Patti Whitehouse Senior Director, Procurement Global Performance Solutions

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Learning for Performance
Patti WhitehouseSenior Director,
ProcurementGlobal Performance Solutions
NAPP Innovamation Conference Orlando, FL Tuesday,
7 February 2006
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Agenda

• Merck At a Glance
• Global Procurement Overview
• Business Case for Spend Management Compliance
  Modules
• Learning Strategy to Optimize Adoption and
  Performance
• What We Did
• What Were the Results
• What We Are Learning Along the Way
• Q A

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Merck Co. Inc.

• Merck Co., Inc. is a global research-driven
  pharmaceutical company dedicated to putting
  patients first.

The mission of Merck is to provide society with
superior products and services by developing
innovations and solutions that improve the
quality of life and satisfy customer needs, and
to provide employees with meaningful work and
advancement opportunities, and investors with a
superior rate of return.
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Merck At a Glance

• Sales 22 billion
• Employees 60,000
• 150 Countries

• Key Products
• Zocor, Zetia, Vytorin
• Cozaar, Hyzaar, Vasotec
• Fosamax
• Singulair
• Primaxim, Cancidas, Invanz
• Varivax, MMRII, Pneumovax, Recombivax HB

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Mercks Global Presence
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Global ProcurementWho We Are

• 300 strategic sourcing and site procurement
  professionals
• 17 Countries
• Aligned to support Mercks major divisions and
  regions
• VP of Global Procurement reports to the
  President, Merck Manufacturing Division

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Global ProcurementWhat We Do

• 5.0B - 10.0B in external expenditure under
  management
• 11,500 active suppliers
• 2,000 contracts under management
• 17,000 active requisitioners
• 500,000 POs and requisitions annually
• 120 sourcing initiatives in-progress across the
  Company

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2005 Merck Spend by Category and by Region
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2005 Merck Spend by Division
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Global Procurement Transformation Program
Goal Establish a world-class Procurement
organization
Excellence in Execution
Sponsorship
Spend Influenced
Aggregation and Leverage
Automation
Business Requirements
Compliance
Performance Mgmt
Enablers
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Global Procurement Transformation ProgramWhere
We Are

• Completed the redesign and staffed a truly global
  organization, adding over 50 new procurement
  professionals and establishing new regional
  groups in EMEA and Asia/Pacific
• Implemented a consistent strategic sourcing
  process as the way we work
• 300 Procurement professionals have been trained
  in the Sourcing Management process
• 400 management stakeholders now involved in
  sourcing teams
• Implemented enabling systems and tools to
  aggregate and leverage spend and move beyond
  cost down/pay less strategies of expense
  management
• Conditioned the supply base about our new ways of
  working and the value proposition for
  high-performing suppliers
• Increased spend influenced from 52 to 74 in one
  year
• Implemented a global PO Policy
• 93 of global spend is thru an approved
  purchasing system

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Global Procurement Transformation ProgramWhats
Next

• Supplier Value Management a tiered engagement
  program involving procurement, business
  stakeholders, and suppliers working together to
  realize optimum value from our relationships
• 60 participating suppliers in 2006
• 150 participating suppliers by 2007
• Supplier Diversity a business-case driven
  program seeking world-class status and 8.0 of
  spend with diverse suppliers
• Business development
• Supplier development financial advocacy
• Strategic outreach
• PtP Optimization/COMET Company-wide common
  process program will help close the gap between
  contracted and realized value
• consistent, global PtP process supported by
  common technology (SAP)
• expanding electronic supplier integration for
  purchases and invoices
• increased supplier process discipline
• prevention of errors at the source

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Global Performance Solutions
Processes
Supplier Diversity
Automation
Knowledge Expense Mgt

• Requisitioning
• eRFX/auctions
• Sourcing
• Contracts
• Supplier Mgt
• Savings

• Sourcing Management
• Supplier Value Management
• Compliance

• Business Development
• Supplier Development
• Outreach

• Analysis
• Cost Modeling

• Learning Development
• Intern program
• Technical Training
• Career Planning Development

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Business Case for Spend Management Modules

• Cultural Shift - Merck began to view procurement
  as a strategic resource as the new Sourcing
  Management Process (SMP) was institutionalized.
• Technology Availability - Merck was already using
  the Requisitioning and e-Sourcing modules of
  Ariba. Ariba systems became available to support
  sourcing, category management and contracts.
• Technology Integration Our process and workflow
  goals aligned with the direction in which Ariba
  was taking their systems.

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Procurement Processes are Enabled by an
Integrated Suite of Tools
MerckCategoryManagement
AnalysisDashboard
EZ-Buy eInvoicing
MerckContracts - Contracts Workbench -
Contract Compliance
MerckSourcing (eRFx Auctions)
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Procurement Processes are enabled by an
Integrated Suite of Tools
Sourcing Management/Source-to-Settle Process


Procure-to-Pay Process
Analysis / Dashboard
Category Manager
EZ-Buy / Buyer
E-Invoicing
MerckContracts Compliance
MerckContractsWorkbench
Analysis/Dashboard
e-Invoice
EZ-Buy
MerckSourcing
MCM
Analysis/Dashboard review metrics,
spend management (financial repository), to-do
list, Sourcing Management PtP workflow display
MerckContracts - Workbench collaborative
development of contracts repository of contract
terms templates
MerckContracts Compliance - compliance
tracking (PO invoice to contract pricing
terms)
MCM MerckCategoryManagement Sourcing
Management Process templates, plan track
projects, work-flow stage approval, document
collaboration sharing
EZ-Buy -approved PtP purchasing system for goods
services interfaced to financial system for
payment approval system for requisitions
purchase orders
MerckSourcing -Request for Information
(RFI), Proposal (RFP), Reverse Auctions
scoring/ grading, automated evaluation
optimizationsupplier performance feedback surveys
e-Invoice Suppliers participating in Ariba
Supplier Network (ASN) can flip purchase
order into an invoiceautomatically, avoiding
need to send a separate invoice
Flexible, yet standardized solutions designed to
increase value, ensure compliance throughout the
process, and reduce cycle time.
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Learning Strategy to Optimize Investment and
DrivePerformance
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The ADDIE Model

