Procurement &
Supplier Relations

Procurement &
Supplier Relations


The Procurement and Supplier Management function is responsible for maintaining the standards by which suppliers are identified, qualified and managed. Supplier selection and management follow a robust sourcing management process, in which supplier diversity principles are integrated throughout each stage.

GOAL: By 2018, we will collect GHG emissions and water use data from ≥90 percent of our strategic suppliers with the highest environmental impact.

GOAL: By 2020, we will engage with those suppliers and request them to identify GHG emission and water use reduction opportunities.

GOAL: By 2025, ≥90 percent of our strategic suppliers with the highest environmental impacts will set their own GHG emission and water use reduction targets.


Supplier and third-party risk management is an enterprise-wide effort supported by Procurement, Supplier Management, the Office of General Counsel, Global Compliance, Global Quality, Corporate Audit and Assurance, and Environmental Health & Safety. Representatives from each function meet regularly to discuss, assess and manage issues that are risk-drivers.

Our Business Partner Code of Conduct, along with our company’s Supplier Performance Expectations, are communicated to existing and potential third-party suppliers and are included in requests for information, proposals, and quotes, as well as in our purchase-order terms and conditions. We select suppliers that share our commitment to our values and principles, as defined in our Business Partner Code of Conduct and Supplier Expectations Letter. In addition, we participate in the Pharmaceutical Supply Chain Initiative’s (PSCI’s) Pharmaceutical Industry Principles and are a signatory to the 10 Principles of the United Nations Global Compact.

We have a defined risk-management process, and our supply base is measured against the process criteria. Using a risk-based approach, supplier assessments and audits are conducted based on multiple factors (e.g., risk profile, engagement and activity type, and geography). The assessments and audits evaluate a supplier’s ability to meet both industry and our own standards for quality, safety, and ethical business practices. Results are reviewed by senior management across the company.

Our supplier assessments include:

  • Labor and human rights
  • Anti-bribery and -corruption
  • Privacy and data protection
  • Environmental, health and safety issues
  • Quality
  • Responsible sourcing of minerals
  • Animal welfare
  • Information technology
  • Financial solvency

Where assessments and audits identify deficiencies or opportunities for improvement, we monitor suppliers to ensure that our concerns are addressed in a responsible and compliant manner. As part of our oversight and monitoring, we have established mechanisms to report, track and monitor adherence to plans to address nonconformance and help drive continued improvement.


Some of our suppliers and service providers, such as contract research organizations, market research agencies, information technology systems developers, and other service providers, process personal information in connection with their performance of services for our company. We require these suppliers and service providers to provide appropriate privacy protection for personal information that they handle in accordance with our privacy policies and applicable privacy laws, regulations and guidelines.


In 2016, we continued to build upon our formal program to evaluate the risks for labor and human rights in our supply chain. Prior to contracting, all new direct suppliers (as well as certain new indirect and research suppliers in certain geographies) are required to complete and return a Supplier Self-Assessment Questionnaire (SAQ) for Ethics & Compliance. In 2016, we also expanded the SAQ to include our pre-existing external manufacturing suppliers and contract manufacturing organizations. Our SAQ requires suppliers to answer a series of labor and human rights questions covering a range of subjects, including freely chosen employment, child labor, employment practices, employee disclosures, fair treatment, wages, benefits and working hours.

Each supplier’s responses are used to judge whether or not that supplier has programs and/or procedures in place to address potential risks for labor and human rights.

In 2016, we built upon the formal audit program used to evaluate supplier compliance with our company’s standards for labor and human rights. Two third-party audit firms were engaged to perform independent audits at a limited number of direct material and research suppliers’ facilities.

These facilities were in countries identified as high risk for potential labor and human rights violations. Generally, audits were conducted over a two-day period, and included interviews and a review of relevant documentation. In total, 32 supplier facilities were audited in 2016. No critical observations were found. Our current plan is to audit 30 suppliers over the course of 2017.


The company maintains strict quality standards—no matter where in the world our products are manufactured. Once we have made a decision to engage an external manufacturer, that manufacturer is required to comply with our business requirements, which are set forth in our contract with that supplier, regardless of geography.

Prospective external manufacturers of active pharmaceutical ingredients (APIs) and finished products are screened for environmental, health and safety (EHS) compliance, in addition to quality, and supply and technical competence requirements. The EHS screening includes a survey covering such topics as regulatory compliance, fatalities and major incidents.

