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Procurement Policy - Case Study Example

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rights to a startup company's new drugs which was later turned into a new corporation worth $500 million a year. The end result of this engagement was that Merck sold 50 percent of its shares in the new corporation to Astra (Ghauri, 2001, p. 40). In so doing, consumers are able to acquire life-saving and life-altering pharmaceuticals in a timely manner. At the heart of this alliance is the notion that in order to effectively and efficiently manage a business such as Merck, there is a need for strategic supply management. In recent years Merck has embodied a strong shift from a predominantly domestic supply management strategy to one which has entailed global management strategies. This strategy operates under the assumption that procurement policy is central to the success of the company. This strategy can be characterized by two main elements:
Arnold (1989) illustrated one of the most concise conceptualizations of the global supply management strategies utilized by Merck by delineating four very distinct procurement policy development stages. These stages are as follows:
1. The Traditional Procurement Policy. In this phase, the scope of the procurement policy is narrowly define and limited to domestic sources. ...
One important characteristic of this phase is the understanding that there is no attempt to link the procurement strategy with the other components of the business process. Essentially, the traditional procurement process is somewhat haphazard and does not represent any long-term business strategy (Rai & Eisenberg, 2003).
2. International Purchasing. The second phase of the procurement policy is one which expands the supply sources to non-domestic sources. The underlying intent of this phase is to reduce the production cost by acquiring the necessary materials at a lower cost. During this phase, there is a systematic exploration of foreign sources with the aim of realizing a price advantage over its competitors by purchasing the raw materials at a lower cost without adversely affecting the quality of goods, the level of service provided to consumers and the delivery as well as the availability of goods. An example of this can be seen in the very presence of Merck in Japan. This can be both positive and negative with the positive implications very evident and a negative implication whereby there is limited American investment within the Japanese economy. Essentially, Merck's presence in Japan is solely for the purposes of acquiring materials at a low cost and exporting those materials for economic gain within the United States (Chen & Drysdale, 1995, pp. 141-142).
3. Strategic Procurement Policy. During this phase, the procurement policy of the organization becomes an integral part of its overall business strategy. It is utilized as a means of gaining a significant advantage over its competitors. One important component can be seen in the fact that global sourcing is exploited in such a manner as to improve the ...Show more
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Summary

Without a doubt, one of the most prolific strategies which prove to be most successful within the pharmaceutical industry is that of extensive alliance during early product development. Much of this alliance is aimed at acquiring early development compounds from start-up companies…
Procurement Policy
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