Are Global Supply Chains Ready for the European Union’s Tobacco Products Directive?

Did you know that tobacco is amongst the most commonly traded products on the black market? High profit margins and the ease of movement and production, in addition to low levels of detection, make the market attractive and lucrative to criminals. Some research indicates that 480 billion cigarettes are sold illegally worldwide each year. In the UK alone, HM Revenue and Customs and UK Border Force officers have seized over 2.8 billion illegal cigarettes and over 660 tonnes of tobacco over the last two years. This equates to an annual loss of approximately £2.5 billion in the UK (US $3.27 billion).

In an effort to fight the continuing rise in counterfeit goods and counteract illicit tobacco trade, the European Union has ratified the EU Tobacco Products Directive (2014/40/EU) (TPD), which will enforce new obligations throughout the entire tobacco supply chain, significantly changing how it currently operates. From the 19th May 2019, economic operators involved in the manufacture and distribution of tobacco products must, by law, enforce new measures such as ‘traceability features’ and a ‘traceability system’ to ensure compliance across their supply chains. But how prepared are tobacco stakeholders adapting to the new regulations?

One specific example of traceability features for the TPD is the use of unique 2D identifiers, which must be applied to each unit packet of tobacco products. They will come in either a data carrier or dot code form and will be provided by a nationally appointed unique ID Issuer. These 2D identifiers must enable the economic operators to track and trace tobacco products swiftly as they move throughout each stage of the supply chain. With time and location being logged at each step through the product’s unique identifier, products can be traced and, if necessary, returned to their point of origin.

Implications for the Supply Chain

This strict guidance on the labelling process has prompted a race against time for tobacco industry stakeholders to become compliant. Manufacturers must ensure products are correctly labelled, while those further down the supply chain must ensure the intricate monitoring of tobacco products from their origin to point of sale. All track and trace data must be consistently uploaded into primary repositories within 24 hours, and then into an EU-audited and controlled repository.

Equipping and updating the production line and supply chain with the appropriate technology is a complex task. As part of this directive, organisations across the supply chain will need to purchase the right technology that can decode the 2D dot codes to check product authenticity and ensure compliance with ongoing required tracking. Consequently, there is a lot of work that needs to be done across the supply chain to achieve this compliance, which will need to be properly managed to avoid too much upheaval – especially considering that many tobacco supply chains extend far beyond EU borders. Every global tobacco manufacturer will have to adhere to the directive if they are selling their products in the EU.

Tackling the Black Market

Traceability is key in fighting counterfeit and contraband tobacco. Once the origins of these items can be established, the risk of counterfeit products in circulation is highly reduced. Meanwhile, meticulously-traced products will make it easier for public authorities to determine when and where these items are diverted to the illegal market and to then act accordingly. Increased traceability has the potential to eliminate illicit tobacco trade, but this is not as simple as it appears.

As tobacco products pass through the supply chain, the visibility of smaller packets becomes more complicated as pallets are broken apart, cases are opened, and individual cartons are distributed as part of mixed orders. All of this has significant implications on the ability to track and trace, especially as the unique 2D IDs must be maintained throughout and a data scan completed at every check point. In the future, tobacco stakeholders must meet the minimum requirements as outlined within the TPD. Hardware must be able to read 2D data codes, including the 2D dot codes or data matrix that are applied to each individual pack, no matter the condition of the packaging. The hardware must simultaneously be compatible with software, applications and utilities used to comply with the TPD and conduct other day-to-day manufacturing, warehousing, transportation and distribution operations. This will allow stakeholders to identify products and packaging, check their validity, record the steps in the business process and transmit this data to the relevant data repositories.

Compliance Benefits Business

The implementation of the EU Tobacco Products Directive (2014/40/EU) will benefit the industry to potentially reduce counterfeit goods and contraband by providing greater visibility across the entire global supply chain. However, for those businesses who have not yet prepared, there is still a significant amount of work to do ahead of the 19 May, 2019 deadline.

For help finding the right track and trace technology for the directive, please read our comprehensive solution guide for TPD.