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.

Highlights
  • Implemented a cyber resiliency supplier risk management program
  • Initiated a new program designed to evaluate our supplier’s environmental sustainability programs
  • Built a cyber resiliency supplier risk management program, including a Center of Excellence for governance, assessments of key suppliers and collaborative workshops to review risks and remediation actions
Our commitments
  • Support businesses that are the economic engine of growth around the world by making a difference in global economic inclusion
  • Continue to increase our small-business spend year over year

Our approach

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.

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.

Furthermore, we are a signatory to the 10 Principles of the United Nations Global Compact.

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 environmental sustainability, 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.

Our company’s Processes Operations and Strategy (PO&S) Sustainable Sourcing Team is responsible for managing our Environmental Sustainable Sourcing program.

Utilizing a standardized survey template generated and maintained by the Pharmaceutical Supply Chain Initiative (PSCI), we collect information including but not limited to: greenhouse gas, energy, water, supplier sustainability programs and goals.

GoalsProgressIndicator
We will collect greenhouse gas emissions and water use data from at least 90 percent of our strategic suppliers with the highest environmental impact.GHG and water data collected from 96% 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 percent of our strategic suppliers with the highest environmental impacts will set their own GHG emission and water use reduction targets.On track
On Track

Our analysis shows that a large portion of our water use and GHG emissions are generated upstream of our own operations in various tiers of our supply chain. We realize that in order to make a truly meaningful reduction in our overall environmental impact, we must engage with our suppliers to drive positive change. We have a focus on collaborating with our suppliers to accelerate and enhance environmental initiatives.

Programs and initiatives

We have also initiated a new program designed to evaluate our suppliers’ environmental sustainability programs. The GREEN Supplier program requests that selected suppliers provide environmental metrics, environmental certificates and assurance that they can meet our GREEN Supplier requirements. Suppliers that are able to complete these three items in the associated database are certified as GREEN.

Our company’s Economic Inclusion Leadership Council (EILC) is comprised of leaders across the Global Supplier Management and Global Workforce & Enterprise Services who are passionate about making our company the very best it can be. The role of the EILC members is to serve as peer-coaches and role models, each having made significant strides in managing supplier diversity to yield business results across their teams and the enterprise.

For 2020, we are focused on enterprise goals and action plans, purpose driven-communications, diverse supplier development, and our Tier 2 Diverse Supplier Program.

Our company’s spend goal with diverse suppliers for 2020 is $1.7 billion. Our commitment to growing our small-business suppliers continues as we increase our small-business spend year over year.

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.

We believe We seek We expect We conduct

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
  • Cyber resiliency

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

We recognize that cybersecurity events at third parties pose an increased risk to our business continuity. In 2019, our company built a cyber resiliency supplier risk management program, including a Center of Excellence for governance, assessments of key suppliers and collaborative workshops to review risks and remediation actions. The program fosters mutually beneficial partnerships with our top suppliers. We continue to enhance the program to improve operational excellence and continuous monitoring capabilities.

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 specific 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 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 234 onsite audits in countries identified as high risk for potential human rights violations. We track audit-related corrective and preventative actions to completion.

No incidents of child labor and/or young workers exposed to hazardous work were reported.

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.

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.

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.

Economic Inclusion & Supplier Diversity is the epicenter of our company’s diverse and inclusive procurement practices. We create economic opportunities for underrepresented communities by procuring products and services from minority-, women-, veteran-, lesbian, gay, bisexual and transgender (LGBT)-, and disability-owned enterprises.

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.

Economic Impact Summit

As summarized by key leaders during our fourth annual Economic Impact Summit: supplier diversity is not about counting the spend, it’s about making the spend count. And when that spend surpasses $2 billion, as it did in 2019, making it count in terms of innovation, environmental sustainability and economic development is serious business.

The Summit is designed to promote networking, professional education and Tier 2 contracting opportunities. Our most recent Summit involved 200 current and prospective diverse suppliers and more than 80 MSD procurement representatives from our four main lines of business: prescription medicines, vaccines, biologic therapies and animal health products. It also included matchmaking sessions involving 21 prime suppliers and 150 potential Tier 2 suppliers and panels featuring representatives from 10 diversity and inclusion advocacy partner organizations.

Billion Dollar Roundtable

Our ongoing economic inclusion and supplier diversity 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.

As we are celebrating 35 years of inclusion and impact, we are proud to be hosting the next Billion Dollar Roundtable Summit. The Summit will provide another opportunity to chart a course for the bold and transformative steps which are urgently needed to ensure we are optimizing positive economic impact to some of our most distressed areas, share best practices, and encourage global partners to continue to deliver on our mission.

We work in partnership with others, including:
  • National Minority Supplier Development Council (NMSDC)
  • Women Business Enterprise National Council (WBENC)
  • Disability:IN
  • National LGBT Chamber of Commerce (NGLCC)
  • National Veterans Business Development Council (NVBDC)
  • United States Hispanic Chamber of Commerce (USHCC)
  • United States Pan Asian American Chamber of Commerce (USPAACC)
  • WeConnect International
  • Minority Supplier Development Council UK (MSDUK)
  • SupplyNation
  • Pharmaceutical Supply Chain Initiative (PSCI)
  • Pharmaceutical Environmental Group (PEG)

Global sustainable sourcing

We partner with PSCI and the Pharmaceutical Environmental Group (PEG) to benchmark, engage and share environmental sustainability best practices with peers and suppliers. We lead the Supplier Environmental/Sustainability Engagement teams within both of these organizations.

Our main focus to date has been to generate and update the PSCI Environmental Sustainability Survey template for members to utilize in conjunction with their survey efforts. We are now collectively developing supplier engagement tools and resources.

This initiative ensures a consistent message and approach with our suppliers across the industry. Working together with PSCI, we provide these tools and resources on PSCI LINK platform and webinars.

Performance data

Supplier diversity20152016201720182019
Diverse-supplier spend (in millions)$953$1,500$1,962$2,111$2,433
Small-business spend (in millions)$568$753$802$973$979
Please note that the acquisition of small suppliers may have impacted their small business status and therefore affected the small business spend reflected above.
External manufacturing EHS assessments20152016201720182019
Prospective external manufacturers5034376543
Current external manufacturers6985536148
Total1191199012691
Environmental sustainability
PSCI Environmental Sustainability Survey response rate (includes GHG and water usage)
201720182019
Response rate87%96%96%

Economic inclusion and supplier diversity

In 2019, diverse spend represented 11 percent increase of our total procurement spend, exceeding our corporate goal to achieve $2 billion in spend with minority-owned, women-owned, veteran-owned, LGBT-owned and disability-owned business enterprises.

From a global perspective, we increased our regional EI&SD spend in 2019 by 8 percent. Our global initiatives continue to grow and mature, as we target a combined regional spend of $325 million for 2020.

Graphic: Our impact to the U.S. economy. Described under the heading Performance Data.