Sourcing & Supplier Relations

We operate an end-to-end supplier management process to ensure reliable and compliant supply of pharmaceuticals, vaccines, biologics and animal health products to the world’s patients and customers.

Resources

 

Our company manufactures, packages and distributes products to more than 140 markets around the world. Our facilities, along with our external contractors, suppliers and partners, make up an integrated, interdependent global manufacturing network that is committed to delivering compliant, reliable supply to customers and patients on time, all the time, and every time.

Our business goal is to achieve world-class supply in delivery, services and quality. We source from suppliers globally, in the areas of capital equipment and services, direct materials and services, energy, professional services, site and commercial services, IT, marketing and research supplies and services.

The Global Sourcing & 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 economic inclusion and supplier diversity principles are integrated throughout each stage. Throughout the supplier life cycle, our company establishes expectations, assesses risk, supports supplier development and manages performance.

Goal(s)ProgressIndicator
By 2018, we will collect GHG emissions and water use data from at least 90% of our strategic suppliers with the highest environmental impact.GHG and water data collected from 93% of high-impact strategic suppliers
Achieved
By 2020, we will engage with those suppliers and request them to identify GHG emission and water use reduction opportunities.On track
On Track
By 2025, at least 90% of our strategic suppliers with the highest environmental impacts will set their own GHG emission and water use reduction targets.On track
On Track

Initiatives

Supplier and third-party risk management 

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

Image of the four steps in the supplier life cycle: our company establishes expectations, assesses risk, supports supplier development and manages performance.

 

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 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 with senior management across the company.

Our supplier assessments include:

  • Labor and human rights
  • Anti-bribery and anti-corruption
  • Privacy and data protection
  • Environmental, health and safety issues
  • Quality
  • Responsible sourcing of minerals
  • Animal welfare
  • Information technology
  • Intellectual property
  • 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 supplier plans to address nonconformance and help drive continued improvement.

Protecting the privacy of personal information

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.

Protecting against cyberattacks and assuring business continuity

In 2018, recognizing that cybersecurity events at third parties pose an increased risk to our business continuity, our company enhanced our risk assessment and best practices. We held collaborative workshops to determine risks and remediation actions that foster mutually beneficial partnerships with our top suppliers. We will continue to build the cybersecurity program establishing a Center of Excellence for governance and guidance in 2019.

Supplier assessment for labor practices and human rights

We have a 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. Pre-existing external manufacturing suppliers and contract manufacturing organizations also complete SAQs.

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 related deficiencies.

Since implementing the Labor and Human Rights program in 2015, we have conducted over 200 onsite audits in countries identified as high risk for potential human rights violations. No critical observations have been found. We track audit-related corrective and preventative actions to completion.

Additionally, we maintain a “Speak Up” tool (msdethics.com) for any employee, supplier or business partner to report concerns, including those related to labor and human rights issues.

PHoto of people standing in circle and talking

Managing external manufacturers of our products

The company maintains strict quality standards—no matter where in the world our products are manufactured. Once we have decided to engage with 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 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 onsite assessment conducted by a multidisciplinary team, which may include our company’s Quality, Environmental, Health & Safety, Global Technical Operations and Global Sourcing & 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 onsite 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.

Global economic inclusion and supplier diversity

Global Economic Inclusion & Supplier Diversity (EI&SD) is integrated with our overall Global Diversity & Inclusion (GD&I) strategy and supports our corporate vision. The EI&SD Center of Excellence is a member of the GD&I Business Consortium, where EI&SD is one of four target areas focusing on increasing business performance through diversity and inclusion, creating a competitive business advantage, attracting and retaining top talent and driving shareholder value.

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. 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 convenes once a month to share information, identify opportunities, develop solutions and plan appropriate actions.

In 2018, we achieved an 8 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 will enable us to continue our 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 company’s spend goal with diverse suppliers for 2019 is $2.0 billion. Our commitment to growing our small-business suppliers continues as we increase our small-business spend year over year.

Our goals go beyond the amount of dollars we spend with small and diversity-owned businesses, as we focus on the growth and development of our suppliers to drive economic impact and value delivery to our company. We are committed to support the businesses that are the economic engine of growth around the world by making a difference in global economic inclusion.

From a global perspective, we exceeded our regional EI&SD goals in 2018 by 28 percent. Our global initiatives continue to grow and mature, as we target a combined regional spend of $400 million for 2019.

Building Bridges

In June 2018, to emphasize the importance of diversity & inclusion, MSD Germany—led by Procurement—organized an event entitled “Building Bridges.” The event, with attendance from nearly 260 guests from 33 different nations, brought together business members, suppliers and community leaders to deliver the strong message that diversity makes us stronger. VIDEO

Performance

EXTERNAL MANUFACTURING EHS ASSESSMENTS2014 2015 2016 2017 2018
Prospective external manufacturers48 50 34 37 65
Current external manufacturers68 69 85 53 61
Total116 119 119 90 126
SUPPLIER DIVERSITY 2014 2015 2016 2017 2018
Diverse-supplier spend (in millions) $805 $953 $1,500 $1,962 $2,111
Small-business spend (in millions)$529 $568 $753 $1,218 $1,341