Executing a sound procurement strategy is crucial for a company to realize its business objectives, a point made by Richard Spoor, senior vice-president of global procurement at Merck & Co. (Whitehouse Station, NJ). Spoor spoke at the DCAT–ISM Sourcing Summit: 

 an educational program presented by the Drug, Chemical, and Associated Technologies Association (DCAT), along with its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program was held Nov. 3–4, 2010, in New Brunswick, New Jersey. Post its merger with Schering-Plough (Kenilworth, NJ) in November 2009, Merck articulated an overall company goal of achieving $3.5 billion in annual cost savings by 2012. Merck’s global procurement organization is playing an integral role in helping the company meet those goals. 

Procurement aims to contribute to Merck’s overall annual cost-savings goals. That goal will be realized as part of an overall strategy for Merck’s global procurement activities. Merck’s procurement organization is responsible for approximately $15 billion in annual spending, which is allocated to procurement for indirect materials, direct materials (e.g., raw materials, intermediates, active ingredients, finished drug products, and packaging), research, and emerging markets. These categories are organized in a matrix structure across three main geographic areas:  the Americas (North, Central, and South America), Europe, and Asia Pacific/Japan. 

Spoor emphasized that Merck functions as a global procurement organization, and as such, constantly evaluates whether a particular activity or function “can be sourced at a higher level.”  This choice means assessing whether the spending should be elevated, for example, from a local to a regional level, or from a regional to a global level. The ability to elevate relies on supply-market capabilities and the nature of the requirements. The benefit of that elevation, where appropriate, said Spoor, is the opportunity to improve efficiencies, reduce costs, and develop more strategic and collaborative partnerships with fewer suppliers. He offered facilities management as one area in which the company has taken that approach. “Facilities management had been locally administered on a site-by-site basis,” he said. “But now it is a function that we have been able to globally integrate.” In doing so, the company has been able to reduce the number of contract providers providing facilities-management services. 

Supplier consolidation, however, is not an objective unto itself. Spoor emphasized that in seeking to concentrate its vendor base, the company has to ask the fundamental question of whether a supplier is the right supplier. “In short, how should we modify our supplier base?” he said. That process of deciding whether a supplier fits the company’s sourcing and procurement strategy is an implicit part of Merck’s overall procurement strategy, which evolves from a cross-functional, multistep process in which the strategy is defined, analyzed, created, implemented, and managed. Supplier value management, particularly for the company’s top strategic suppliers, is a crucial part of the company’s procurement activities. Supplier value management involves the key elements of governance, performance management, and continuous improvement. The governance model involves deciding on the frequency of a communication with a supplier, who participates in meetings and related communication, and the key stakeholders in that relationship, meaning the operations within Merck for which the supply relationship is strategic. Performance review entails quality assessments as well as evaluating how successfully a given supplier meets the business requirements of Merck. Continuous improvement involves collaborating with strategic suppliers to innovate and create value for both companies. 

Given this framework and underlying philosophy of Merck’s global procurement strategy, Spoor said that the company has taken three approaches in evaluating its procurement activities and supplier base as part of its integration process following its merger with Schering-Plough and in moving on the path to realizing its cost-synergies targets. These approaches may be classified as “fast-start,” “quick win,” and “strategic sourcing.” The fast-start approach, or the initial stage of this process, evaluated Merck’s relationships with approximately 30 external suppliers, which included legacy suppliers from Merck, Schering-Plough, and the combined company. Merck was seeking compelling business cases for business continuity that created long-term value for Merck and growth for its suppliers. The resulting evaluation of suppliers included how these relationships were important to overall procurement goals of managing supply, risk, and related issues.  The “quick-win” approach evaluated opportunity for consolidation to enable cost savings. The third approach, which is an ongoing process, is evaluating the company’s sourcing strategies across all categories to ensure that the right relationships are in place. “We are unfreezing the organization and looking at all activities and relationships,” said Spoor.  

But in all these approaches, Spoor emphasized that the key evaluation of suppliers evolves around how a supplier satisfies the business requirements of the company. In a hierarchy of needs, these requirements start at the most fundamental level with assurance of supply and quality and ascend up a hierarchy of requirements of service, cost, and finally innovation. Spoor said strategic suppliers are those that hit all performance characteristics, bring to the table new models of collaboration such as new service-delivery models, and operate in an open, transparent, and flexible way in which the customer­–supplier relationship can be optimized.   

Just as Merck evaluates its suppliers, procurement evaluates itself by determining how the procurement organization adds value back to the company. The company has a feedback loop, which involves two formal survey reviews per year by which top global and regional executives within the company are asked to evaluate the performance of procurement. In this way, the procurement organization can improve to deliver sustained value to the company. “It is all part of building a world-class organization,” he said.

Articles

Sourcing

Richard Spoor, senior vice-president of global procurement at Merck & Co., discusses the company's global procurement strategy and philosophy.

Delivering Value Through Global Procurement

The outbreak of cholera, which began in October 2010, is a major public health crisis that is requiring the international community to respond with assistance. Despite efforts to stem the disease, officials are concerned of the epidemic spreading in Haiti and possibly in neighboring countries. As representatives from international groups, governments, and relief agencies respond to the crisis on an immediate level, researchers are urging stockpiling of cholera vaccines to prevent the advance of the disease.  

Nigel Fisher, United Nations Deputy Special Representative of the Secretary-General, Ad Interim, for the United Nations Stabilization Mission in Haiti (MINUSTAH), spoke at a UN press conference on  November 23, 2010, saying that the lack of adequate sanitation and clean water created conditions that allowed cholera to spread quickly in Haiti and the number of cases was increasing. He said the response to the epidemic should be “ratcheted up” by providing more adequate water supplies, improved hygiene, and more doctors and nurses. He also said that more drugs, equipment, and human resources were needed as were more treatment centers. The epidemic was expected to continue through the next months or even year, said Fisher. The projection for possible contamination according to a worst-case scenario could be as high as 400,000 people, according to the World Health Organization (WHO) and the Pan American Health Organization (PAHO). 

