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Why move your SSC to a high-cost location?

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Cheap operating costs may be appealing to you. But have you considered the price of your service quality deteriorating? Merck Shared Services established SSCs in high-cost locations such as Germany and the US. Why so? In this session, Thomas Laux explains the business case behind this decision and key lessons learnt during his 5 years of delivering high quality shared services, covering:

• What factors to consider when your objective is to focus on delivering a quality service
• Key lessons learnt and what results Merck have achieved in using this approach

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Why move your SSC to a high-cost location?

  1. 1. Why move your SSC to a high-cost location?Thomas LauxVice-President – Global Head Financial Shared Services Merck sharedserviceslink.com Summit March 13th, 2012, London
  2. 2. Content 1 Who is Merck? 2 Merck’s Global Financial Shared Services - The story so far 3 Experiences so far & Conclusions 4 Challenges for the future2 Merck Global Financial Shared Services | March 2012
  3. 3. Merck at a glance Merck conducts its operations in four divisions: – Merck Serono: Prescription drugs – Consumer Health Care: Over-the-counter products for preventive health care and self-treatment of minor ailments – Merck Millipore: Products for protein research and cell biology; laboratory chemicals, consumables, services; products used in the production of chemical and Pützer Tower and Pyramid biopharmaceutical drugs at Darmstadt headquarters – Performance Materials: Materials for displays and lighting; pigments for the plastics, printing, coatings and cosmetics industries More than 40,000 employees in 67 countries Merck manages its operating activities under the umbrella of Merck KGaA, which was listed on the Frankfurt Stock Exchange in 1995 and admitted to the DAX® in June 2007 Around 30% of the total capital is publicly traded, while the Merck family, as general partner, indirectly holds around 70% www.merckgroup.com3 Merck Global Financial Shared Services | March 2012
  4. 4. Content 1 Who is Merck? 2 Merck’s Global Financial Shared Services - The story so far 3 Experiences so far & Conclusions 4 Challenges for the future4 Merck Global Financial Shared Services | March 2012
  5. 5. Phases of our Financial Shared Service Project 2005/ 2006 Feasibility study Financial Shared Services May 2006 GL-approval global Financial Shared Service strategy August 2006 – March 2007 MSSE (Merck Shared Services Europe) Design April 1st 2007 Go-live of MSSE and first migrations January 1st 2008 Spin-off MSSE GmbH October 1st 2010 Go-live of the Global Financial Shared Service Structure & integration of Millipore SSCs under one global governance October 1st 2010 Go-live of ESSA (EMD Shared Services America) Migrations in alignment with SAP-rollout-plan and Millipore Ongoing integration efforts for Europe and North America Planned next Location Selection Asia Pacific / Latin America, organizational setup, migration schedule, etc.5 Merck Global Financial Shared Services | March 2012
  6. 6. Merck´s global intent with Shared Services Improved services at overall lower costs Highest quality Standardization Efficiency Benefits • Deliver state of the art • Use all opportunities for • Provide affiliates with the finance services harmonization in the finance advantages of economies of processes scale • Go for continuous improvement • Provide necessary standards of • Roll-out of existing or new compliance technology from 1 • Center of competence technology center sharing high quality and best • One standard process for best practice practice • Highest level of automation • One location – Reduction of redundant functions6 Merck Global Financial Shared Services | March 2012
  7. 7. Merck Financial Shared Services –Guiding Principles  Regional Financial Shared Services managed under global governance in dedicated legal entities and physically separated from business operations  All regional Financial Shared Service Centers operate on standardized global processes  SAP and iScala considered as strategic ERP platform for the SSC’s  Scope: all Finance processes (SAP FI & CO)  Activity split SSC’s / Local Finance according to Merck’s (in SSC Advisory Board’s accepted) accounting manuals7 Merck Global Financial Shared Services | March 2012
  8. 8. Actual Setup as of January 2012 ESSA - Expected 77 FTE MSSE Darmstadt - Actual 212 FTE NAMillipore SSCBillerica MSSE Millipore SSC- Actual 14 FTE ESSA - Expected 250 FTE Asia Pacific (Darmstadt & Molsheim) ESSA MSSE Molsheim - Actual 5 FTE AP - Actual 62 FTE - Actual 42 FTE MSSAP MSSAP - Expected 110 FTE LA Latin America - Expected 80-100 FTE MSSLA Europe MSSE 8 Merck Global Financial Shared Services | March 2012
