Success in Supply Chain Strategy: Merck

Success in Supply Chain Strategy: Merck

Final Paper

MGT 323: Principles of Supply Chain Management

Success in Supply Chain Strategy: Merck

Introduction

How successful an organization’s supply chain is can make or break the organization. Supply Chain Management is an integral part of most business and is a key factor in determining the company’s success as well as customer satisfaction. How the supply chain is integrated into the organization is also extremely important because it can provide several advantages such as the reduction of waste as well as management of overhead costs. To Merck, one of the leading pharmaceutical companies in the world, the importance of a successful supply chain has not been lost. With this paper I will look at the history of Merck, it’s business strategy as well as how understanding the importance of a successful supply chain has allowed Merck to become one of the largest pharmaceutical providers in the world.

History of Merck

Merck & Co, also known as MSD outside the United States and Canada was founded in the US by George Merck in 1891. The Merck family had purchased a drug store in 1668 through the years it evolved from local pharmacy to a major pharmaceutical company. Merck was the first known pharmaceutical company to commercially manufacture morphine. In 1950, Merck merged with a company called Sharp & Dohme, Inc. This company was known for its expertise in sales and distribution. The combined expertise of Sharpe and Dohme in distribution and sales, along with Merck & Co’s strength in scientific research and chemical manufacturing put Merck on the path to become one of the today’s top five pharmaceutical companies in the world. All though Merck has faced many obstacles throughout its years, the importance of supply chain remains a priority to the company.

What is Supply Chain Management

According to NC State University, “Supply chain management is the active management of supply chain activities to maximize customer value and achieve sustainable competitive

advantage (What is Supply Chain Management, 2018). An effective supply chain will help a business run more effectively and efficiently. There are several activities that are encompassed in the supply chain such as, product development, materials sourcing, production, and logistics. To remain at the top of its game, an organization must have a robust supply chain strategy that will ensure the success of all that are involved. There are many decisions that need to be made such as how to market your goods and services, what people to hire, as well as which vendors you will be doing business with. For an organization, if you fail to align your business strategy with other areas of your organization, the organization can fail to reach the goal it sets to achieve.

Business Strategy

Merck’s vision is “to be the most trusted and competitive supplier of pharmaceuticals, animal health products, vaccines and biologics to the world’s patients and customers” (“Manufacturing & Supply Chain”, 2019). In order to accomplish this mission, they must leverage both internal manufacturing capabilities along with the specialized skills and expertise in manufacturing services of external manufacturers. What many people do not understand is what it takes to make a drug. There are many different areas that go into the production of our pharmaceuticals, hence the reason for the hefty prices. From conception to being in the hands of the patient, the average cost of developing a new drug is around $4 billion dollars with an upward amount of $11 billion dollars. That cost is for just the use of that drug in one indication. It has been estimated that another $312 million dollars is spent in post approval development of the drug on studies in new indications, as well as new formulation and dosage strengths. Only a few of the areas of business that go into producing a new drug are, research and development, production, manufacturing, and logistics. Every area of the supply chain as well as in everyone in the corporate sectors are responsible for finding new ways to cut costs.

Merck’s business strategy is quite simple, teamwork is at the very center of it. Merck understands that without each other we have nothing. Working together as a team throughout the organization is the recipe for its success. The idea of innovative leadership provides a team of experiences researchers combined with seasoned business leaders hat helps to guide the business development team on new innovations. Collaboration and teamwork with its business partners is also a large reason for the success in Merck’s business strategy. A strategic partnership or an alliance gives the organization a competitive advantage and an opportunity to access a broader range of resources and expertise. This allows the organization to offer clients product lines that are different from the competition. This is only successful when the partner delivers excellence in service areas that are different but related to the other partner. Such as a partnership between manufacturing sites and warehousing sites. By holding the partners to a superior set of standards, Merck can ensure quality of its products and services.

