Merck purchases goods and services from thousands of suppliers around the world.

Purchases range from office furniture and supplies to waste treatment and disposal services, and active pharmaceutical ingredients used in manufacturing our products. We also work with numerous licensees worldwide to market and distribute our products. Merck follows a global sourcing and relationship management strategy for materials and services with a special focus on the top suppliers of critical goods and services. We maintain strict quality, environmental, ethical, health and safety, and labor standards in our own operations–and we insist on responsible standards from our external manufacturers and licensees as well.

In conducting our business, fewer than 1,000 suppliers make up about 85 percent of our approximately $17 billion annual spend on goods and services worldwide. Some of these suppliers are extremely specialized–for example, those making key ingredients for our medicines, producing special packaging required to protect our medicines and to keep them sterile, or transporting our medicines securely and safely. Other suppliers provide products or services to support the marketing of our products, or specialist services to support our research operations. Finally, we have suppliers who provide more standard goods supporting all Merck divisions, such as office supplies and equipment, and services, such as security, travel, cleaning and waste management.

Merck's Global Procurement department provides the company with a process for, and an expertise in, the sourcing of goods and services. Global Procurement uses what is known as a Sourcing Management Process (SMP) to develop sourcing strategies that result in the acquisition of goods and services that meet Merck's requirements. The senior vice president of Merck's Global Procurement department leads a global management team with both broad geographical range and technical specialization and expertise. The group includes five centers of expertise: Indirect Services, Direct Materials, Research, Emerging Markets, and Strategy & Planning. In evaluating suppliers, Merck's Global Procurement department makes decisions based on assurance of supply, quality, service, innovation and cost.

Merck's supply strategy combines the capabilities of our internal manufacturing organization with those of external partners that provide us with specialized skills and/or expertise and types of manufacturing services.

In recent years, we have concentrated our internal manufacturing capabilities on core competencies and leveraged external capabilities. This focus has and will continue to shift some operations historically conducted internally to our external suppliers.

Managing External Manufacturers of Our Products

Recent reports concerning products manufactured in developing and emerging markets have resulted in customer questions about the supply chains of all pharmaceutical companies. Merck employs internal standards and multiple controls to ensure the safety of our products, respect for human rights, environmental protection, and continuity of supply, regardless of where the finished product and active pharmaceutical ingredients are sourced.

Merck is committed to providing the global community with quality products and a reliable supply of safe and effective medicines and vaccines. We take our responsibility to public health-and product safety-very seriously. This is why we maintain strict product quality standards and multiple supply chain safeguards to ensure the safety and supply of our products no matter where our medicines and vaccines are manufactured in the world.

Merck also works closely with the industry trade organization Pharmaceutical Research and Manufacturers of America (PhRMA) and leaders in the U.S. Congress to address the issue of supply chain safety. We support legislation that will help provide key protections needed to increase consumer confidence that the medicines they use are safe and effective.

Existing external manufacturers are assessed using a risk-based approach, with higher-risk external manufacturers being subject to more frequent on-site assessments.

Working with Suppliers in Mexico

In Mexico, Merck's subsidiary launched a project in 2005 with local suppliers called the "Transparent Suppliers Network," which is designed to share with our suppliers the company's ethical business practices and Code of Conduct. Through the project, which normally involves two months of mentoring and training per supplier, Merck helps key suppliers develop their own Code of Conduct and compliance programs.

Prospective External Manufacturers

New potential external manufacturers of pharmaceutical active ingredients and finished products are screened prior to selection for any major safety, environmental or human rights issues, in addition to other business requirements such as quality, supply and technical competence as described above. The screening includes a survey covering such topics as compliance, fatalities, major incidents and labor practices. Based upon the results of the screening process and the potential risks of the manufacturing operations, certain external manufacturers are subject to a more detailed on-site assessment conducted by a multidisciplinary team, which may include representatives from Merck's procurement, quality, safety and environment, and technical operations. This on-site assessment may be in addition to or in combination with the quality audits.

On-site assessments are conducted by qualified environmental health and safety (EHS) professionals (both internal and external) who are capable of identifying acceptable and unacceptable business partners and highlighting gaps associated with the PSCI Principles before we accept an external manufacturer as part of Merck's supply chain.

Ensuring Privacy of Personal Information

Many Merck suppliers, such as contract research organizations, market research agencies, systems developers and other service providers around the world, process personal information for, or on behalf of, Merck. We require such suppliers to provide appropriate privacy protection for personal information that they handle for, or on behalf of, Merck, in accordance with our privacy policies and applicable privacy laws, regulations and guidelines.