According to information supplied by MINUSTAH, as of Nov. 23, 2010, Haiti’s Department of Public Health and Population reported 1523 deaths and 66,593 cases of infection, including 27,933 persons hospitalized since the discovery of first case of cholera on Oct. 20, 2010. PAHO estimates that more than 350 doctors, 2000 nurses, and  2200 additional support staff are needed for the next several months to deal with the outbreak. Currently, only around 10% of households outside the capital of Port-au-Prince are estimated to be getting access to soap and clean water, according to the UN Office for the Coordination of Humanitarian Affairs. The office added that oral rehydration salts, water-purification tablets, chlorine, body bags, medical supplies, soap, latrines, and other supplies are in short supply. Some 4 million water-purification tablets and 11,000 bars of soap are needed in the capital, Port-au-Prince, for just for two weeks, according to some estimates.  

As of Nov. 23, 2010, 36 cholera treatment centers (CTCs) with a capacity of 2830 beds have been installed in Haiti in addition to 61 units of treatment of the disease already operational, according to MINUSTAH. Four other CTCs with a capacity of 800 beds are planned, noted OCHA. According to a PAHO Nov. 25, 2010 press release, the spreading epidemic has put increased pressure on the newly established CTCs, which are intended to provide medical care for severe cases. PAHO says more work needs to be done at the family and community level to encourage treatment at home with oral rehydration salts or at a local community health center to prevent cases from becoming too severe.

According to the PAHO press release, to stem the spread of the disease, health and relief workers have been working to provide potable water supplies and chlorine tablets to Haitian families and communities. They have also been distributing oral rehydration salts, which can prevent severe illness and death from cholera if administered promptly. In addition, the Haitian government is disseminating prevention messages through the mass media and through public education materials that encourage hand washing, safe food handling, and prompt treatment for people who have symptoms. To further encourage prevention, PAHO and WHO provided 22,000 educational posters for distribution to voting places around the country, which held national elections in late November. The posters, produced in collaboration with Haiti’s Ministry of Health, describe how to prevent cholera and what to do if one becomes ill. Experts are also concerned that official case counts significantly undercount cholera’s toll due to gaps in the surveillance system. 

PAHO/WHO is coordinating with international and NGOs to ensure the prompt acquisition and distribution of medical supplies. Last month, PAHO/WHO, in coordination with Haiti’s Ministry of Health and the World Food Program, distributed 87 tons of essential medicines and supplies 

 truck and helicopter in nine departments of the country. The supplies were intended to replenish stocks in areas already affected by the epidemic and to prepositioned supplies sufficient to treat about one-third of the expected cases during the coming months. PAHO/WHO and its partners have distributed medical supplies to 23 hospitals and health centers in metropolitan Port-au-Prince. PAHO/WHO also is providing training, technical cooperation and expertise to Haiti’s Ministry of Health and other partners in areas such as epidemiology and surveillance, logistics, case management, laboratory, water and sanitation, and risk communication.

PAHO recently sent an alert to health officials in other member states in Latin America and the Caribbean urging them to take steps to prepare for the possible arrival of cholera. PAHO recommended stepped-up surveillance, preparedness planning, improvements in water and sanitation, and increased public education. PAHO/WHO and about four dozen international and nongovernmental partners issued a joint strategy with detailed plans for how to support efforts to control Haiti’s cholera epidemic and to mitigate its impact. The appeal is based on epidemiological modeling that projects about 200,000 cases during the next six to 12 months. Of these cases 20% of them will require intensive fluid rehydration and possibly antibiotics. These estimates will be re-assessed depending of the results of ongoing field surveys that are being conducted. Other less severe, symptomatic cases would be treated as out-patients or at the community level.

The strategy details how PAHO/WHO and other international partners plan to help Haiti scale up efforts to ensure access to treatment for infected people but also fundamental actions that will break the cycle of infection through improvements in water and sanitation and better hygiene practices by the population. The main framework for the health component of the appeal is Haiti’s National Cholera Response Plan. It aims to protect families at the community level with health promotion and improved case management, and also by reorganizing health services into new Cholera Treatment Centers and Cholera Treatment Units in already existing health facilities. Clean water and sanitation are the main preventive measures that need to be in place to break transmission of cholera. These will require both health and water and sanitation partners to continue to work together to distribute such items as water purification tablets, hygiene kits, and potable water. The strategy will require about $164 million in international funds. 

On Nov. 24, 2010, the World Bank announced a $10-million emergency grant to address the epidemic. The emergency funding is expected to be formally submitted for approval to the World Bank board of directors in December 2010, but bank emergency-operation procedures allow for up to 40% of the grant to be used to reimburse eligible expenditures already incurred as part of the emergency response. As much as $8 million will go towards funding the response capacity of the largest NGOs, which are already taking up much of the health work in Haiti. 

The problem in Haiti is compounded by the loss of infrastructure and expertise as a result of the earthquake that struck the country on Jan. 12, 2010. The earthquake crippled the country's public infrastructure, killing up to 30% of Haiti's senior public officials, while destroying or putting out of commission water and sanitation systems. Many of the 1.3 million people displaced by the earthquake live in temporary camps, with unsafe water and sanitation, a breeding ground for cholera. The proposed grant will strengthen the monitoring capacity of the Ministry of Public Health and Population and the Haitian National Directorate of Water Supply and Sanitation. 

The American Red Cross announced on Nov. 29, 2010, that it is committing an additional $2 million to combat the cholera epidemic in Haiti. The funds will be used to purchase supplies, including 40 million chlorine tabs, 3 million pieces of soap, and 140,000 oral rehydration solution sachets, as well as tens of thousands of buckets, jerry cans, and water-purification sachets. The new contribution increases the total American Red Cross support for the cholera response to date to more than $3.3 million. 

Since the cholera outbreak began in October, the American Red Cross has provided 5000 cots for use in health centers operated by Partners in Health, Project Medishare, and the Haitian Ministry of Health. At the request of the Haitian Ministry of Health, the American Red Cross has purchased 250,000 sachets of oral rehydration solution. During the response, the Red Cross has also been providing safe, chlorinated water each day to an estimated 280,000 displaced survivors throughout Port-au-Prince.

In response to the rapid spread of cholera in Haiti, the humanitarian-relief effort, Direct Relief International has expanded its medical-supply efforts to support more than 100 hospitals and health facilities throughout the country and has furnished 157 tons of medical essentials and hygiene materials to health facilities. Direct Relief is working in collaboration with Haiti’s National Ministry of Health and its departmental directors, as well as directly with individual health facilities caring for cholera patients throughout the country.

