The Scramble for TPD2 Track & Trace Compliance

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The European Union’s TPD2 is now in effect, and perhaps it approached a bit too fast for some to make their track and trace (T&T) procedures compliant. Tobacco Asia talks to a Croatian outfit which offers an intriguing solution that can help strugglers still get their things in order.

By Thomas Schmid

After years of anticipation, the European Union’s Tobacco Product Directive 2014/40/EU came into effect on 20 May 2019. In tobacco industry circles commonly referred to as TPD2, the regulatory framework sets out in its articles 15 and 16 the grounds for implementing regulation EC 2018/574, issued by the European Commission on 15 December 2017, which details the technical requirements for the traceability of tobacco products. Initially applying to cigarettes and RYO tobacco only, TPD2 will as of May 20, 2024, also bring all other tobacco products into the fold.

The idea behind this staggered schedule apparently was that cigarette and RYO tobacco manufacturers usually are larger enterprises that have more resources at their disposal than SMEs to implement the stringent tracking and tracing requirements, as well as security features (which is another important aspect of the directive).

But, that later enforcement date also “will provide manufacturers of other tobacco products, which are often small and medium enterprises, with more breathing space to adapt to and benefit from the experience gained [by their larger peers] before [the regulation] kicks in for them, too,” according to Kristina Leko Kuštrak, board advisor for IT and business operations at AKD d.o.o., a software company based in Croatia’s capital, Zagreb.

Founded in 1991, the firm caters to a broad range of economic sectors, including government agencies, transport, and logistics companies, healthcare providers, banks and financial institutions, academic outfits, as well as corporate clients. Accordingly, its portfolio of software solutions and services is just as extensive: eSign and mSign solutions, QTSA services, TACHO Net system access, software for chip-fitted national e-ID cards, third-generation e-passports and driving licenses, governmental high-security access cards and document-printing, and more. As far as TPD2 is concerned, the company has created the tobacco industry-specific AKD TrackID product, which, according to Kristina Leko Kuštrak, has gone “into full-scope production since April 23” and – following an extensive testing phase – is “ready to serve any tobacco company” that needs to comply with the EU directive.

In January this year, AKD divulged to Tobacco Asia that it had become “the first UID issuer in the European Union that not only had a developed solution in terms of available licenses but also proof-of-concept of implemented business processes.” That proof-of-concept was gained through a pilot project under which an unnamed large manufacturer had successfully tested the software’s all-round viability in generating and propagating the UID code throughout the production chain. Just recently AKD confirmed that the company currently had “all manufacturers that operate factories used for tobacco products destined for the Croatian market” connected to its system; companies located both within the EU and abroad. “In the meantime, we also have expanded our services to support manufacturers in countries that still haven’t readied themselves [for TPD2 compliance],” adds Leko Kuštrak, “which is in accordance with the EU decision 2019/691 of May 3 that authorizes economic operators to temporarily use the services of the ID issuer of another member state.”

In an effort to rebut some unfounded yet persistently circulating rumors, Leko Kuštrak insists that no tobacco companies have been involved in financing or developing the AKD TrackID product. “The TPD explicitly states that any implemented [T&T] solution, as well as the business process established by ID issuers, must be entirely independent from the industry,” she points out. “However, they [tobacco firms] are the future users of these systems and thus do play a significant role in the TPD ecosystem.”

AKD TrackID, Leko Kuštrak assures, is “a solution that is easily integrated in already existing production lines.” Integration can be accomplished within a week, with customer support from AKD being available around the clock in case issues are encountered. “But we have to keep in mind nevertheless that the integration with UID issuers is only one step for the manufacturers,” she cautions. “They will have to heed additional tasks with regards to adapting their planning management systems and ERP’s, as well as printers and verification systems on the production lines.” Being extraordinarily user-friendly, AKD TrackID software reliably handles three crucially important aspects: registration, facility code issuance, and start of code requests. “Our clients can accomplish this via user-friendly GUI, through which all functionalities are available at their fingertips,” Leko Kuštrak says. It is indeed very easy:

The user registers, sends a code request, then downloads the received code file from the SFTP. “The logic inside the system is perhaps our most valuable asset,” says Leko Kuštrak. “We have effectively developed non-standard algorithms for generating codes that make AKD TrackID highly flexible in managing production systems thanks to extremely fast code generation and delivery times.”

