Johnson and Johnson More Transparent in its Supply Chain Transformation Efforts
Dedicated readers of Supply Chain Matters are very aware of the many commentaries we have posted over the last three years regarding Johnson and Johnson. A series of multiple product recalls dating back to 2009 involving a significant amount of the company’s over-the-counter medicines uncovered what appeared to be systemic process and other issues that reflect directly on its supply chain. It also forced the temporary closure of an entire production facility and the company being slapped with a number of consent decree findings from the U.S. Food and Drug Administration. Readers can refresh their knowledge by reviewing some select Supply Chain Matters postings:
Much has occurred in this period, and yesterday, during the J&J’s formal earnings briefing with equity analysts, a lot more behind the scenes details were shared regarding efforts to address J&J’s supply chain business process and information technology challenges.
Joining J&J’s Chairmen and CEO Alex Gorsky on yesterday’s briefing was Sandy Peterson, Group Worldwide Chairman. Ms. Peterson joined J&J seven months ago in December 2012, shortly after Gorsky was appointed CEO of the company. Her prior credentials were chief executive officer of Bayer CropScience AG in Germany and other senior leadership roles in healthcare systems and consumer product goods companies, including leading procurement activities for Nabisco. She was obviously recruited for specific leadership skills.
Readers may recall our previous commentaries related to senior executive changes made at J&J after the initial product recall crisis, particularly those involving the company’s consumer and OTC product businesses. Of major significance, in addition to being the newly appointed head of J&J consumer businesses, Peterson has leadership responsibilities for both company-wide supply chain and information systems efforts. That is a significant change from the prior structure, one that by our view, will help to bring accelerated change efforts for the company.
In the earnings briefing, CEO Gorsky specifically called on Ms. Peterson to update analysts on the progress that has been made in the three areas of her responsibilities. She began her briefing by noting that she has spent considerable time since joining on visiting and speaking with customers and visiting a number of global-wide production and other facilities, including those in emerging markets. She emphatically stated that her organization’s goal is to restore a reliable supply of U.S. OTC products, and by the end of 2013, J&J plans to deliver consistent supply of 75 percent of product brands previously suspended from production.
Of more significance, Ms. Peterson outlined the overall scope of the challenge inherited. Supply chain scope was described as over 120 manufacturing sites, 500 external contract manufacturers and 450 distribution centers. She indicated that there were 60 different ERP systems supporting 275 operating companies. That is a mind-blowing statistic but perhaps common for a global-based pharmaceutical and healthcare company that is vested in aggressive growth via acquisition.
Five priorities were outlined for U.S. OTC products:
1. Deliver on FDA consent decree milestones
2. Ensure reliable supply of OTC products to retailers and consumers
3. Achieve brand leadership
4. Rebuild customer trust including top retail customers
5. Execute a return to market plan for core U.S. brands and SKU’s
In terms of organizational progress, J&J began to centralize its supply chain efforts over three years ago. That effort continues with the new singular leadership model. The company has plans to evolve a supply chain model that will leverage a global network in sourcing, logistics, transportation and distribution management. Best practices are being shared among and across various business entities. Readers who reside in centralized supply chain teams may view the above as a no-brainer, but consider that supply chain best practices are often not the priority of large pharmaceutical and healthcare companies.
In the area of overall quality, the J&J goal is to have one quality and compliance operating model. Teams are incorporating the new quality and compliance operating model across all products and geographies, while strengthening oversight with supplemental internal audits. Thus far, the company continues to deliver on all planned milestones outlined by the FDA. Ms. Peterson described a rigorous review of external suppliers which has led to a consolidation of external manufacturing by a third.
In the systems area, a four year program has been outlined to consolidate the overall systems landscape. Business continuity planning is also being actively addressed, and we witnessed evidence of that in the recently held Supply Chain Council’s Supply Chain North America conference.
One of the core goals of Supply Chain Matters is to provide readers education, not just to a single event or development, but to the continuity of events and the subsequent learning. In the case of J&J, our commentaries have evolved from sharing frustrations related to signs of organizational paralysis and significant evidence of deep systemic supply chain issues, to now being able to comment on meaningful leadership and progress in remediation. An improvement framework addressing People, Process and Technology factors is now defined and ongoing. Make no mistake, significant work remains and active executive leadership and commitment is essential.
The events surrounding J&J these past months will no doubt become the basis of new case study in business schools and supply chain circles. The numerous occurrences of product recalls reflected other significant supply-chain wide issues that needed to be addressed across multiple business units. J&J has obviously reached-out to seek external advice and assistance. The work across J&J will obviously continue and we trust that more positive outcomes will unfold in the coming months.
Readers residing in Pharmaceutical, Medical Products and Life Sciences industry settings should take special note of how a lack of understanding on the overall importance of consistent and reliable supply chain practices can lead to negative business outcomes. Once more, consider the length of time outlined to remediate and transform the existing supply chain. If supply chain cross-functional and IT teams were in need for evidence on the importance of consistent practices and responsive information technology tools, they can cite the ongoing J&J case study.
Supply chains do matter, especially for this regulated industry.
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