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Success in Leveraging Supplier Diversity

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1 Success in Leveraging Supplier Diversity
HPCLC October 12, 2010 Session 5 Supplier Diversity Leveraging supply spend with a limited number of suppliers is good business practice to minimize purchasing and transportation costs. As demand increases, however, manufacturers must consider the impact of risk associated with supply constraints. This session will address the latest thinking in diversification of supply to overcome these risks. Speakers: Aaron Dent, VP Indirect Procurement, Merck Len DeCandia, CPO, Estee Lauder Companies Rubin Taborda VP of Diversity, J&J Intro Info Personal – including SD engagement Merck related to SD Tom Cummins Director - Commercial Services Procurement

2 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 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 company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Merck’s 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; Merck’s ability to accurately predict future market conditions; dependence on the effectiveness of Merck’s 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 Merck’s 2009 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (

3 Today’s 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

4 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 Merck’s Corporate Social Responsibility goals and policies including Merck’s Diversity and Inclusion initiatives Support Commercial and Government contracts (U.S.) It’s the right thing to do

5 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 Global businesses depend on strong national economies – a vibrant economy creates affluent consumers, sustains investment in supply-chain research & development and finances development of physical and intellectual infrastructure.

6 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.

7 Supplier Diversity – Case Study
CASE # 2. Merck teams with Large Corporation on driving significant diverse supplier opportunities across Integrated Facilities Management portfolio Merck’s 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 supplier’s 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.

8 Supplier Diversity – Case Study
CASE # Merck partners with a lead Transportation Management Services provider, driving diverse supplier opportunities in the trucking category. To be distinguished as Merck’s lead supplier of domestic trucking services, this supplier was required to adopt Merck’s supplier diversity program and carry out the policy as a commitment under the Master Services Agreement. This supplier is enrolled in Merck’s 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 carrier’s 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 year’s 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.

9 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

10 Weighing Options Joint ventures Strategic alliances or partnerships Carve-out 2nd Tier


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