Merck & Co. is expecting to see as much as $1.4 billion in procurement savings by 2008 thanks to new procurement procedures implemented at the drug maker. Willie Deese, senior vice president of global procurement at Merck, recently said in his 15 months at Merck, he is "reinventing procurement" at the company, teaching its 200 buyers a new way of doing things. Deese is implementing a five-stage sourcing strategy that is expected to reduce costs by $1.4 billion over five years, including as much as $400 million this year. The five stages include define, gather, create, implement, and review. One of the main focus areas of the new program is working more closely with suppliers to find ways to improve Merck's performance, and not focus solely on reducing prices or costs. Merck has held three supplier forums in the past 18 months where suppliers presented white papers outlining their projects to increase value at Merck.

Deese says cross-functional teams are not always the answer to reducing costs. "About 30% of our spend is 'just do it' spend where no cross-functional team is required," he says. "Procurement has the final say and controls that spend."

Control of spend is another area Deese plans to focus on at Merck. In early 2004 when Deese joined Merck, the procurement organization influenced only 54% of the company's spend. This year, the goal is to increase that amount to 70% and then bump it up to 90% by 2006. To drive that control, Merck is leveraging the Ariba spend management tools it implemented back in 2000 in the U.S. and has now pushed to its global sourcing operations. "Procurement is viewing automation as a key enabler today at Merck," he says.