Supply Excellence — Merck’s Indirect Spend Success Story

Merck’s Indirect Spend Success Story

September 17th, 2008 · by Justin Fogarty · No Comments · Services Procurement, best practices, outsourcing, sourcing, supplier management, supply management

We recently covered pharmaceutical companies sourcing API (active pharmaceutical ingredients) from low-cost countries and the potential risks that accompany the trend. But I came across a video of Columbia Business School Professor Noel Capon interviewing Merck’s Howard Richman that covers a far different pharma procurement angle - the company’s indirect spend success story.

Richman, Merck’s Executive Director for Marketing and Commercial Services Procurement, describes Merck’s evolution to a more strategic, effective procurement operation at the company, which now looks beyond manufacturing and addresses fleets, laptops, marketing collateral printing and 3rd party agencies they relied on for creative. This massive change not only drove savings, it also unleashed their vendors to educate Merck on best practices and better collaboration. In an era where buyers are striving to make themselves preferred customers to their vendors, this is obviously advantageous.

Interestingly, they also found it was important to address the “psychology of what it meant to be a procurement professional”, which suffered due to the transient nature of their global staff handling procurement. Their revolving door of people tasked with purchasing in various departments and locations ended, and they focused on managing and developing their skilled procurement professionals.

Pre-2005, Merck had a centralized procurement department that failed to cover many areas of spend and 33 sites around the world each running their own direct materials procurement…outside of the procurement department and with little accountability. So if they had simply tightened up their direct materials spend, they could probably claim some degree of success. But the fact that they’ve successfully pursued indirect spend, including “creative” categories, shows they’ve truly gotten their procurement house in order.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

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