Abbott (Abbott Park, IL) reported in October that it is providing $180,000 in support to help address the recent cholera outbreak in central Haiti. This donation includes a $25,000 grant from the Abbott Fund to Partners in Health and $155,000 in donated Abbott rehydration solutions and antibiotics. Donated products are being distributed through AmeriCares, Catholic Medical Mission Board, Direct Relief International, and Partners in Health. 

In the wake of the cholera outbreaks in  Haiti, a group of leading experts from Harvard Medical School, George Washington University, and the International Vaccine Institute (IVI) have urged the United States to create an emergency stockpile of cholera vaccines for future humanitarian use.

“The costs to the US of creating and maintaining a stockpile of several million doses of cholera vaccine would be low,” said the experts in an article published online on Nov. 24, 2010 in 

 (NEJM), according to a Nov. 24, 2010 IVI press release. “But the humanitarian benefits of rapid deployment of cholera vaccines to areas at high risk for major cholera outbreaks such as earthquake-wracked Port-au-Prince, the Haitian capital where 1.3 million people live in unsanitary refugee camps could be enormous,” according to the release. 

 “Outbreaks of cholera and other diarrheal diseases impede recovery from natural and man-made disasters,” said Peter Hotez, president of the Sabin Vaccine Institute and a coauthor of the NEJM article, in the IVI release. “They also destabilize poor communities, promoting poverty by interfering with agricultural productivity and adversely affecting food security, and thereby potentially igniting new conflicts or exacerbating existing ones. If the vaccine were available now, it could still be delivered to as-yet-unaffected parts of Haiti in time to stabilize the country.”

Cholera is a diarrheal disease caused by the bacterium 

. It can be fatal because the pathogen elicits secretion of large quantities of bacteria-laden fluid from the intestine, resulting in extreme dehydration. It is transmitted through the fecal-oral route, and if the drinking water or food supply becomes contaminated with 

, the disease can spread through a population very rapidly. It is estimated that the annual global burden of cholera is 3 million to 5 million cases and 100,000 to 130,000 deaths, according to IVI. A recent analysis of the global burden of cholera conducted by the IVI estimates that approximately 1.5 billion people are at risk for cholera globally.

Treatment of cholera involves replacement of lost fluid with oral or intravenous rehydration solution and antibiotics, but can be difficult to administer when healthcare infrastructure is poor or damaged because of a crisis. One way to prevent the spread of the disease is to administer a vaccine. According to IVI, three oral cholera vaccines currently are available. Dukora, produced by Crucell (Leiden, The Netherlands), consists of killed 

cells and recombinant cholera toxin B. Dukoral is licensed in more than 60 countries and is prequalified by WHO for purchase by UN  agencies. The two other vaccines, Shanchol produced by Shantha Biotechnics of India, and mORC-VAX made by VaBiotech in Vietnam, consist of killed 

 cells without the added toxin. Both vaccines were licensed in 2009, and Shanchol is currently awaiting prequalification by the WHO. All three vaccines are administered in a two-dose regimen. Shanchol was originally developed by IVI, and does not require administration with a buffer, thereby simplifying its use under field conditions, including refugee camps and other post-crisis situations, according to IVI. According to IVI, fewer than 500,000 total doses of oral cholera vaccines (Dukoral or Shanchol) are presently available for shipment from their manufacturers. Stockpiling the vaccine is considered an important strategy for the situation in Haiti but also to address the problem in neighboring countries, said IVI.

CSR and Sustainability Forum

The outbreak of cholera in Haiti is causing a public health crisis that is requiring international efforts to stem the disease.

Cholera Outbreak in Haiti Creates Public Health Crisis

Pharmaceutical companies face ongoing cost pressures and the need to optimize all business functions, including procurement and sourcing activities for raw materials, intermediates, and active pharmaceutical ingredients (APIs). Eric Evans, vice-president and general manager of the global API division at Covidien (Dublin, Ireland), offered a commercial perspective on sourcing and ways in which companies can take a more holistic and fuller view of procurement activities.  Evans spoke at the DCAT–ISM Sourcing Summit: 

 an educational program presented by the Drug, Chemical, and Associated Technologies Association (DCAT), along with its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program was held Nov. 3–4, 2010, in New Brunswick, New Jersey.

APIs account for approximately $400 million of the roughly $2 billion of Covidien’s annual pharmaceutical group sales. Covidien’s API business centers around three primary businesses: controlled substances, acetaminophen, and pharmaceutical stearates. As a seller of APIs to many different types of organizations worldwide, Evans has developed a broad perspective on how purchasing decisions are made. He explained his views on

are generally measured, the limitations of traditional metrics used in measuring the success of sourcing and procurement activities, and how these metrics and related functions can be improved. 

In a bottom-line approach, procurement success is typically measured by lowering the cost for materials purchased for the next year, said Evans. The total cost of ownership, which involves factors such as security of supply, quality, and sustainable and flexible partnerships with suppliers, is considered, but often is not a prominent piece of measuring procurement success. “The disconnect in how procurement success is measured is due to several factors,” he said. Part of the disconnect results from the difficulty in quantifying factors in the total cost of ownership. “For example, risk is difficult to measure. How do you quantify the costs needed to secure supply and maintain a flexible relationship to guarantee supply?” he said. “There is also the balancing act between short-term financial goals, which are tied into short-term financial metrics and longer-term objectives. Generally, short-term financial goals have a greater emphasis. Individual performance metrics are tied into these short-term goals. In short, measuring and rewarding procurement success holistically is a challenge.” 

Evans pointed out that there are many reasons to address this challenge. “Forward-thinking sourcing demands diagnosing issues before improvement can be made and therefore facilitates the likelihood those improvements can be made,” he said. “Ancillary considerations beyond cost are important. People need to have their incentives measured and rewarded properly in order to achieve these other goals. Shareholder value is created by having this balance,” he said. 

 To illustrate his point, Evans offered several examples of situations that come up in procurement activities. A fundamental question is: What is the true cost of a material? “Typically, most companies use a volume-adjusted measurement of purchase-price variance in examining cost. It generally boils down to ‘units times price,’” he said. Evans pointed out, however, that the components of cost could be much greater. Cost can entail “obvious additional elements” such as freight and distribution costs, but also can include “important, yet less obvious elements” such as inventory carrying cost, support organization transaction costs, time, and effort, he said. Also, “critical, yet often obscure elements” such as performance and quality are crucial components of determining cost. It is also important to take into consideration that cost is not a one-year occurrence. “Cost is longitudinal, meaning how can future savings be captured,” he added. 

