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Supply Chain Management


Merck: Leading pharmaceutical supply chain initiatives

Merck: Leading Pharmaceutical Supply Chain Initiatives 21

AbstractMerck 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. Merck ValueThe concept that the customer experience is vital to the success of an organization is not a new theory. Pharmaceutical companies do not have a good reputation when it comes to being customer driven (Michels, Rebhan, & Ghosh, 2014). Because health care policies are changing, the pharmaceutical companies have to adopt more customer driven strategies to insure future performance in a volatile market. Pharmaceutical companies are making production and supply chain changes leaner in an effort to regulate costs. (Benke, Retterath, Sangster, & Singh, 2014). Merck specifically is bringing value to the table by updating their supply chain system and partnering with United Parcel Service to improve the supply chain management, safety and delivery times (Dunn, 2011). Figure 1 shows consumer frustrations with the pharmaceutical and medical community (PWC, 2013). For this reason, the pharmaceutical companies are changing focus to service and demand strategies (PWC, 2013). Consumers like the convenience of being able to purchase prescriptions straight from the company and delivered to their home, much like doing their retail shopping online. In fact, baby boomers with numerous lifelong conditions are willing to pay up to 21% more for home delivery of their meds (PWC, 2013). Some of these concepts affect Merck but others do not because of the specificity of the Merck market.

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, 2013Merck 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 2 Merck Key Performance Indicators. Reprinted from Corporate Responsibility 2013 Annual Report by Merck, 2013The 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 3 Developing countries were Merck is present with vaccines from Corporate Responsibility 2013 Annual Report by Merck, 2013In 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, Ireland. Vaccines from those plants need to be distributed worldwide and timing would become crucial in epidemic situations were vaccines would be needed quickly. The Merck supply chain network needs to be able to respond to these worldwide needs if an epidemic was to occur.Merck Supply Chain NetworkPharmaceutical companies have similar networks to everyone else but the end customer is pharmacies and hospitals, or pharmaceutical mailing houses. A Merck network may look like the following as shown in Figure 4 (RX Response, 2104).

Figure 4: Pharmaceutical Supply Chain Network Example, From by RX Response, 2014Figure 4 shows a practical network with raw material inputs from suppliers, finished product, packaging, distribution to hospitals, pharmaceuticals and patients. Because Merck deals in vaccines, they fall more on the development side of the supply chain, and would distribute direct to pharmacy, as opposed to wholesale. Figure 5 shows how the supply chain would break down as far as people, skills, and collaboration (Price Water House, 2014). The information systems is a critical part of the network. Automation will be a factor in numbering or serializing the product for tracking through the entire network from manufacturing until the time the seal is broken at the pharmacy, by the doctor, or the patient (Merck, 2014). Pharmaceutical companies must maintain traceability and be able to maintain efficiency in supply chain networks while providing regulation of controlled substances. Choosing 3PLs that can maintain the traceability needed for moving controlled substances is critical for pharmaceutical companies (Price Water House, 2014).

Figure 5: 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):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.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. SIMPLIFIED REQUIREMENTS: Merck encourages governing policies to consider simplification and flexible requirements for the consumer and the needs of the business.GLOBAL HARMONIZATION: Merck favors global standardization on serialization to simplify business practices on a worldwide level. 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.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. 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). Serialization and security are major factors that Merck considers when choosing supply chain partners. Merck has chosen to partner with United Postal Service due to their relentless track record in providing services. UPS was chosen by Merck because of UPS's global reach, and their understanding for secure distribution of pharmaceutical products. UPS is also familiar with the import and export needs of Merck's business and would be able to handle the issues involving the transport of vaccines and drugs. Choosing a 3PL provider requires high scrutiny over their business practices, capabilities, credentials, and track record for storing, handling and distributing products safely (Marcum, 2007). Traditional 3PLs are not adequately trained to handle these materials and could lead to the loss of millions of dollars. They must select a partner that specializes is pharmaceutical supply chain; this will allow them to leverage their best practices in (Marcum, 2007):Just In Time (JIT) inventory Streamlined supply chain Tighter control and better documentation Increased customer confidence Enhanced focus on core business competenciesOver 3.5 billion prescriptions are filled annually in the United States. Even though Merck only has