• We applied the instructional systems design model
  to ensure
• Learner-centered design
• Effective use of internal resources
• Realization of intended results

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AnalysisTarget Audience
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AnalysisNeeds Assessment/Learning Objectives

• MerckContracts
• Navigate from one area of the system to another
• Understand Merck contract requirements for your
  procurement sector
• Create a contract from beginning to end
• Collaborate with stakeholders and suppliers to
  finalize contract negotiation
• Manage the terms of the contract to enforce
  compliance
• Support stakeholders and suppliers in the routine
  use of the tool

• MerckCategoryManagement
• Understand the purpose of the tool
• Understand requirements for use
• Navigate from one area of the system to another
• Setup a sourcing project from beginning to end
• Conduct Opportunity Analysis in the system
• Find and use the tools needed to support each
  phase of the SMP process.
• Use workflow tools to
• Collaborate with stakeholders
• Manage the review and approval of documents

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AnalysisImplications for Design

• Common design aspects for both programs
• For a global audience
• Based on prior successful systems training
  programs
• To meet common learning objectives, e.g. behavior
  change, navigating the system
• To develop both cognitive and psycho-motor skills
  
• Tailored design aspects for the programs
• To aid meaningful practice
• To meet unique system application policy
  objectives

Insight Face-to-Face training required one-day
per program. Piggy-back both programs in ex-US
locations to minimize travel costs.
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Design DevelopmentIf you build it, will they
come?

• One-day classroom training program for each
  module, involving Merck-specific application and
  practice
• Initially obtained input and feedback via Ariba
  user conferences
• SMEs worked with Learning Manager to develop
  content
• Tailored the materials from those originally
  provided by Ariba
• Piloted the training with focus and pilot groups,
  and revised according to feedback
• Developed additional reference materials
  including Procurement Users guides, Quick
  Reference guides, Stakeholder Users guides
• Provide single resource for system support
  materials via Portal webpage

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Design DevelopmentHi-Level Course Outlines

• MerckCategoryManagement
• Introductions
• Purpose
• Vision
• Benefits
• Inter-relationship with other Modules
• Setting up a New Project
• Publishing Documents
• Approving Documents
• .
• Expectations Next Steps

• MerckContracts
• Introductions
• Purpose
• Vision
• Benefits
• Inter-relationship with other Modules
• Generating a Contract
• Templates
• Clauses
• Approval
• Expiry/Reminders
• Managing Compliance
• Expectations Next Steps

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ImplementationHow We Covered the Globe

• Prioritized delivery to critical mass of people
  in highest spend areas
• Timeline driven by need to enhance visibility and
  management of sourcing initiatives and savings
  pipeline
• Trained primary system users (Procurement
  organization) to train secondary system users
  (Stakeholders) on limited use of system
• Targeted use of simultaneous translation where
  English-language skills are weak

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ImplementationHow We Covered the Globe

• A team of 6 completed a Train the Trainer
  program
• Overview of techniques and concepts for leading
  effective training
• Participation in the focus group to develop
  system expertise
• Early system access (test environment) for
  practice and to build confidence with the system
  functionality.
• A staged approach to instructor development
• Attending course as a participant
• Attending courses as assistant trainer (driving
  the presentation)
• Leading segments of the course to build
  confidence.
• Conducting the course with the experienced
  trainer present.

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ImplementationHow We Covered the Globe

• Trained our Procurement organization to train
  their cross-functional team members
• Team members use the system in a limited way.
  Thus, a specific team member system training
  class was not needed.
• The training includes
• A discussion topic about what stakeholders need
  to know
• Hand-outs
• Web-based materials to share with stakeholders

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ImplementationHow We Covered the Globe
of people trained
100 80 60 40 20 0
100 350 People Trained Pool of Trainers 6
Jan March May July Sept Nov.
Contracts 31 classes starting January 2006
Category Management 31 classes starting
November 2005
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ImplementationHow We Covered the Globe Class
Registration
Registration manually tracked and reported to
mgt
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Evaluation

• Did They Like It?
• Average Course Satisfaction Rating 4.5 out of 5
• Rating comments
• Liked computer-based hands-on approach
• Liked reference materials
• Did They Learn It?
• Still developing tracking reports
• Approx. 20 projects loaded to-date
• Have worked in coaching role w/ select team
  leaders to observe project input
• Time to rollout approx. 7 months per course /
  system
• Total Cost of global rollout training 90K
• Currently 76 active users

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Progress To-DateSince December 1, 2005

• 60 of US target population attended
  CategoryManagement training
• 30 of US target population attended Contracts
  training
• International training scheduled starting in
  April 2006
• Quarterly training programs scheduled for new
  hires
• By June 2006, will have trained 90 of target
  population on both new tools
• By July 2006
• 100 of active projects launched since July 2004
  will be loaded in MerckCategoryManagement
• 100 of US contracts will be generated via
  MerckContracts

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What We Learned

• What We Would Improve Next Time
• Drive more pro-active registration through
• Early and frequent communication of rollout
  timing/calendar
• Early and frequent communication of senior
  management expectations

• What Worked Well
• Training and communication tasks integrated in
  project plan
• Focus group customer-in before rollout
• Hands-on use of tool
• Practice scenarios tailored to our organization
• Basing course on previously delivered (other)
  systems training approaches

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Q A
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Thank You!