“All companies talk about the need to mitigate risk in purchasing decisions, meaning ensuring security of supply,” said Evans. Simple ways of minimizing risk can be through the use of active market intelligence, multisource procurement, long-term supply agreements, and quality audits, inclusive of inventory requirements. Although risk mitigation is important, it typically is not measured, or if it is measured, it is more on a subjective basis. “The risk discussion must have meaning beyond purchasing and go beyond a theoretical concept,” said Evans. “If risk mitigation is not measured and rewarded, it will be underemphasized.”   

 Evans said most companies have global initiatives with broader goals such as minimizing environmental impact, having sustainable business relationships, long-term perspective on growth, and assurance of quality to customers and shareholders. “Yet again, how is this typically incorporated into the measured and rewarded objectives of the purchasing organization?” said Evans. “Suppliers need to encourage purchasers to help ‘tell the story’ of how their global objectives are being supported. Suppliers and purchasers need to quantify impact where possible and have high-level internal dialogue that goes beyond the negotiation table about these objectives and their importance,” he said. The key takeaway is that suppliers need to take joint responsibility by going beyond cost per unit when defining value, he emphasized. 

  A final consideration is to consider the effect an individual firm may have on the broader market, particularly over time. “The bigger picture needs to be incorporated by individual players, both suppliers and purchasers,” said Evans. For example, suppliers have to consider long-term interests and not engage in risky short-term behavior such as cutting costs unrealistically, lowering quality, or engaging in anticompetitive behavior. Similarly for purchasers, a key question is: How can the health of the overall supply picture be built into the decision-making process of the firm?  “It is important for industry purchasers to have rules to play by to ensure a healthy marketplace,” said Evans. “Trade associations are also crucial to maintaining a broader perspective. ”

 Given the need to redefine how procurement success should be measured, Evans outlined some improvements that companies might explore to get better results. These improvements involve the metrics themselves as well as organizational and attitudinal approaches as follows: 

• Perform an active and holistic review of purchasing decisions, which also include other functional areas of the organization such as general management and finance

  • Modify the incentive structure to incorporate the intangible goals of the organization

 • Use risk-adjusted financial models versus one-dimension cost-variance reports

 • Create evergreen, multidisciplinary teams that assess the true cost of purchasing decisions across the organization

  • Become actively involved within industry groups to ensure a healthy operating environment

• Maintain genuine concern over the health of one’s suppliers.

Measuring the total cost of ownership in customer/supplier relations is crucial in evaluating the performance of a procurement organization.

Commercial Considerations in Sourcing: Measuring Procurement Success

The World Health Organization (WHO) issued in October 2010 a report, 

Working to Overcome the Global Impact of Neglected Tropical Diseases

, to outline the progress and strategy to address the problem of tropical diseases. The report is the first time WHO has specifically issued a report on neglected tropical diseases, which typically have low visibility in the developed world as they tend to affect specific populations or areas in impoverished and developing nations

“Neglected tropical diseases have had their breeding grounds in the places left furthest behind by socioeconomic progress, where substandard housing, lack of access to safe water and sanitation, filthy environments, and abundant insects and other vectors contribute to the efficient transmission of infection,” said Margaret Chan, WHO director, in the report. Chan said developing and distributing treatments for neglected tropical diseases is important not only from a global health perspective but also as an antipoverty initiative as global health initiatives are incorporated in the United Nations’ Millennium Development Goals, a set of eight antipoverty goals. “Efforts to control neglected tropical diseases constitute a pro-poor strategy on a grand scale,” said Chan in the report. “The logic has changed: instead of waiting for these diseases to gradually disappear as countries develop and living conditions improve, a deliberate effort to make them disappear is now viewed as a route to poverty alleviation that can itself spur socioeconomic development.”

Neglected tropical diseases are a group of communicable diseases that thrive in impoverished settings, according to the WHO report. Of the world’s poorest 2.7 billion people (defined as those who live on less than $2.00 per day), more than 1 billion are affected by one or more neglected tropical diseases. The WHO report focuses of 17 tropical diseases: dengue fever, rabies, trachoma, Buruli ulcer, endemic treponematoses, leprosy, Chagas disease, sleeping sickness, leishmaniasis, cysticercosis, guinea-worm disease, echinococcosis, foodborne trematode infections, elephantiasis, river blindness, bilharziasis, and intestinal parasitic worms. Most of the diseases are parasitic diseases caused by various protozoan and helminth parasites. 

WHO recommends five public-health strategies for prevention and control of neglected diseases:

• Expansion of preventive chemotherapy. Preventive chemotherapy is used to deliver anthelminithic medicines by means of a population-based approach to target more than one form of helminthiasis. 

• Intensified case-detection and case management. For protozoan and bacterial diseases such as African trypanosomiasis, leishmaniasis, Chagas disease, and Buruli ulcer, the new focus is on better access to specialized care through improved case detection and decentralized clinical management as a means to prevent and reduce mortality and interrupt transmission. 

 • Improved vector control. Integrated vector management seeks to combine different interventions within several sectors, including health, agriculture, and the environment. The goal is to improve the efficacy of cost-effective, ecological sound, and sustainable disease-control measures against vector-borne neglected tropical diseases. 

• Appropriate veterinary public health measures. Several neglected tropical diseases come from animal hosts. These diseases include cysticercosis, echinococcosis, foodborne trematode infections, and rabies. 

• Provision of safe water, sanitation, and hygiene.

WHO also recommends three other strategies for the prevention and management of neglected tropical diseases. These recommendations include promoting development to break the cycle of disease and poverty, foster health security of individuals and livestock, and strengthen health systems in national health initiatives. 

These strategies are part of an overall approach to address neglected tropical diseases through a broader integrated plan to combat poverty and disease. WHO says that neglected tropical diseases can be controlled if three requirements are met:

• Attention and action are given to the health needs of populations affected by neglected tropical disease rather than to their individual disease

• Interventions to deliver treatments are integrated with control measures

• Evidence-based advocacy is deployed to generate resources for control from the international community.

