1. Company characteristics and supply chainJohnson & Johnson is a global American pharmaceutical, medical devices and consumer packaged goods manufacturer founded in the state of New Jersey, United States in 1886 (Wikipedia, 2008). The corporation’s headquarters is located in New Brunswick and its consumer division is located in Skillman, New Jersey. The corporation includes some 250 subsidiary companies with operations in over 57 countries while its products are sold in over 175 countries. Johnson & Johnson and its subsidiaries have approximately 115,600 employees worldwide. Johnson & Johnson’s primary focus has been on products related to human health and well-being. According to MarketWatch (2006) states that Johnson & Johnson’s worldwide business is divided into three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics.
The Consumer segment manufactures and markets a range of products used in the baby and child care, skin care, oral and wound care and women’s health care fields, as well as nutritional and over-the-counter pharmaceutical products. These products, available without prescription, are marketed principally to the general public and sold both to wholesalers and directly to independent and chain retail outlets throughout the world (MarketWatch, 2006).
The Pharmaceutical segment includes products in the following therapeutic areas: anti-fungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, psychotropic and urology. These products are distributed directly to retailers, wholesalers and health care professionals for prescription use by the general public (MarketWatch, 2006). The Medical Devices and Diagnostics segment includes a range of products distributed to wholesalers, hospitals and retailers, used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Distribution to these health care professional markets is done both directly and through surgical supply and other dealers (MarketWatch, 2006).
From the research we gather, that effective supply chain at Johnson & Johnson is similar to the above scenario of ‘trust based partnerships’, which mean suppliers are working in tandem with the business for mutual benefit. It also suggests a proactive approach being taken rather than a reactive
approach to manage logistics issues.
2. Importance of Supply chain managementThe company and its subsidiary like Lifescan are one of the top users of collaborative product lifecycle management (PLM) solutions for the value chain. For example it uses MatrixOne’s PLM environment, which provides a secure, collaborative product development environment that will streamline product design and development across LifeScan Scotland’s global operations, enabling the company to quickly and cost-effectively bring new products to market. The deployment was prompted by the results of a Johnson & Johnson study into the key product lifecycle solutions in the market. Johnson & Johnson aimed to cut their product development cycle by as much as 20%. In addition, the company aims to drive improved customer satisfaction, integrate suppliers into the development process, improve visibility to design centers throughout the world, and have easy access to all vital product information. (Lifescan press release 2005 from HREF 1)Fig 1 – Mutual Accountability Map between buyer & Seller at Johnson & Johnson (Source Slobodow, B Abdullah, O & Babuschak, W C 2008p 78)
Distribution CentresJohnson & Johnson has finished the construction of a 440,000 square foot distribution centre in Memphis, TN to provide direct shipment of their medical products with no third party distributor involvement (Healthcare Purchasing News, 2004). In addition, Johnson & Johnson’s new European distribution centres for its medical devices & diagnostics division in Courcelles, near Charleroi, Belgium (Janssen Pharmaceutica, 2005). In this way, the centre will increase the competitiveness of the organization and facilitate delivery to the company’s customers. Orders completed through the Johnson & Johnson direct model would eliminate that distributor mark-up, providing incrementally lower procurement costs for customers. Thus, this lower pricing will be enough to entice customers to bypass the convenience of their “one stop” distribution relationship (Healthcare Purchasing News, 2004).
The Supply Chain graph – source Heizer, J. and Render, B. 2004 p 414The supply chain includes all the interactions between suppliers, manufacturers, distributors and customers. The chain includes transportation, scheduling information, cash and credit transfers, ideas, designs, and material transfers.
Risk ManagementAccording to a report from Goldman Sachs, Johnson & Johnson is requiring all of its medical products distributors to agree to not source any Johnson & Johnson products from any entity other than Johnson & Johnson (Healthcare Purchasing News, 2004). It appears that the aim of this mandate is to reduce the risk of counterfeit medical products reaching end customers by forcing distributors to agree not to participate in the secondary market and to purchase only from Johnson & Johnson. While over 100 distributors have signed the agreement none of the publicly traded medical distributors are on Johnson & Johnson’s list of those who have agreed with the company’s terms and signed its agreement.