  9. 9. Rationale for location decision Darmstadt (1/1)1. Quality and Scope of Services • German Accounting performed on a very high level of quality and efficiency • Right from the beginning the SSC scope was to centralize transactional tasks (AP/AR/BP/AA) but also to act as a Center of Expertise in the Closing and Controlling Area, means full scope SAP-FI and –CO! This was considered as not achievable on a “green field”. • MSSE started with accounting employees from Darmstadt with already existing high experience and skills2. Buy-in of all stakeholders • Merck family, employees as well as management committed to the location Darmstadt • Workers Council negotiations confirmed the favorite choice of Darmstadt3. Business Case • High severance payments were calculated in the Business Case for locations other than Darmstadt • Pay-back period for Darmstadt MSSE was calculated < 4 years4. Global Strategy • MSSE was always considered (if successful) as role model for other regions • Not considered as feasible with a green-field – approach9 Merck Global Financial Shared Services | March 2012
  10. 10. Content 1 Who is Merck? 2 Merck’s Global Financial Shared Services - The story so far 3 Experiences so far & Conclusions 4 Challenges for the future10 Merck Global Financial Shared Services | March 2012
  11. 11. Experiences so far (1/2)1. It works! We developed of state of the art Financial Shared Service Center. Several other companies are in the meantime copying us.2. Location selection Darmstadt, Germany for Europe turned out to be best choice given defined scope and activity split.3. Europe is role model for all other regions, in the meantime North America SSC successfully build as “clone”4. SSCs turned out to become a central point of control for operational governance and guideline-adherence (ICS / Risk-Control-Matrix).5. All migrations have gone live successfully with no business interruption.6. Disburden subsidiaries in terms of transactional task: – Local Finance can for the first time concentrate on real business-analysis and –support, without loosing say and responsibility. – Also major support of internal & external audits.7. SSCs have strong leverage-effects on global and regional projects (easier, faster, cheaper, better) as well as on corporate change management; e.g.: – Introduction new reporting tool – Setup new subsidiaries – Integration of acquisitions – SAP-life cycle management (change requests, – Implementation Payment Factory validation, authorization)11 Merck Global Financial Shared Services | March 2012
  12. 12. Experiences so far (2/2)8. Closing Area as Center of Competence came out as biggest success-story – Less headcount with much higher productivity – Deadlines met with nearly no exceptions for all serviced entities, although requirements have been constantly increasing. One single point of contact for Consolidation instead of numerous delivering entities. – Significant reduction of month end close blocking errors – Dedicated Reporting-Team provides TM1-datacubes (and expertise) for local controlling and management reporting (even subsidiaries outside clientele are more and more asking for this support) – Successful optimization of Month-End-Closing with standardized and harmonized processes, additionally supported by newly introduced supervising tool Runbook – SSCs acted successfully as “Fire brigade” for rebuilding and stabilizing of financial accounting processes, clearing accounts (sometimes more than 10.000`s of open items) and ensuring proper IFRS- and statutory closing9. SSC customers actively asking for more activities to be managed out of the SSS´s12 Merck Global Financial Shared Services | March 2012
  13. 13. …and some lessons learned 1. Close cooperation with Corporate-IT absolutely necessary 2. Strong governance for global ERP solutions needed 3. Recruiting becomes a crucial task; strong link to HR necessary 4. Experience shows that longer-lasting operational challenges are more on transactional side (especially FI-AP); whereas Closing Area as Center of Competence stabilized very fast and shows huge benefits compared to local decentralization 5. Strong support by top management indispensable and 6. Clear definition of driver for shared services and strategy to implement (costs vs. quality / competence center vs. transactional center) necessary13 Merck Global Financial Shared Services | March 2012
  14. 14. Content 1 Who is Merck? 2 Merck’s Global Financial Shared Services - The story so far 3 Experiences so far & Conclusions 4 Challenges for the future14 Merck Global Financial Shared Services | March 2012
  15. 15. Challenges for the future Target: How to keep quality level but to be more cost-efficient? How to achieve that:  Split of activities – eventually transfer of transactional activities to other sites (near-shoring/off-shoring)?  Differentiate locations according to process-driven challenges?  Out-sourcing of non-value-driven parts?  Can that work? What is more important: biggest possible centralization synergies vs. process individual efficiencies  How to secure standardization in such scenarios?  What are others doing? What is the actual trend in the industry/ across industries?15 Merck Global Financial Shared Services | March 2012
  16. 16. Thanks for your attention!16 Merck Global Financial Shared Services | March 2012

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