Private-sector support through research, development, and direct financial contributions are part of the solution to addressing the problem of neglected tropical diseases, according to the WHO report. In issuing the report, WHO identified the contributions made by the pharmaceutical industry, including several recently announced efforts by pharmaceutical companies. These initiatives include:

• Novartis (Basel, Switzerland) renewed its commitment to donate an unlimited supply of multidrug therapy and loose clofazimine for leprosy and its complications 

 • GlaxoSmithKline (London)  announced a new five-year commitment to expand its donation of albendazole through WHO, in addition to their current donation for lymphatic filariasis to treat school-age children for soil-transmitted helminthiases in Africa. The commitment includes 400 million doses per year for this purpose. 

• sanofi-aventis (Paris) agreed to renew its support for the WHO program to eliminate sleeping sickness and its support for treatments for Buruli ulcer, Chagas disease, and leishmaniasis for the next five years. 

• Bayer (Leverkusen, Germany) started discussions with WHO on how to evolve its current commitment to fight sleeping sickness and Chagas disease. 

• Eisai (Tokyo) committed to work toward the global elimination of lymphatic filariasis by providing diethylcarbamazine 

• Johnson & Johnson (New Brunswick, NJ) announced it is expanding its donation of mebendazole to supply up to 200 million treatments per year for treatment of intestinal worms in children. 

Following the WHO report, several companies and associations announced further efforts targeted for treating neglected tropical diseases. In November 2011, GlaxoSmithKline (GSK, London) and the Oswald Cruz Foundation (Fiocruz), a research institute based in Brazil, formed a collaboration to share research and expertise for drugs to treat malaria, tuberculosis, and leishmaniasis, with initial research prioritized for drugs to treat Chagas disease and leishmaniasis. Merck & Co. pledged $150,000 to the Carter Center, a nonprofit organization founded by former President Jimmy Carter, for its sponsorship of the Onchocerciasis Elimination Program of the Americas (OPEA), an initiative to eliminate river blindness. The center’s OPEA works with Merck, the Merck Mectizan Donation Program, the Pan American Health Organization (PAHO), the US Centers for Disease Control and Prevention, the Loins Club International Foundation, and the Bill and Melinda Gates Foundation as well as other academic and other organizations to eliminate river blindness. Merck’s funding will be in the form of a challenge grant, whereby the Carter Center will raise an additional $150,000 in matching funds. In 2008, PAHO passed a resolution calling for river blindness to be eliminated in Latin America by 2012 and for official certification of elimination by 2015. The Carter Center assists national ministries of health in six Latin American countries (Brazil, Colombia, Ecuador, Guatemala, Mexico, and Venzuela) to conduct health education and distribute Merck’s Mectizan (ivermectin), a drug to treat river blindness. Also, the Bill and Melinda Gates Foundation pledged $50 million over five year to the Innovative Vector Control Consortium, a nonprofit product-development partnership, for developing insecticides for improved control of mosquitoes and other insects that transmit dengue, other neglected tropical diseases, and malaria. 

In its report, WHO summarized these contributions and others by the pharmaceutical industry for combating tropical  neglected diseases. By active ingredients, these contributions are: 

Albendazole: unlimited supply as needed from GlaxoSmithKline for lymphatic filariasis

Azithromycin: unlimited quantity from Pfizer (New York) in the context of SAFE strategy (Surgery, Antibiotic treatment, Facial cleanliness and Environmental improvement)

Eflornithine: unlimited quantity until 2012 from sanofi-aventis for human African trypanosomiasis

Ivermectin: unlimited supply as long as needed from Merck & Co. for lymphatic filariasis and onchocerciasis

Multidrug therapy (rifampicin, clofazimine and dapsone in blister packs) and loose clofazimine: unlimited supply for as long as needed for leprosy and its complications from Novartis

Mebendazole: 50 million tablets annually from Johnson & Johnson for soil-transmitted helminthiases-control program for children. From 2011, the donation will increase to 200 million annually

 Melarsoprol: Unlimited quantity until 2012 from sanofi-aventis for treating human African trypanosomiasis 

Nifurtimox: 900,000 tablets (120 mg) per year by 2014 from Bayer for treating Chagas disease and human African trypanosomiasis

Pentamidine: unlimited quantity by 2012 from sanofi aventis for treating human African trypanosomiasis

Praziquantel: 200 million tablets during 2008-2017 from Merck KGaA (Darmstadt, Germany) for treating schistosomiasis

Suramin: unlimited quantity by 2012 fro Bayer for treating human African trypanosomiasis

 Triclabendazole: From Novartis for treating fasciollasis

The WHO report identified successes in combating neglected tropical diseases and future challenges. Some key positive achieved and predicted results are:

• Treatment with preventive chemotherapy reached 670 million people in 2008  

 • Dracunculiasis, also called guinea worm disease, will be the first disease eradicated not by a vaccine, but by health education and behavioral change  

• Reported cases of sleeping sickness currently have dropped to their lowest level in 50 years 

• Lymphatic filariasis is targeted for elimination as a public health problem by 2020. 

The report also recognizes the challenges that lie ahead and the opportunities to alleviate the suffering of people in disease-endemic countries. For example, delivery systems need to be strengthened. "The use of the primary school platform to treat millions of children for schistosomiasis and helminthiasis in Africa is a perfect example. It provides opportunities to broader health education, thereby ensuring healthier future generations," said Lorenzo Savioli, director of the WHO Department of Control of Neglected Tropical Diseases, in an Oct. 14, 2010 press release. 

The report finds that better coordination is needed with veterinary public health as an essential element of zoonotic disease control. For example, every year, tens of thousands of human deaths occur from rabies, usually contracted from dogs. An estimated 95% of cases occur in Asia and Africa and up to 60% of cases are in children under 15 years of age. The report also said that public health systems must also respond to changing disease patterns resulting from climate change and environmental factors, which may cause the wider spread or resurgence of some diseases. Dengue, for example, has  emerged as one of the fastest-growing disease burdens in the world; today, cases are reported in many regions formerly free of the disease. Sustained environmental and vector management remain key approaches for the prevention of vector-borne neglected tropical diseases, said the report.

Pharmaceuticals, improvement in healthcare delivery systems, veterinary care, and poverty-alleviation remedies are part of an overall strategy for addressing neglected tropical diseases.

