why move your ssc to a high-cost location?

Why move your SSC to a high-cost location?

Thomas Laux

Vice-President – Global Head Financial Shared Services Merck

sharedserviceslink.com Summit

March 13th, 2012, London

Merck Global Financial Shared Services | March 2012 2

Content

Who is Merck?

Merck’s Global Financial Shared Services - The story so far

Experiences so far & Conclusions

Challenges for the future

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Merck at a glance

Pützer Tower and Pyramid

at Darmstadt headquarters

www.merckgroup.com

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 biopharmaceutical drugs

– 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%


Content

Who is Merck?




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Phases of our Financial Shared Service Project

Feasibility study Financial Shared Services 2005/ 2006

MSSE (Merck Shared Services Europe) Design August 2006 – March 2007

April 1st 2007 Go-live of MSSE and first migrations

October 1st 2010

Go-live of ESSA (EMD Shared Services America)

January 1st 2008 Spin-off MSSE GmbH

Go-live of the Global Financial Shared Service Structure &

integration of Millipore SSCs under one global governance

October 1st 2010

Migrations in alignment with SAP-rollout-plan and Millipore

integration efforts for Europe and North America

Planned next

Ongoing

Location Selection Asia Pacific / Latin America,

organizational setup, migration schedule, etc.

GL-approval global Financial Shared Service strategy May 2006

Merck Global Financial Shared Services | March 2012 6 6

Merck´s global intent with Shared Services

• Provide affiliates with the

advantages of economies of

scale

• Roll-out of existing or new

technology from 1

technology center

• Highest level of automation

• Deliver state of the art

finance services

• Go for continuous

improvement

• Center of competence

sharing high quality and best

practice

• Use all opportunities for

harmonization in the finance

processes

• Provide necessary standards of

compliance

• One standard process for best

practice

• One location – Reduction of

redundant functions

Highest quality Standardization Efficiency Benefits

Improved services at overall lower costs


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 manuals


Actual Setup as of January 2012

MSSAP

LA

MSSLA

NA

Europe

AP ESSA

- Actual 62 FTE

MSSE Darmstadt

- Actual 212 FTE

MSSE Molsheim

- Actual 42 FTE

Latin America

- Expected 80-100 FTE

MSSAP

- Expected 110 FTE

Millipore SSC

Billerica

- Actual 14 FTE Millipore SSC

Asia Pacific

- Actual 5 FTE

ESSA

- Expected 77 FTE

MSSE

- Expected 250 FTE (Darmstadt & Molsheim)

MSSE

ESSA


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 skills

2. 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 Darmstadt

3. 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 years

4. Global Strategy

• MSSE was always considered (if successful) as role model for other regions

• Not considered as feasible with a green-field – approach


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Who is Merck?




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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

– Integration of acquisitions

– Implementation Payment Factory

– Setup new subsidiaries

– SAP-life cycle management (change requests,

validation, authorization)


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 closing

9. SSC customers actively asking for more activities to be managed out of the SSS´s


…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) necessary


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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?


Thanks for your attention!

why move your ssc to a high-cost location?

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