Based on the screening results and activities undertaken by the supplier, certain external manufacturers are subject to a more detailed on-site assessment conducted by a multidisciplinary team, which may include our company’s Quality, Environmental, Health and Safety, Global Technical Operations, and Procurement representatives. The external manufacturers we contract with are periodically reassessed using a risk-based approach; higher-risk external manufacturers are subject to more frequent on-site assessments. We expect that observations made during the audit process will be remediated by our external manufacturers, and we monitor and track corrective actions through completion.

We continue to support the Pharmaceutical Industry Principles for Responsible Supply Chain Management (the Principles). The Principles outline industry expectations for external manufacturers and licensees with regard to labor, health, safety, environment, ethics and management systems. The external manufacturers with which we contract are expected to understand and align with the Principles.


Our core values are driven by a desire to improve life, achieve scientific excellence, operate with the highest standards of integrity, expand access to our products, and employ a diverse workforce that values collaboration.

Global Economic Inclusion & Supplier Diversity (EI&SD) is a part of our overall Global Diversity & Inclusion (GD&I) strategy and supports our corporate vision. The EI&SD Center of Excellence (CoE) is a member of the GD&I Consortium, where EI&SD is one of four target areas focusing on increasing business performance through diversity and inclusion, creating a competitive business advantage, and driving shareholder value. The executive sponsor of the GD&I Consortium is our company’s Chief Financial Officer.

We have broadened the scope of our company’s EI&SD process over the past few years from a national focus to a global one. Responsibility for EI&SD has expanded vertically and horizontally through all levels of the organization. EI&SD is managed under the Global Supplier Management Group (GSMG). As a result of commitment at the senior and executive levels of management, overall visibility and accountability have improved. The program’s importance and value have increased significantly as a result.

Our company’s Supplier Diversity Leadership Council (SDLC) convenes once a month to share information, identify opportunities, develop solutions, and plan appropriate actions.

In 2016, we achieved a 57 percent increase of spend with diverse suppliers, exceeding our corporate goal to achieve $1 billion in spend with minority-owned, women-owned, veteran-owned, LGBT-owned and disability-owned business enterprises.

This accomplishment and our sustained efforts have earned us membership in the Billion Dollar Roundtable (BDR), an exclusive industry organization that recognizes and celebrates corporations that achieve spending of at least $1 billion with minority- and women-owned suppliers headquartered in the U.S. Our membership in the BDR allows us to share and access best practices in supply chain diversity excellence with other organizations that have also achieved this status. Our spend goal with diverse suppliers for 2017 is $1.2 billion. Our commitment to growing our small-business suppliers continues as we increase our small-business spend year over year.

Our company is a proud member of the Billion Dollar Roundtable

From a global perspective, we exceeded our regional EI&SD goals in 2016. Europe, Middle East, Africa, Canada and South Africa achieved 118 percent and Asia Pacific, Japan and Latin America achieved 163 percent.

In addition to striving for supply chain excellence through inclusion principles and world-class supply, we focus on supplier development and increasing supplier capacity. In April 2016, our company held its second annual Economic Impact Summit in New Brunswick, New Jersey, and focused on “Being the Catalyst for Change.” More than 160 people were in attendance, including representatives from more than 50 diverse-owned businesses, prime suppliers and global representatives from our company. The prime and diverse suppliers left the Summit with new ideas and relationships geared toward making a bigger impact in our communities by forming lasting partnerships.

In addition to being named a member of the Billion Dollar Roundtable in 2017, our company received many awards for distinguished performance related to supplier diversity in 2016. Among them are: National Gay & Lesbian Chamber of Commerce Top 30 US Company for Diversity, Women’s Business Enterprise National Council Top Corporation for Women Owned Businesses, Diversity Inc. Top 50 Company for Diversity, and National Minority Supplier Development Council Gazelle Award.


EHS ASSESSMENTS2012 2013 2014 2015 2016
Prospective external manufacturers42 55 48 50 34
Current external manufacturers39 45 68 69 85
Total assessments81 100 116 119 119
Supplier Diversity2014 2015 2016
Diverse-supplier spend (in millions)$805 $953 $1,500
Small-business spend (in millions)$529 $568 $753

This is the corporate responsibility report of Merck & Co., Inc., Kenilworth, N.J., U.S.A., which is known as MSD outside the U.S. and Canada.