WHO Report Outlines Successes, Challenges and Strategies for Combating Neglected Tropical Disease

Working with contract research organizations (CROs) is an important element of a pharmaceutical company’s outsourcing strategy, particularly if the CRO is located offshore. Laurie Chipperfield, director of technology and strategic sourcing, Worldwide Research and Development (WRD) at Pfizer (Groton, CT), shared her insight on factors to consider when working with CROs in China. Chipperfield spoke at the DCAT–ISM Sourcing Summit: 

, an educational program presented by the Drug, Chemical, and Associated Technologies Association (DCAT), along with its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program was held Nov. 3–4, 2010, in New Brunswick, New Jersey.

Chipperfield outlined the key elements of Pfizer’s strategic priorities as it relates to the company’s research and development (R&D) activities in China. Its major goal is to accelerate global portfolio delivery in key disease areas by increasing clinical trial activities and capabilities and by establishing a network of CRO partners to support research projects. The company also is seeking to build its knowledge and insight in disease mechanisms relevant to Asian patients. Lastly, the company wants to pursue innovative approaches to redefine its R&D business model. 

In looking at China, these goals are occurring amidst changing macroeconomic and demographic conditions driving the healthcare market in the country. These conditions are increased urbanization, a growing aged population, an increase in Western lifestyle diseases, and an establishment of a basic healthcare system to increase coverage for urban and rural residents.  As these conditions evolve, the market for CROs in China, still fairly new, continues to unfold. CROs emerged in China in the mid-1990s, and as of 2008, there were some 400 CROs in China, according to a 2009 report by the research firm Decision Resources (Waltham, MA). The major Chinese CROs are located primarily in Shanghai and Beijing, particularly in two large biotechnology parks: Shanghai Zhangjiang Biopharmaceutical Park and Beijing Zhonguancun Life Science Park. The Chinese CRO market is expected to continue to grow at a compound annual growth rate of 33%. 

Chipperfield said that many considerations in working with a CRO in China are common to any effective outsourcing relationship, but additional factors specific to the business environment in China also have to be taken into account. For example, contract language specific to China may be used, but it is important to take more proactive measures in consideration of intellectual property (IP) protection. These measures involve confirming work practices at a potential CRO or supplier to ensure IP protection. For example, it is important for a sponsor company to understand how people and work are segregated, the level of employee retention, and information-handling practices. It also is important to pick a supplier with whom a strong and stable relationship can be developed. Understanding the ownership structure, the employee turnover rate, and detailing in-house drug-discovery programs of the CROs that may present potential conflicts of interest are important factors to consider when selecting a CRO. She also suggested that for key partners, it is important to speak with industry experts such as venture-capital principals to gain an understanding of the CRO under consideration. For the sponsor company, it is wise to determine and prioritize what type of work would be appropriate to be performed in China.  

Chipperfield further outlined crucial steps to take when selecting a supply partner, which are relevant for good supplier development practices, with some regional customization for China. These steps include:

• Be clear on the intent of the supplier relationship––certain partners will be more strategic than others

• Keep in mind the cultural expectations for business relationships in China

• Establish and use in-country offices for facilitation of large collaborations and supplier evaluation 

• Regard past project experience with the CRO or supplier as the best predictor of future success in the outsourced relationship, which can involve skills in areas such as the selection of trial projects, cycling through project complexities, and understanding the supply chain

• Expect that a partner’s initial service and experience level will be different than the in-house capabilities of the sponsor company

• Understand the supplier and the location of which the service will be performed

• Evaluate the business team’s ability to convey a contract manufacturing and research mindset.  

As sponsor companies consider these issues when outsourcing to China, Chipperfield shared some trends that may affect the environment for working with CROs in China. “Chinese CROs are moving upstream in the R&D value chain and are increasingly offering services in chemistry, biology, assay development, and even target identification,” she said. “Some integrated CROs can offer round-the-clock scientific services with Web-based direct access to data for clients.” Alliances among CROs also are increasing as a means to broaden service offerings, and Western CROs are expanding to China. Also, it is likely that there will be increased merger and acquisition activity in the highly fragmented CRO market in China. Moreover, some CROs are developing and bringing their own new drugs to market, a factor that sponsor companies should consider in CRO selection for possible conflict of interest. She adds that geographical proximity is extremely important for projects that require the exchange of goods between the customer and the supplier. “Companies may be disappointed if they focus too much on FTE [full-time equivalent] costs and overlook the total transaction and opportunity cost of outsourcing.”

Industry estimates suggest that the global CRO market is expected to reach $24 billion by 2012, and the majority of this growth is expected to come from India and China. The sector will also grow in terms of depth of offerings by suppliers such as increasing offerings in formulation development and good manufacturing practice capabilities. Also, within China, specifically, cost differentials between inland-based CROs and coastal-based CROs have to be considered. Escalating costs in the more well-established coastal areas of the CROs is creating a potential advantage for inland-based CROs, who may be able to compete more effectively on costs, including labor, perhaps by as much as 20–30%.

Outsourcing

Sponsor companies need to consider regional- specific factors in the growing and changing market for contract research when outsourcing to China.

Considerations in Pharmaceutical Outsourcing in China

This article is part of a special section on pharmaceutical sourcing, procurement, and corporate social responsibility. See the full roundup of articles 

As pharmaceutical companies face ongoing cost pressures, all functions of an organization are tasked with the challenge of how to extract more value, including ways to innovate. Innovation is a well-established part of new product development, but it also can play an important role in sourcing and procurement. Gregg Brandyberry, CEO of Wildfire Commerce, senior advisor of AT Kearney procurement and analytic solutions, and former vice-president of procurement of global systems and operations for GlaxoSmithKline (London), recently addressed how collaborative innovation can be applied in customer–supplier relationships. Brandyberry spoke at the DCAT/ISM Sourcing Summit 2010: 

, an educational program presented by the Drug, Chemical, and Associated Technologies Association (DCAT), along with its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program was held Nov. 3 and 4, 2010, in New Brunswick, New Jersey.

“CEO expectations and market forces are creating new challenges for supply management,” said Brandyberry. “The question facing companies is how to deliver more value from supply categories that are too sensitive, too strategic for traditional sourcing.” The answer, he explained is to “combine the capabilities of a company and its suppliers to deliver more value for it and its customers. A company should use the supply base and information as resources to both supplement and complement its own resources and to then use this combined capability to improve overall competitiveness by creating additional value for both customers and shareholders.”

