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PHARMACEUTICAL
SUPPLY CHAIN
INITIATIVES
1.0 Abstract
Merck is a pharmaceutical company that strives for strict quality standards and effective
supply-chain management to ensure the efficacy, safety and supply of their products. They
sustain an interdependent, flexible supply chain that works to take into account global and local
market supply needs while engaging and investing in local and regional partnerships to enable
market access. Within this document is an analysis of the Merck supply chain and an evaluation
of how Merck is maintaining their supply chain performance while upholding a high level of
customer service and providing profits to the shareholders. Additionally, the pharmaceutical
industry and their customers needs will be assessed. The paper will look at how Merck has
changed its supply chain structure from a centralized model to duplicating a structure deploying
partnerships locally and what implications that has. Their pricing and inventory management
structures will get discussed as well as their distribution and supply chain. Merck is concerned
with product serialization and security which is specific to the pharmaceutical world and food
supply chains. In conclusion, suggestions will be made on how Merck may improve their
current efforts or what changes would be more efficient.
Figure 1, Cost and Side effects dominate consumers top frustrations regarding their treatment.
Reprinted from Customer Experience in the Pharmaceutical Sector: Getting closer to the
Patient, by PWC, 2013
Merck Supply Chain is different than dealing with a supply chain that deals with the
production of soap or ice cream, items that do not carry a high risk of personal harm if not used
or handled appropriately. Merck produces medicines and vaccines that they distribute to 140
different countries (Merck, 2015). Merck has changed its supply chain structure recently by
going from a centralized model to duplicating a structure more like Coke-Cola, and deploying
partnerships locally (Fernie, 1995). Merck key performance indicators (KPIs) are shown in
Figure 2 (Merck, 2013).
Figure 1 Merck Key Performance Indicators. Reprinted from Corporate Responsibility 2013
Annual Report by Merck, 2013
The suppliers, 3PL firms, distribution centers, and retail stores may be better understood if
we look at Merck's products. Merck makes vaccines and produces medications that support
women's health including prescription and many oncology drugs used in the battle against
cancer. The company as a whole uses their research in veterinary sciences to advance in both
human and animal medicinal fields.
Part of the Merck business plan is to assist in making the world healthier. Vaccines are
needed in the "developing countries" where 1.3 billion people do not have adequate access to
essential healthcare needs (Oschman, 2015). Mercks faces many challenges distributing
products to these countries representative on the map below in Figure 3 (Merck, 2013).
Figure 2 Developing countries were Merck is present with vaccines from Corporate
Responsibility 2013 Annual Report by Merck, 2013
In the US, Merck is structured based on the Food and Drug Administrative licensing. Plants
are located in Durham, North Carolina, West Point, Pennsylvania, Elkton, Virginia and Carlow,
Figure 4: Pharmaceutical Supply Chain Planning. From Pharma Supply Chain 2020 by Price
Water House, 2014.
Merck personally takes responsibility for global serialization of their product and has a
public commitment to the following (Merck Global Serialization Public Policy, 2015):
1. GLOBAL STANDARDS: Merck will provide product serialization consistent with the GS1
Data Matrix, the Electronic Product Code Information Services (EPCIS), the Global Trade
Item Number (GTIN), and the Global Location Number (GLN) as the unique trading partner
identification number. Products will be traceable to the point of production, facility, time and
date of production, as well as that the seal was not broken through transport.
2. PRODUCT AUTHENTICATION at each supply chain node: Merck will have each point in
the supply chain verified so that the product is secure in transport.
3. SIMPLIFIED REQUIREMENTS: Merck encourages governing policies to consider
simplification and flexible requirements for the consumer and the needs of the business.
4. GLOBAL HARMONIZATION: Merck favors global standardization on serialization to
simplify business practices on a worldwide level.
5. NATIONAL REQUIREMENTS: Merck favors national level policies on drug transportation
and serialization. Public Policy Statement: Supply Chain Security - Global Product
Serialization. As an example, the United States legislation enacted in late 2013 - The Drug
Supply Chain Security Act which establishes uniform federal standards to improve the
security of the drug supply chain and reduces the impact of the burdensome patchwork of
state laws related to pedigree requirements for drug distribution by establishing a national
system for tracing pharmaceutical products through the supply chain. Merck supports such
measures.
6. DATA SECURITY AND ACCESS: Merck is dedicated to securing the data generated by
serialization so that authenticity of product is not compromised in any form.
7.
ITEM LEVEL SERIALIZATION: Merck believes serialization should be at the closed item
level. This means the package being opened by the consumer or the seal on the bottle at the
point that the syringe takes the product (Merck Global Serialization Public Policy, 2015).
Figure 5 Merck Supplier Standards Retrieved from Manufacturing & Supply Chain - Merck
Responsibility by Merck, 2014
Annual Report 2013
Merck Group | Key figures
million
Total revenues
Sales
Operating result (EBIT)
Margin (% of sales)
EBITDA
Margin (% of sales)
EBITDA pre one-time items
Margin (% of sales)
EPS (in )
EPS pre one-time items (in )
Business free cash flow
2013
2012
Change in %
11,095.1
10,700.1
1,610.8
15.1
3,069.2
28.7
3,253.3
30.4
5.53
8.78
2,960.0
11,172.9
10,740.8
963.6
9.0
2,360.2
22.0
2,964.9
27.6
2.61
7.61
2,969.3
-0.7
-0.4
67.2
30.0
9.7
111.9
15.4
-0.3
Figure 7, Merck Group Key Figures From from Corporate Responsibility 2013 Annual Report by
Merck, 2013
Figure 8 Merck Product Pipeline From from Corporate Responsibility 2013 Annual Report by
Merck, 2013
2014 is also expected to show a decline due to the rearranging in assets that are going on.
Corporate strategy is to continue focusing on what Merck is good at which centers on research
and development in the vaccine markets as well as some other targeted medications.
Executive strategy would be to employ the means to market and deliver the medications
coming down the Merck pipeline as efficiently and quickly as possible. This means maintaining
good relationships with suppliers, understanding licensing and patent agreements, as well as
marketing to the people and physicians that need the medications. Figure 2 shows that Merck
has increased the number of local and regional partnerships in the manufacturing and supply
chain markets to make this happen. In 2011, regional and local partnerships were at 0. In 2013,
the regional and local partnerships were at 354. Future success means keeping these partnerships
that coincide with future developments and communicating those developed products as they
occur.
Adding goals to maintain or gain market presence in specific medical areas will keep Merck
moving forward and profitable. If Merck can be ahead of the game in the cancer medications
and continue to derive drugs for HIV and AIDS patients then they can be a major market
provider in critical health prevention areas. Mathew Herper of Forbes ranked Merck number 8
among the fortune 500 pharmaceutical companies (Herper, 2015):