This decision is important because of the clear mandate made in its trading partners. According to Healthcare Purchasing News (2004) Goldman Sachs believes that Johnson & Johnson products may account for as much as 14% of the hospital distribution market and Owens & Minor indicates that Johnson & Johnson products represent approximately 16% of total company sales. However, Johnson & Johnson remains an extremely important supplier for any medical products distributor whose managements are under significant pressure to come to agreement with company demands and to remain as authorized distributors (Healthcare Purchasing News, 2004).
3. Operational Features reflecting common practice in supply chain management.
Efficient Consumer Response (ECR)It is a strategy where partners in a supply chain synchronise the product flow through the distribution pipeline from point of manufacture to point of final sale. ECR is primarily related to strategic partnerships in the distribution channels of the grocery industry to increase the performance of the consumers while Johnson & Johnson states two-digit turnover increases in their respective business segments by using it (Kotzab, 2000, p. 145).
Master Cyclist PrinciplesIt is defined that how a market literate management team would approach short-run functional decisions regarding inventory, production, marketing and pricing as well as more strategic choices regarding capital expansion, acquisitions and divestitures (Navarro, 2004, p. 19). According to Navarro (2004, p. 19) reported, “Johnson & Johnson cut its capital expenditures by over $100 million – the first decrease in seven years and as the significant cash reserves, it saw double-digit growth in both revenues and earnings.
“Two-Way ScorecardThe Two-Way Scorecard is a tangible means of embedding cooperation in the supplier-buyer relationship. In Johnson & Johnson, supply chain performance is measured across five components: execution, compliance, financial impact, new products and partnership. Furthermore, the Two-Way Scorecard has been put into practice with strategic suppliers over the last four years. Positive results have been seen in a range of areas, from resolving potential supplier liquidity problems to addressing the inefficiencies of global trading. Several habitual pain points have eased; most notably new product launches (Slobodow, Abdullah & Babuschak, 2008, p.76).
4. Effective interaction.
Johnson & Johnson Health Care Systems Inc. (JJHCS) uses a standard internal process for design, development, and implementation while utilizing Six Sigma and change management tools.
Importance of Organizational DesignOrganizational design is important for several reasons. Organizational design can be a competitive tool by providing the organization with flexibility needed to respond to changing customer needs while bolstering organizational efficiency and effectiveness. It can create the infrastructure to enable a strategy to be implemented and provide accountability to employees by clearly demarcating the areas of ownership and control. It can also provide personal growth by creating opportunities for people to take on different and challenging roles within the same organization. Any work process in the organization can be in scope for organizational design (Yacovone, 2007, p. 105).
Benefits of Organizational DesignJJHCS identified the need for an organizational design model and process through an internal Six Sigma business assessment. “Six Sigma is a rigorous and disciplined methodology that uses data and statistical analysis to measure and improve a company’s operational performance by identifying and eliminating ‘defects’ in manufacturing and service-related processes (Six Sigma.com cited in Yacovone, 2007, p. 106).” This ensured that the customer’s needs and critical quality factors were the drivers of the redesign.
These findings drove the development of the JJHCS organizational design framework, process, and toolkit to conduct organizational design, along with the recognition that several large change initiatives within the company were going to require significant organizational design. Additionally, the organization recognized that the human resources (HR) business partner role required new competencies, such as change management and organizational design, to meet the needs of the business (Yacovone, 2007, p. 107).
ResultsA key business metric for accounts receivable is day’s sales outstanding (DSO), and this project resulted in reducing the DSO by over one day. This equates to several million dollars a day for Johnson & Johnson. Also the use of the impact assessment tool resulted in robust change management plans such as communication activities, standard operating procedures, and proper training (Yacovone, 2007, p. 105).
5. Issues & SolutionsGrey MarketJohnson & Johnson’s Medical Device & Diagnostics business (MD&D) is one business that has faced brand risks head on and taken a proactive stance to address its current issues and mitigate future risks from counterfeiters and related concerns. For example, According to Wald and Holleran (2007, p. 58) reported that in 2003, some doctors submitted surgical mesh to MD&D that did not have the handling qualities they were used to with MD&D’s product.
The company sent the product through its quality assurance processes for authentication and determined it was fake. This grey market is a concern because it can signal questionable third-party business practices, present a possible avenue for counterfeit products and cause significant lost revenue. Therefore, MD&D decided to take action, they asked Ernst &r Young to expand the investigation to regions around the world to identify additional risks. Finally, the study’s findings were that the company had a diversion problem which involves the selling of a legitimate product in markets other than those for which it was intended, and it opens the door for counterfeit products to enter the supply chain (Wald & Holleran, 2007, p. 58).