One way to derive this value is through collaborative innovation in customer–supplier relations. “Collaborative innovation is a new style of working,” said Brandyberry. “It removes many traditional boundaries that prevent ideation. Individuals, functions, geographies, companies, and even competitors work toward a goal. Information, ideas, and work are shared freely among participants. Little formal governance is required as participants are committed to acting in an open, honest, and ethical manner.” 

To execute collaborative innovation, removing barriers to innovation is crucial. This process may involve organizational and governance changes, altering the system for performance evaluation and incentives, and developing new skill sets. By its very nature, a “forward” innovation approach encourages the synthesis of new ideas rather than just an analysis of existing approaches as is the case in more “traditional” innovation approaches, said Brandyberry. A forward approach is more holistic and focuses on the whole, encompasses a cyclical consideration of cause and effect, and promotes unconstrained ideation, he said. In contrast, traditional innovation approaches tend not to be holistic but rather focus on specific parts of a process, consider cause and effect linearly, and control the design of new ideas. “In short, it is a difference between incremental improvements under a traditional approach to achieving true innovation under a forward approach,” said Brandyberry.  

Idealized design is at the core of this forward approach in innovation, said Brandyberry. Idealized design can be realized by using expertise-shared ideation rather than expert-led ideation and by eliminating constraints. “How often have you gone to a meeting and have offered suggestions and the experts have immediately silenced that idea,” asked Brandyberry. Idealized design focuses on “starting from scratch” whereas continuous improvement typically “tinkers” with what exists today, he said.

Brandyberry recognized the reluctance to integrate idealized design in a customer–supplier relationship. “True collaborative innovation requires a step-change in thinking,” he said. “The idea of working openly and sharing information in a highly transparent environment with little traditional governance just doesn’t fit very well in most of today’s corporate environments.”

Moreover, cost improvements, although important, are not the single measure of success between a procurement organization and its suppliers. “Each supplier engagement has to be considered,” said Brandyberry. “Using a strategy for securing price concessions when purchasing indirect materials such as office supplies may be appropriate, but it may not be the same approach that should be used used when sourcing active ingredients or other raw materials critical to the supply of a particular product.” Both buyers and suppliers need to recognize those differences, apply different skill sets as dictated by a specific supplier arrangement, and develop the relationships accordingly. “Most companies are not willing to make the investment necessary to support real innovation processes,” said Brandyberry. “Instead, they assign people with inadequate skill sets to match up with equally unskilled collaborators on the supplier side of the equation. Great technical people may not be great collaborators,” he said. 

To address these problems, Brandyberry offered ways to organize an idealized design session. The session scope, facility requirements, session facilitation, screening and recruitment of attendees at the session, and the number of participants and observers all are elements that need to be considered when putting together an idealized design session. 

Brandyberry recommended that the session’s scope be short. Following an initial identification session, the scope of a session may be further narrowed. He suggested using a room that can fit approximately 15 participants and several observers, have the participants close together to encourage dialogue, and have the observers in the back or side of the room. He added that it is good to have a projector and flip charts available during  the exchange of ideas. 

Another key choice is to “pick a facilitator who is a good listener, able to capture the statements of participants quickly, and is not biased or judgmental,” said Brandyberry. As for as the participants, “find participants who are users of the product, process, or service of interest,” he said. A total of 12­–15 participants per facilitator is ideal. The observers are the providers of the product, process, or service, who learn by listening until the end of the session. “Having the users’ ideas will broaden the observers’ consideration of opportunities and perception of priorities,” said Brandyberry. 

Brandyberry offered further advice. He provided six guidelines for a facilitator to encourage the ideation process:

• Consider that the current process or system was destroyed last night as way to not let current systems or process by a barrier to idea creation

• Focus on what is desired by staying in design-from-scratch mode

• Don’t worry about whether resources are available to implement an idea

• If a participant disagrees with someone else’s specification, the participant should simply state an alternative specification  

• Providers must agree to remain in listen-only mode. 

Participants perform two major functions: generate specifications and develop a design. A specification is a statement of a desired property or characteristic of a function, a process, or input. A design is a structure and a process that will bring about one or more desired specifications. “Specification statements should begin with phrases such as ‘there ought to be’ or ‘I would like,’” said Brandyberry. He said specifications should be recorded in real time and participants should stay in “design-from scratch” mode. Facilitators should encourage this process by allowing participants to amplify and explain their ideas. 

In the design phase, participants create or draw structures and processes to bring about a specification. Design choices should be made by consensus, and all design ideas should be documented so that all design ideas are captured, said Brandyberry. “The design phase is the most difficult part of the process. Some teams will struggle, but it is important that the process go forward from here.” 

Using idealized design facilitates the implementation of collaborative innovation and ultimately optimizes that collaboration.  Brandyberry also discussed a leading edge methodology that he has participated in through his work as senior advisor with A.T. Kearney Procurement & Analytic Solutions. “Collaborative Optimization is used to optimize the supply base and even parts of the supply chain when complex arrays between suppliers, capabilities, specifications, and geographies exist,” says Brandyberry. “Instead of pitting ‘supplier versus supplier’ for the best price or total cost, a company uses tools such as more detailed purchase price and cost analyses, expressive bidding, and combinatorial optimization as a way to determine the best scenario where everyone can win,” he said. 

These new value strategies, concluded Brandyberry, require more than traditional purchasing approaches, greater levels of trust with suppliers, internal commitment, and continual collaboration throughout the supply chain. “It is important to consider where your company stands,” he said, pointing to the financial benefits that can be realized through these procurement gains.

Developing and implementing true collaboration in customer/supplier relationships. This article is part of a special section on sourcing and corporate social responsibility.

Seeking Idealized Design to Collaborative Innovation in Sourcing and Procurement

A roundup of developments in corporate social responsibility and sustainability from the bio/pharmaceutical industry, its suppliers, and other public and private organizations.

