Merck has always been one of my favorite companies as it has developed effective vaccines for diseases such as measles, rubella, mumps, bacterial pneumonia, and hepatitis A and B. The company’s CEO, Richard Clark, even ran their manufacturing operations for 30 years before becoming CEO. Unfortunately not only is the company under assault by lawyers, but also from within. Merck is in danger of becoming LAME, lean as misguidedly executed, a term coined by our friend Mark over at the Lean Blog. Take a look at some excerpts from a recent news story.
Cherokee Pharmaceuticals has acquired a Riverside, Pa., plant from Merck.
The divestiture is part of Merck’s manufacturing network restructuring initiated roughly two years ago, which included a global rollout of lean manufacturing principles to reduce the time from customer order to manufacturing.
To be fair, there can be good reasons to divest a plant. Perhaps Merck doesn’t intend to market that product line any longer.
The company [Cherokee] also entered a five-year supply agreement with Merck worth an estimated $100 million to $200 million annually.
Nope, sounds like the product line is valuable to Merck, and profitable even after Cherokee tacks on its own profit margin. Perhaps the plant is full of employees that drive Merck nuts, and the company simply wants to get rid of a headache.
[Merck president of manufacturing] Mr. Deese said, "It feels a lot better standing here today. This site, of all the Merck sites worldwide, truly understands the importance of working together. Had you not had the reputation and demonstrated ability, this deal would not have been possible."
Not only are the employees examples of how to work together, they are the best of all worldwide sites. So why sell the plant?
The Cherokee plant was put up for sale two years ago when Merck announced it wanted to cut up to 7,000 jobs and close five of its 31 manufacturing plants. The move was intended to generate up to $4 billion in savings.
Apparently they’re working hard on that goal. They did close a plant and cut a few hundred jobs; in fact they closed the one with the best group of people according to a Merck executive. They will continue to buy the product from that plant, but instead of simply absorbing internal cost they will also be paying some level of profit margin to Cherokee. While eliminating the value of thousands of years of creativity, experience and potential ideas and lengthening the supply chain. Somehow, in the world of traditional accounting, that works toward the goal of $4 billion in savings.
And those goals somehow align with a "global rollout of lean manufacturing principles." Ok…
But for every LAME company decision, there is a company that understands the true value of people (not to mention a great opportunity to capitalize on LAME decisions). Cherokee, owned by PRWT, is apparently that type of company.
Willie F. Johnson, PRWT’s chairman, said Cherokee’s employees made a lasting impact on the sales negotiation. "We were looking for an opportunity to re-invent a company that would enable us to move up the food chain," Mr. Johnson said. "When we saw this world-class facility with world-class employees, we saw a great opportunity for growth potential.
Additionally, PRWT officials announced they plan to invest more than $15 million to upgrade the Cherokee plant with hope of expanding its business and workforce. PRWT has committed to keeping all of the plant’s staff, which has been steady at 390 for much of the past year. "If all goes according to plan, we will hopefully break ground (on expansion) later this year," said Stratton "Skip" Lee, PRWT’s president and chief operating officer.
Congrats to the employees of Cherokee for finding a new owner that recognizes their value.