
Despite facing opposition, the PIATS system increased tax collection, reduced the grey market, and improved data transparency. One concern to be aware of is that many prioritise meeting government requirements over extracting additional value.
It is estimated that one in 10 medicines sold in legal markets, especially in medium- to low-income or developing countries, are counterfeit. Moreover, a recent report from US pharmaceutical companies found that they lose about $200 billion every year due to fake drugs in the legal supply chain.
The Food and Drug Administration initiated a 10-year multi-stage track & trace programme for pharmaceuticals from 2013 to 2023. There was no single private or public operator. Instead, large private players supported individual track & trace solutions; for example, TraceLink collaborated with 15 of the 20 large pharmaceutical companies.
The programme was extended, but so far, improving verification and tracing in the supply chain facilitated faster detection and response to illegitimate products by both the industry and the FDA.
In Brazil, a public-private model involving both the public and private sectors successfully implemented track & trace initiatives for tobacco products, alcoholic beverages, and soft drinks. This joint venture was supported by mandatory traceability legislation. The state enlisted the services of an independent Swiss company, with the Brazilian Ministry of Finance as the recipient.
These projects significantly boosted tax collection and helped uncover illegal operations. For instance, the tobacco sector saw over 40% growth in the first two years, leading to additional revenues exceeding $800 million. Similar success was noted in the beer and soft drinks sector, with a 20%+ increase within a year after implementation.
Turkey implemented the Ilaç Takip Sistemi (ITS) in 2010 and expanded it to a full track and trace system by 2012, which resulted in several positive outcomes.
According to a major survey, ITS has effectively reduced reimbursement fraud by creating a complex verification chain. It has also eliminated counterfeit medicines from the regulated domestic supply chain, facilitated efficient recalls, and empowered consumers through a mobile application. Finally, it has enabled close monitoring of medicine stocks and inventory control throughout the supply chain.
Russia adopted the public-private model, which expedited the project’s implementation. The system is managed by a single operator called CRPT and includes a wide range of product categories using a centralised government database. For transparency, manufacturers, sellers, and consumers are allowed to access product histories via the Honest Sign mobile app.
So far, the programme has covered fur products, medicines, shoes, cigarettes, dairy products, perfumes, tyres, and a few other categories. Positive impacts are already evident, with a nine-fold increase in fur coat sales and a significant decrease in counterfeit drug turnover.
Private models are exemplified by Walmart and Amazon, and they showcase pioneering efforts in enterprise tracking and product safety. Walmart’s investment in sophisticated satellite-based inventory tracking in the 1980s led to the development of an extensive IT infrastructure.
Now, it enables precise inventory management, efficient transportation routes, and customer service logistics.
Similarly, Amazon has presented plans to allocate billions of dollars to curb the sale of counterfeit, expired, and hazardous products across its platforms. Recognizing the potential risk to its trusted brand status, Amazon acknowledges the necessity of ensuring the safety of its merchandise. In a proactive move, the company invested $1.2 billion and hired 15,000 people for the initiative. As a result, the number of spurious attempts to create new selling accounts on Amazon dropped from 6 million in 2020 to 800,000 in 2022.
Despite these advancements, it is important to emphasise that these models still require support from the state. For example, the initiative gained increased credibility when Amazon partnered with the US Chamber of Commerce and US Customs and Border Protection. They presented the collaborative Shop Smart consumer awareness campaign, which reached over 70 million American consumers.
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