 (Abbott Park, IL) has been named one of the top 10 companies for diversity in a survey by the Calvert Group, which evaluated 100 Standard & Poor companies on 10 diversity indicators, including equal employment practices, internal and external diversity initiatives, family-friendly benefits, compensation, board representation, and overall company commitment. 

 awarded Jason Egbert, a student with cystic fibrosis, the 2010 Thriving Student Achiever Scholarship, which is awarded to students that have shown exceptional academic performance, community service, and creative and artistic talent. Details of the award, the winner, and three “honorable mentions” can be found at 

 (CHAI) have partnered to provide HIV testing to infants in all countries working in partnership with CHAI with a focus on the sub-Saharan Africa. Under the agreement, Abbott will supply RealTime HIV-1 qualitative tests to healthcare facilities. The test is currently used for research purposes and is expected to be marked by the Conformite Europeene by January 2011. Abbott also will offer the capability to collect and process samples using dried blood spots, which eliminates the need to refrigerate specimens.   

 (Thousand Oaks, CA), through the Amgen Foundation, and 

, a community of action that links social entrepreneurs, announced 10 finalists in the Patients Choices/Empowerment competition and launched public online voting in search of the best innovative solutions that empower patients, elevate patients’ voices, and improve health outcomes. The ten finalists were selected from 277 entries. The three finalists that receive the highest number of votes from the Changemakers.com community will each receive a $10,000 cash prize in unrestricted funding to support their projects. Details of the 10 finalists may be found 

 announced the 11 recipients of the Amgen Excellence in Volunteering Awards, an award launched by the Amgen Foundation this year to recognize staff in the United States and Puerto Rico who are making a difference in the communities where the company has a presence. The Amgen Foundation will award $5000 to each nonprofit organization featured in the winning staff members’ application. Details of the winners may be found 

 The Amgen Excellence in Volunteering Awards is part of the Amgen Volunteers program, which provides $500 volunteer service grants to eligible nonprofit organizations for every 15 hours volunteered by Amgen staff. Since 2007, Amgen has awarded $1.5 million to organizations through that program. 

 is accepting applications for its 19th annual Amgen Award for Science Teaching Excellence (AASTE). This award is designed to recognize and honor extraordinary science teachers at the K-12 level who significantly impact their students through exemplary science teaching and who achieve demonstrated results in student learning in communities where Amgen operates. Applications are open until February 2011. Details may be found

 has pledged $50 million over five years to the 

, a nonprofit product-development organization, for developing new insecticides for the improved control of mosquitoes and other insects that transmit malaria, dengue fever, and other neglected tropical diseases.

 (Midland, MI) was named a 2010 Leader of Change by the Foundation for Social Change and the United Nations Office for Partnerships for providing business and sustainable solutions. Dow was one of 12 corporations recognized at the 2010 Global Conference for Social Change, held in New York in mid-November. 

 (Indianapolis, IN) contributed $11.6 million to the 

. The amount represents contributions from Eli Lilly’s US employees and retirees and a matching gift from the Lilly Foundation. 

, a research institute based in Brazil, formed a collaboration to research and develop new medicines to treat diseases that disproportionately affect people living in the developing world. GSK and Fiocruz first formed a relationship in 1985 to develop vaccines. Under the new collaboration, GSK and Fiocruz will share research and expertise for drugs to treat malaria, tuberculosis, and leishmaniasis, with initial research prioritized for drugs to treat Chagas disease and leishmaniasis. 

, an information resource for mothers and parents and part of 

 (New Brunswick, NJ), has partnered with Grameen Foundation, a global nonprofit organization for fighting poverty, to support mobile healthcare for expectant mothers in the developing world through a fundraising and education campaign. The organizations are working on a free service, “Mobile Midwife,” which is deployed by mobile phones in rural communities of Ghana to provide expectant mothers with advice for prenatal care. 

 (Whitehouse Station, NJ) has awarded a four-year, $1-million contribution to the 

National Center for Women and Information Technology

 (NCWIT), a coalition of 250 corporations, academic institutions, government organizations, and nonprofit associations working to increase women’s participation in information technology. The partnership between Merck and NCWIT will initially focus on raising awareness among K-12 school counselors for increasing student interest in computing and technical careers. 

, a nonprofit organization founded by former President James Carter, to the center for its sponsorship of the Onchocerciasis Elimination Program of the Americas (OPEA), an initiative to eliminate river blindness. The center’s OPEA works with Merck, the Merck Mectizan Donation Program, the Pan American Health Organization (PAHO),  the US Centers for Disease Control and Prevention, the Loins Club International Foundation, and the Bill and Melinda Gates Foundation as well as other academic and other organizations to eliminate river blindness. Merck’s funding will be in the form of a challenge grant, whereby the Carter Center will raise an additional $150,000 in matching funds. In 2008, PAHO passed a resolution calling for river blindness to be eliminated in Latin America by 2012 and for official certification of elimination by 2015. The Carter Center assists national ministries of health in six Latin American countries (Brazil, Colombia, Ecuador, Guatemala, Mexico, and Venzuela) to conduct health education and distribute Merck’s Mectizan (ivermectin), a drug to treat river blindness. 

 Special Representative for Business and Human Rights John Ruggie posted a draft document, “Guiding Principles for the Implementation of the UN Protect, Respect and Remedy Framework” on his online consultation 

 The forum is intended to gather views from stakeholders and is open for comment until Jan. 31, 2011. The Guiding Principles elaborate and clarify for companies, states, and other stakeholders how to operationalize the UN’s Protect, Respect and Remedy Framework, which provides practical steps to identify and address the business impacts on the human rights of individuals. After the forum closes in January, Ruggie will submit the final text of the Guiding Principles to the UN for translation before formally presenting it formally to the Human Rights Council in June 2011.

Representatives of almost 40 countries in the 

European Region met in Oslo Nov. 25 and 26 to strengthen efforts to prevent and control the epidemic of noncommunicable diseases. The Oslo consultation was held in advance of a UN meeting on noncommunicable diseases that will be held in September 2011 for European governments to discuss Europe’s needs and perspectives in the global discussion on noncommunicable diseases. The four most prominent noncommunicable diseases (cardiovascular diseases, cancer, diabetes, and chronic lung diseases) account for 77% of the disease burden and 86% of all deaths in the 53 countries in the WHO European Region. Low- and middle-income countries in the eastern part of the WHO European Region are particularly and increasingly affected by noncommunicable diseases. The Oslo consultation focused on development challenges and the importance of tackling health inequities and social determinants of health. The Oslo consultation was hosted by the Norwegian government and cosponsored by WHO, the United Nations Economic Commission for Europe, and the United Nations Department of Economic and Social Affairs.