Johnson & Johnson
Johnson & Johnson has launched a long list of globally recognised brands, always working closely with its partners. A new structure to its SRM promises to harness innovation and foster sustainability to keep up with the ever-increasing demands of consumers and healthcare professionals.
In 1943, just before it became a publicly traded company, Johnson & Johnson published Our Credo. Although former chairman Robert Wood Johnson wrote the four short paragraphs 75 years ago, they have stood the test of time and are still relevant today. They set out ethical standards, treatment of employees and respect for the environment. They also dictate the treatment of suppliers.
Jump to the present day, and supplier relationships are high up the agenda for the global consumer products, healthcare and pharmaceuticals company. Johnson & Johnson Chief Procurement Officer Len DeCandia says: “We are trying to bring insight and foresight so that we’re shaping a supplier base that not only meets our needs for today, but also tomorrow.”
Johnson & Johnson has invested in new technology – a suite of cloud-based procurement tools. It has also segmented its 80,000 suppliers to focus its strategic management efforts with those who share the firm’s vision for growth, citizenship and sustainability, DeCandia says.
“We want to make sure that they are aligned to us commercially and emotionally around a common purpose and mission. This is a unique opportunity for investment and innovation. We need different ideas about how to solve customer problems in the most expeditious way possible. Speed and scalability are really important,” he says.
Engagement leaders simplify internal complexity
But so too is the management of risk and strong governance. To this end, procurement undertook a transformation in supplier relationship management which saw ‘business engagement leaders’ embedded in Johnson & Johnson’s business units. The objective was to ensure the speed of innovation in line with business needs while assuring strong governance and risk management. The roles were also designed to protect suppliers and stakeholders from the intricacies of procurement for a large, diversified organisation.
“If you are not living with the business and not up to date, in real-time, with that relationship, then you can’t get the most value. The role also offers suppliers in that relationship a single point of contact that takes out the complexity of dealing with a global firm like Johnson & Johnson,” DeCandia says
The ‘engagement leaders’ link into a central procurement function which provides supplier, risk and marketplace data so that they can be more insightful and proactive. The central procurement team also performs sourcing and category management.
“We really want to make sure that we are strong in category management, but we give equal weight to SRM. The work begins after the contract is signed. It takes a lot to get to that point, but you must give the same level of focus and passion to SRM as you did to get the contract in place. From my experience, that is where many organisations have slipped up,” DeCandia says.
Measuring value from supplier relationships
But Johnson & Johnson would not be able to make such a significant investment in SRM were it not able to measure the value it gains from supplier relationships, he says. The company maintains a balanced scorecard for supplier performance, which measures risk, innovation, fiscal responsibility and sustainability. Procurement measures supplier innovation that directly results in marketable products and shares value with vendors. It also uses external measures, such as EcoVadis sustainability assessments.
In indirect categories, the team uses qualitative measures of the supplier’s contribution to value, DeCandia says. “Procurement facilitates the relationship between the supplier and the internal Johnson & Johnson business. Where that could translate into added value, through new ideas and new solutions, we try to figure out how to put it into practice.”
The transformation in SRM is part of a broader overhaul of Johnson & Johnson’s procurement organisation, which became an enterprise function for the first time in 2014. The move is supported by four planks of investment including people and talent; SRM and excellence in category management; technology, data and insight; and supporting governance, including sustainability and corporate responsibility.
DeCandia says the company aims to extract more value from its supplier, in terms of innovation, in response to rapid changes in consumer and healthcare markets. With the help of suppliers, it has relaunched its entire line of baby products a signature set of brands which attract very strong recognition. Johnson & Johnson adapted products to align with consumer expectations by using more natural ingredients, creating userfriendly packaging and being more transparent about ingredients. It has recorded sustainability achievements with suppliers in its 2017 Health for Humanity Report.
Focus on sustainability to meet consumer demands
“In the marketplace now, consumers demand all that information. Because of changes in digital communication, how we respond to those expectations has become very important. It is an example of where we rely heavily on the suppliers,” DeCandia says.
In healthcare, Johnson & Johnson has embarked on risk-sharing collaboration projects aimed at whole service patients and doctors receive, not just the devices or drugs the company sells. “We work together with suppliers towards positive patient outcomes, thinking not just about the product, but how it is packaged, and how equipment can be used to conduct surgery more efficiently and effectively. You can only come up with that through innovation with the supplier,” he says.
While Johnson & Johnson is working closely with suppliers to serve its customers better into the future, its belief in partnership goes back to the 1800s, DeCandia says. “Our foundation was inspired by Joseph Lister’s early work on sterilisation. We made surgical dressings, but we found partners to make the jars. For us, it is the foundation of what we do. Now, with such a rapid pace of change, in the market and in the world, greater integration with trusted suppliers will lay the foundation for future success.”