Transforming the Supply Chain at Johnson & Johnson

Part of a Series

This Insight is a part of the 2017 Next Generation Operations Summit Report.

The complete report will be available soon.

When Johnson & Johnson (J&J) got its start in 1886, there were just over one billion people in the world. Now, 131 years later, J&J serves just over one billion people per day worldwide. The company is responsible for many popular consumer brands, life-saving drugs, key service delivery components – a whole variety of products that are critical to the daily lives and business operations of many people. Maintaining the supply chain that ensures all of these varied products get where they need to go is more complex than ever before.

To meet the needs of J&J's growing customer base, the company transformed its supply chain into an engine that supports innovation throughout the organization. Given the scale and scope of J&J, this is no easy task. With more than 60,000 people and 350 distribution centers globally, J&J fills over 100,000 orders a day sending products and treatments to hospital operating rooms, retailers, pharmacies, and millions of homes around the world.

"At Johnson & Johnson, it's about who we partner with, who we benchmark, where we go for answers."
Meri Stevens
Vice President of Strategy and Deployment, Johnson & Johnson

Managing Disruption

In order to stay in business for more than one hundred years while also making it into nearly every home in the world, an organization has to be consistently relevant and deliver high quality products that customers use for their whole lives. With an evolving marketplace, changing customer preferences, new technologies, and a shift to pay for outcomes models, creating significant disruptions in healthcare, J&J has had to develop effective strategies to evolve. The company has been able to adapt by constantly turning over its portfolio of brands and future-proofing the business. In her presentation, during the 2017 Next Generation Operations Summit: Creating a Customer-Centric Supply Chain, Meri Stevens, Vice President of Strategy and Deployment for Johnson & Johnson, explained that internally J&J changes a significant percent of the company through divestments, mergers, and acquisitions. That keeps the product mix viable but it also means that the supply chain has to constantly adapt to meet new requirements and deliver new products.

Understanding Changing Customer Preferences

In addition to product turnover, J&J’s supply chain team partners with commercial and R&D teams to understand how customers will buy and use products in the future. "The disruptions are quite large," Stevens says. "Think about Alexa. When you want to order something you just say 'Alexa, order me paper towels.' It doesn't ask you what brand. It doesn't ask you how much. It's dependent on what you bought last. So if it's Bounty, it's always going to be Bounty. The cost to change that pattern and get the consumer to buy something else is going to be enormous." In order to win the future, J&J's supply chain team is working closely with the sales team to ensure that the products customers casually order through Alexa or a Dash Button or something else are always J&J products and that those products are always available.

Outside of the US, J&J’s Supply Chain must also understand and react to the growing middle class in major emerging markets like China or India. The tax structure, product regulation, and purchasing process are different in these countries, making it harder to create a standardized process for order fulfillment throughout the organization. In order to manage so many variables, J&J has to rely on a strong network. "At Johnson & Johnson, it's about who we partner with, who we benchmark, where we go for answers," Stevens explains.

To focus and prioritize our transformation J&J’s Supply Chain team developed three North Stars and seven foundational pillars. The North Stars create the ability to digest trends and disruptions in an organized way and the foundational pillars assure constant improving our performance to meet rising expectations in value creation. Stevens centered her discussion on the North Stars.

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Manufacturing for the Future

In addition to working on new products and services, J&J is also experimenting with how to manufacture for the future by incorporating new technologies and capitalizing on real-time data and analytics. Previously, J&J would have information on demand cycles, purchasing preferences and so on, but it was hard to predict potential disruptions or understand why customers were making certain decisions. To prepare for the future, J&J used this emerging capability to react to the recent terrorist attack at the Brussels airport. Belgium is the distribution hub for many products in Europe, data analytics allowed J&J to divert product to meet patients’ needs.

J&J is also using new technology to improve packaging and anticipate customer needs. J&J provides prescription treatments for a variety of conditions. With SmartPak technology, the supply chain team can track delivery of medications but also have the package automatically send a message that the package has been opened, giving suppliers and healthcare providers insights about refill needs or if different treatment options need to be developed because patients routinely forget to take medications.

In collaboration with J&J colleagues throughout the Supply Chain, Stevens and her team are also busy learning from other industries that have mastered rapid release manufacturing. Given J&J's focus on healthcare, it is important for each product to be backed by rigorous quality testing. Historically, that's made for a slow manufacturing process. However, other industries like semiconductor makers that also rely on rigorous quality testing have been able to speed up the pace to market, while providing microchips that have consistently better performance. J&J has made it a strategic imperative to learn from industries like semiconductor manufacturing to understand how to handle the rapid release of complex products.

Shaping the Portfolio

Finding answers to questions of the future can be difficult. In order to stay on top, Stevens and her team are helping the J&J Supply Chain evolve its way of working to innovate rapidly, but breakthrough innovation doesn't happen overnight. Ideas require testing and an understanding of how they will benefit the organization and the customer.

J&J’s supply chain team regularly meets with J&J's partner network to understand pain points, to explore new areas of demand and to solicit ideas. Once those ideas are paired down to a few key threads that align with J&J's business, the supply chain team gets to work. Ideas are studied, then developed and finally tested. Testing happens in agile sprints over a 3-6 month cycle in a target area to see how well a given idea will work out. "We go out and test small and rapidly learn," Stevens says. "For the ones that work, we scale like crazy and the adoption is incredible because everyone is aware of the pilots we're working - the engagement is right there."

One of the small tests currently underway in Jacksonville, Florida involves QR codes. In an effort to streamline maintenance, Stevens’ team partnered with a QR code provider to add the codes to each one of their product lines. Now when a maintenance person goes to update a given line, they scan the code with a smartphone and get all the steps required to make an update. If they run into trouble, they can put on Google Glasses and work with a technician remotely. The process removes any wait time associated with finding the right information or right person to make a change if something is out of the ordinary.

“You have to dedicate time to be able to go fast. Going fast actually requires you to do research and take a step back, not just plow ahead, and that's tough. You have to spend a lot of time testing and learning.”
Meri Stevens
Vice President of Strategy and Deployment, Johnson & Johnson

Conclusion

Finding partners that help improve capability is the pathway J&J is taking through the next hundred years. As consumerism and health care become more and more personalized it will be critical for companies like J&J to understand their customer base at an almost individual level. Maintaining a supply chain that is adaptive enough to be able to service billions of individuals each day is the new normal. By sticking to their Strategic North Stars, bringing in new technology partners, and experimenting with new ideas rapidly, J&J’s supply chain team are helping J&J design a new way of working – and innovating - for a digital world.

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