CausesOne factor was MD&D’s business culture. Because Johnson & Johnson is a highly decentralized business, each of its operating and regional companies was approaching grey market issues and counterfeiting with disparate brand protection policies or strategies (Wald & Holleran, 2007, p. 59). As a result, different operating companies were independently developing their own anti-counterfeiting and anti-grey market solutions. Another cause was the business design and practices. One example was that no single person or group at the MD&D level was responsible for protecting MD&D’s brands or its products.
A second example was that the company’s due diligence process, which it reviewed third-party suppliers, manufacturers and distributors, was incomplete. The company also did not have a robust supply chain strategy to assess how it might negotiate standardized terms of sale such as authorized distributors, the right to audit and the right to data in jurisdictions outside the United States that allowed the sharing of such data (Wald & Holleran, 2007, p. 59). The third identified cause of the company’s vulnerability was a lack of information.
SolutionsTo establish a system whereby MD&D could manage its brand-related risk day to day, the team focused on policy design, organization design, market monitoring and enforcement which were vulnerable from a business culture, business design and informational perspective (Wald & Holleran, 2007, p. 60). Firstly, the team developed a brand protection policy that is now being used as a guideline by MD&D. The policy addresses the protection of intellectual property, accountability issues, product protection and supply chain standards, and incident reporting and enforcement protocols. Secondly, an organization was put in place throughout MD&D to address brand protection across the business. The team helped to define the key resources and assign them specific roles, responsibilities and accountability.
These roles include a vice president and executives responsible for product protection, supply chain management, and incident reporting and enforcement. Thirdly, for those products at highest risk, the company will develop product protection plans that include overt and covert anti-counterfeiting technologies and features based on their risk levels. This allows the company to consistently manage its products throughout the organization, from sourcing through distribution. Finally, which also is under development, is a market-monitoring program to keep tabs on the product actually being sold to consumers. Today, Johnson & Johnson executive’s report that they are now more effectively dealing with counterfeits than ever before, which they credit to the heightened awareness and new reporting policies (Wald & Holleran, 2007, p. 61).
Healthcare Purchasing News 2004, Johnson & Johnson launches self-distribution program, accessed 26/04/2008, http://findarticles.com/p/articles/mi_m0BPC/is_2_28/ai_n6364792Heizer, J. and Render, B. 2004, 5th edn, Principles of Operations Management, Pearson: Prentice-Hall, Upper Saddle River, New Jersey.
Finch BJ, Operations Now – Profitability, process, performance, 2nd Edition 2006, McGraw Hill Irwin New YorkJanssen Pharmaceutica 2005, Johnson & Johnson starts building European Distribution Centre for its Medical Devices & Diagnostics Division in Courcelles, Belgium, accessed 27/04/2008, http://www.janssenpharmaceutica.be/news_headlines43_E.aspKotzab, H 2000, ‘Managing the Grocery Industry in an Efficient Consumer Response Manner’, Retail, vol. 4, no. 3, pp. 145-150.
Lifescan Press Release, 2005 from HREF 1 http://www.matrixone.com/matrixone/press_releases_20050208_lifescan.htmlMarketWatch 2006, Company Description, accessed 25/04/2008, http://www.marketwatch.com/tools/quotes/profile.asp?sid=2689&symb=jnj&siteid=mktwNavarro, P 2004, ‘Principles of the Master Cyclist’, MIT SLOAN Management Review, vol. 45, no. 2, pp. 19-24.
Slobodow, B Abdullah, O & Babuschak, W C 2008, ‘When Supplier Partnerships Aren’t’, MIT SLOAN Management Review, vol. 49, no. 2, pp.76-83.
Wald, J & Holleran, J 2007, ‘Counterfeit Products and Faulty Supply Chain’, Risk Management, vol. 54, iss. 4, pp. 58-61.
Wikipedia 2008, Johnson & Johnson, accessed 26/04/2008, http://en.wikipedia.org/wiki/Johnson_&_JohnsonYacovone, L 2007, ‘Organizational Design for a Supply Chain Transformation: Best Practice at Johnson & Johnson Health Care Systems Inc.’, Organization Development Journal, vol. 25, iss. 3, pp.103-109.