Supply Chain Management

The global supply chain strategy at Merck is designed to ensure the operation of a lean and efficient network and at the same time comply with quality, safety and environmental standards. With over 765 products available through local as well as regional partnerships, the supply chain is rather complex. Merck currently has 136 external manufacturing sites as well as 32 corporate alliances and 94 regional alliances. Merck continually has new lean and six sigma projects at manufacturing sites to improve supply performance and reduce procurement and spending costs.

Distribution Planning and Logistics is only a small portion of the supply chain; however, it is an integral part and can help significantly to cut costs in the organization. Effective supply chain management and integration is how Merck has been able to make progress in reducing the costs in this business area. As a Project Manager in this Distribution Planning, I am continually looking for new ways to cut costs when distributing supplies globally to the sites and the patients. One area we have seen improvement is to form a preferred partnership with vendors such as Fisher Scientific, for storage and distribution. By having a preferred partnership, you not only cut costs on contracts, but you gain a sense of loyalty and confidence in quality of the customer service you are receiving because ultimately their performance is what makes or breaks their business. By continuing to build new and improved partnerships with vendors such as Fisher and Almac for distribution and storage, is just one of the many ways that this area of business has seen improvements. However, there are many other areas of improvement that can be made.

A few areas that would help to optimize supply chain performance are organizational alignment within cross functional departments, fast and responsive processes, and collaboration. Organizational alignment would help to enable fast, accurate data exchange across the supply chain by utilizing global standards. This would help to ensure that each business area has a common goal and holds themselves to the same standards within the entire organization, especially in areas of business that interact with each other to perform their duties. By ensuring that areas of business such as Global Logistics, Global Clinical Supplies, and Distribution Planning, are following the same standard practices such as GMP, Good Manufacturing Practices, according to World Health Organization (WHO), Good Manufacturing Practice (GMP) is a system for ensuring that products are consistently produced and controlled, according to quality standards. By ensuring these standards are met you will limit areas of discrepancy, waste of product, as well as waste of time, ultimately cutting costs in the supply chain.

Another area that needs improvement is manufacturing and logistics processes and integrated business systems. The organization should focus on new or improved processes that will reduce costs by increasing flexibility and responsiveness in these areas. Merck deals with many small distribution centers in smaller countries that they may not have access to the large distribution centers. These companies tend to have their own mechanisms to receive inbound shipments, store inventory and deliver the shipments to the customers. Unlike the larger companies, most of these operations are done manually and are time consuming. These inefficiencies can lead to higher warehouse management and transportation costs. The organization should work towards identifying subsidiaries in those countries that have a higher level of distribution and logistics processes, they can then work to integrate the subsidiary with a new automated business system.

Lastly collaboration, not only internally but with external customers and vendors. Even though Merck has made great progress in this area it needs to continue to focus on the relationships with outside vendors. Merck needs to create footprints in more countries that it already has not, as well as develop new partnerships. It’s the old saying, “don’t put your eggs in one basket”. The issue of using one preferred vendor is the option for negotiation is limited when the vendor knows you have no options. Negotiating contract costs for storage and distribution is crucial to keeping costs down.

Conclusion

Over the last few years, Merck has made huge strides at achieving its goal of optimizing supply chain management to match production with buyer demand and build better forecasting and demand planning functions. Building partnerships with preferred vendors allows the organization to have a sense of comfort with quality, as well as also keep contract costs down in business areas such as distribution and storage. However, there is still a long way to go in order to ensure that the cost of making a new drug does not continue to increase. Working towards organizational alignment within cross functional departments, improvements in faster and responsive processes, and collaboration between internal and external vendors are just a few more ways to help Merck continue its success and remain as Pharmaceutical Royalty.

Resources

Manufacturing & Supply Chain. (n.d.). Retrieved February 4, 2019, from https://www.msdresponsibility.com/access-to-health/manufacturing-supply-chain/.

NC State University. (2018). What is Supply Chain Management. Retrieved from: https://scm.ncsu.edu/scm-articles/article/what-is-supply-chain-managementscm

Wisner, J.D., Tan, K.-C., & Leong, G. (2012). Principles of Supply Chain Management (3rd ed.). Mason, OH: South-Western Cengage