Success in Leveraging Supplier Diversity

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Success in Leveraging Supplier Diversity

• HPCLC
• October 12, 2010

Tom Cummins Director - Commercial Services
Procurement
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Forward-Looking Statement

• This presentation includes forward-looking
  statements within the meaning of the safe harbor
  provisions of the United States Private
  Securities Litigation Reform Act of 1995. Such
  statements may include, but are not limited to,
  statements about the benefits of the merger
  between Merck and Schering-Plough, including
  future financial and operating results, the
  combined companys plans, objectives,
  expectations and intentions and other statements
  that are not historical facts. Such statements
  are based upon the current beliefs and
  expectations of Mercks management and are
  subject to significant risks and uncertainties.
  Actual results may differ from those set forth in
  the forward-looking statements.
• The following factors, among others, could cause
  actual results to differ from those set forth in
  the forward-looking statements the possibility
  that the expected synergies from the merger of
  Merck and Schering-Plough will not be realized,
  or will not be realized within the expected time
  period, the impact of pharmaceutical industry
  regulation and healthcare legislation the risk
  that the businesses will not be integrated
  successfully disruption from the merger making
  it more difficult to maintain business and
  operational relationships Mercks ability to
  accurately predict future market conditions
  dependence on the effectiveness of Mercks
  patents and other protections for innovative
  products the risk of new and changing regulation
  and health policies in the U.S. and
  internationally and the exposure to litigation
  and/or regulatory actions.
• Merck undertakes no obligation to publicly
  update any forward-looking statement, whether as
  a result of new information, future events or
  otherwise. Additional factors that could cause
  results to differ materially from those described
  in the forward-looking statements can be found in
  Mercks 2009 Annual Report on Form 10-K and the
  companys other filings with the Securities and
  Exchange Commission (SEC) available at the SECs
  Internet site (www.sec.gov).

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Todays Merck

• Merck is a global healthcare leader working to
  help the world be well
• We provide innovative medicines, vaccines,
  biologic therapies and consumer and animal health
  products to help improve health and well-being
• We work with customers in approximately 140
  countries to deliver broad-based healthcare
  solutions
• We demonstrate our commitment to increasing
  access to healthcare through far-reaching
  policies, programs and partnerships to help
  people around the world lead healthier lives
• The Company is known as Merck in the United
  States and Canada. Everywhere else, we are known
  as MSD

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Business Case for Supplier Diversity

• Reduce costs / Increase revenue / Leverage
  innovation
• Demographic shift customers and suppliers
• Support wealth creation in the communities in
  which we do business
• Build brand loyalty brand visibility
• Enables us to better understand and anticipate
  the needs of the people we serve
• Supports Mercks Corporate Social Responsibility
  goals and policies including Mercks Diversity
  and Inclusion initiatives
• Support Commercial and Government contracts
  (U.S.)
• Its the right thing to do

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Perspective on Supplier Diversity

• Competitive advantage vs. social program
• Global businesses depend on strong national
  economies
• Inclusion of all communities of suppliers creates
  stronger economy and an innovative supply chain
• Global strategies do not necessarily equate to
  one global supplier diverse suppliers can
  partner for the optimum solution
• 2nd tier drives supplier diversity throughout the
  supply chain AND enables diverse supplier
  opportunity and development

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Supplier Diversity Case Study

• CASE 1. Diverse Supplier Provides Managed
  Service for Temporary Labor Requirements
• Merck is collaborating with a certified diverse
  supplier who performs a managed service for
  sourcing temporary labor requirements through
  their web-enabled vendor management system.
  Merck utilizes the expertise of the diverse
  supplier to drive delivery of quality resources
  and market pricing while achieving best in class
  Tier 2 diversity performance.
• The supplier has demonstrated an eagerness to
  grow with Merck and has invested in program
  enhancements to deliver more value. The annual
  spend volume with this supplier has doubled in
  three years. Merck manages the relationship with
  this supplier through its Supplier Value
  Management program and has identified other
  potential areas to collaborate for total work
  force solutions with this diverse supplier.
• Example demonstrates opportunities to
  collaborate and grow business with existing
  diverse suppliers.

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Supplier Diversity Case Study
CASE 2. Merck teams with Large Corporation on
driving significant diverse supplier
opportunities across Integrated Facilities
Management portfolio Mercks sourcing effort for
IFM services in North America required the prime
suppliers commit to achieving significant share
of their spend with diverse suppliers. This
requirement was a key decision maker in the
selection process. From the outset and still
today, Merck collaborates with the IFM supplier
in the sourcing across its scope of services
specifically targeting diverse supplier solutions
- including landscaping, janitorial, mail room
services, and other site maintenance activities.
This strategy has resulted in the building of
strong relationships, cost reduction delivery,
and the enhancement of the IFM suppliers
corporate supplier diversity program. Example
shows that building aggressive diverse supplier
expectations into major sourcing opportunities
can prove to be very successful and ultimately
provide competitive advantage for all involved.
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Supplier Diversity Case Study
CASE 3. Merck partners with a lead
Transportation Management Services provider,
driving diverse supplier opportunities in the
trucking category. To be distinguished as Mercks
lead supplier of domestic trucking services, this
supplier was required to adopt Mercks supplier
diversity program and carry out the policy as a
commitment under the Master Services Agreement.
This supplier is enrolled in Mercks Supplier
Value Management program as a top tier supplier,
due in large part to its proactive stewardship of
a program to qualify, subcontract and cultivate
diverse carriers in its TMS. This carriers
diversity program is rigorously tracked via
monthly governance meetings. This supplier is
required to use commercially reasonable efforts
to spend a minimum annually of the total of
that years spend for US based (including Puerto
Rico) diverse subcontractors. Example shows
how aggressive targeting can drive results in a
category (logistics) traditionally challenged to
contribute to company diversity goals.
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Opportunities and Challenges in Logistics

• Supplier diversity opportunities in the Logistics
  category are typically limited to carriers under
  the North American domestic trucking area.
• Large logistics suppliers with expansive carrier
  network are well served to invest in a supplier
  diversity program as a means of landing and
  growing business with companies such as Merck.
• Long term Services Agreements must include strong
  supplier diversity language
• Language adopting companies diversity definitions
• Requirements to develop and maintain rigorous
  program
• Required and realistic diversity commitments are
  ideal

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Weighing Options

• Joint ventures
• Strategic alliances or partnerships
• Carve-out
• 2nd Tier

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