AKD TrackID has been built on industry standards, as well as the technical requirements stipulated by TPD2 and ISO international norms. “We, therefore, don’t expect any problems regarding compatibility with production set-ups,” says Leko Kuštrak, adding that “[some of] the biggest manufacturers have already implemented [the required] T&T functionalities for their products.” The directive, of course, imposes a standardization model on all market participants with the aim of gaining better control over the illicit tobacco trade. “And keeping in mind the complexity and high-security level evident in all other AKD software solutions and products, we can assure all of our present and future clients that AKD TrackID uncompromisingly orients itself on these very same high levels.”

SLA’s and security always have the biggest impact on pricing, because downtimes can disrupt the whole tobacco-manufacturing ecosystem. To mitigate this, AKD has set up a scalable infrastructure with active backups hosted by the company’s own highly secure data center “We do not charge for the integration part when we install the software at a tobacco manufacturing facility because the implementing regulation makes it clear that the only service that is permitted to be invoiced in commercial terms is the unique and aggregated pack code generation,” explains Leko Kuštrak. AKD TrackID is fully customizable for each market, depending on the respective country’s legislation and regulations. “It is also worth mentioning that Croatia has introduced some changes in the customer management process. But they have no functional impact on the services provided, but rather on contractual management.”

AKD is of course not the only provider of T&T solutions to the tobacco industry in the EU. “Yet I believe what sets us apart from our competitors is our experience with regards to technical and regulatory support, scalability, and price,” asserts Leko Kuštrak. After all, she adds, AKD was the very first UID issuer in the European Union that had a full-scope T&T solution in terms of available licenses at the ready. “And because AKD at the time was the only UID issuer in the EU with an operational traceability solution, we were invited by the president of the European Commission’s sub-group on traceability and security features to participate in their regular meetings in order to provide representatives from the EU member states with first-hand experience and knowledge.” Naturally, AKD’s prime targets for its T&T product are at this point tobacco companies in all EU member states. But because signee countries to the WHO Framework Convention on Tobacco Control (FCTC) have also opted to implement TPD2 until the year 2025, this could potentially expand AKDs accessible market beyond the EU.

After all, for a software product such as AKD TrackID geographical distance is – in the words of Leko Kuštrak – “of course not considered a show-stopper in today’s interconnected world.” “The solution itself and our comprehensive support are both designed in a way that makes them available anywhere in the world,” she concludes, flinging a little hint at Tobacco Asia’s readers in the wider Asian region.

TPD2’s Security Features Systems May Create Headaches

Apart from enabling full traceability of tobacco products throughout the supply chain, TPD2 also contains mandatory security provisions that – in tandem with the T&T requirements - aim at reducing illicit tobacco products, including counterfeits and smuggled contraband. All unit packets of legit tobacco products placed on the EU market must forthwith be compliant with the directive’s security features system.

They are required to carry a combination of tamper-proof visible and invisible security elements. Visible elements would be, for example, holographic stickers or labels, as well as unit-specific bar codes or QR codes, while invisible elements could, for instance, include micro-print or UV-ink graphics and similar covert measures. The goal is to not only allow public authorities to determine whether a product was diverted into the illicit market (thus evading excise and other taxes), but purportedly also to give end consumers the opportunity to check their purchase’s authenticity.

But what sounds good and reasonable on paper, has of course consequences particularly for packaging material suppliers outside the European Union. Lest they incorporate the required security features, they potentially might not be able to continue supplying their packaging materials, jeopardizing EU customer bases that often enough took years to build and curate.

By extension, the mandatory requirements could also create headaches for extra-EU tobacco companies and/or brand owners: Even though the product itself might be genuine, it is not going to be allowed into the EU market if the unit packaging is not 100% security-compliant. A crisis in the making? Only time will tell.