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How Supply Chain Became the 'Truth-Teller' at Johnson & Johnson

Eight p.m. in the "war room" of Johnson & Johnson Health Care Systems: 150 people from all over the world are on a conference call. The topic is a supply outage of trocars, a medical device used in microscopic surgery. Someone on the line, clearly untroubled by the crisis, speaks up. "It's just a trocar," he says.

Fred Wagner, vice president of global supply chain for customer connectivity with JJHCS, can't believe what he's hearing. Without a trocar, he explains, minimally invasive surgery would be impossible. The result would be longer healing times, the possibility of infection, more pain and additional medicine needed for recovery. "Trocars are important," he says.

Wagner has just described a situation that's common to many companies: the gap between the commercial organization and the supply chain. "The [latter] needs to understand your portfolio, and how it impacts the customer experience," he said at the 2013 Gartner Supply Chain Executive Conference in Phoenix, Ariz.

JJHCS knows all too well the price of a misaligned organization. A few years back, it got the unvarnished message from customers: You're hard to do business with. As Wagner recalled, the company required more than two dozen contracts for serving accounts. The communication process was essentially broken.

"When you have 127 call centers on four platforms, it's kind of hard to be consistent in dealing with the customer," Wagner said.

Especially for a company the size of Johnson & Johnson. With revenues of $65bn in 2012, J&J has 275 operating companies in 60 countries. It comprises three major sectors: medical devices and diagnostics, pharmaceuticals and consumer products. Of its 129,000 employees globally, 55,000 have some responsibility for supply chain.

Being complacent about one's success is a good plan for ensuring irrelevancy. Based on that harsh feedback from customers, JJHCS was determined to "move to an enterprise mindset."

There were five key steps to be traveled on the "customer experience journey." The first was crafting a plan for engaging with those customers - whoever and wherever they might be.

Turns out the definition of a customer was something of a surprise to JJHCS. The company, said Wagner "has a complex set of stakeholders to serve." It's not just the obvious set of consumers and patients. Also in the mix are chief procurement and merchandise officers, and supply-chain executives.

Whether those individuals can have an intelligent conversation with the end user is another question. "If I'm going to sit down across the table with one of these customers," said Wagner, "I'm absolutely going to bring along a supply-chain person with me."

An effective engagement requires associates who can interact with customers. Top-level executives must be part of the effort. At JJHCS, the program is being rolled out to some 24,000 directors and managers, along with 129,000 associates, with the goal of completion by the end of 2014.

Step two is the creation of organizational metrics with clear visibility of actual performance. Wagner said it's vital to know how well the company is "embracing the customer experience." Distributors, drug wholesalers, providers and retailers are all included in the JJHCS initiative. The ability to meet their needs is directly tied to employee compensation - "a big change for a supply-chain organization."

Step three is coming up with a well-defined strategy for customer segmentation. JJHCS has been working hard on a cost-to-serve model that is "fact-based and non-emotional." It defines four levels of involvement, based on the customer's value to the bottom line. For the most important accounts, the company staffs dedicated teams which engage in strategic initiatives and the development of joint business plans.

Just defining that universe of customers can be an enormous challenge. In the retail sector, Wagner said, eight customers might make up 80 percent of sales. But on the healthcare side, there are 150,000 ship-to locations. "Healthcare," he said, "is just starting to get the recognition that it needs."

Step four is nurturing the voice of the customer. "It's not so much about doing surveys," said Wagner. "It's what you're doing about it."

The commercial side of the business is no longer the sole owner of the customer experience. Supply-chain executives are stepping up as well. They've developed an index score which grades the provider on such key elements as order processing and billing.

JJHCS asks customers four basic questions: Are you likely to continue this relationship? Are you likely to expand it? Would you consider other products and services? Would you recommend us? It follows up by asking the customer to rate it on 16 key attributes of the end-to-end supply chain. Then the company stages quarterly reviews to track how it's responding to the feedback.

Surveys, of course, can get out of hand. The average J&J customer had completed five of them in the previous four years, Wagner said. So the company has stopped all research at the local level.

"Everything goes through the mothership now," he said. "We have to be respectful of the customer's time."

The answers to JJHCS's questions weren't much of a surprise. Customer priorities in 2012 were completeness of orders; communication about order status, adjustments or changes; accuracy of orders; product lead times; ability to meet business needs, and understanding and alignment with supply-chain performance metrics.

Step five is change management and communications. When Wagner started out in healthcare 20 years ago, there were no supply-chain officers anywhere in the company. "Now they're on the top floor. They have a space at the table and are making decisions about J&J."

Today, the supply chain function is linked tightly to procurement, and even accounts for a couple of lines on the balance sheet. In addition, the commercial customer is very much a part of the equation, even as the lines between types of accounts begins to blur. Retailers are moving into pharmaceutical products, treatment and biologics. And the healthcare customer is buying retail. "It's a changing landscape," Wagner said.

The feedback gathered by JJHCS doesn't end up buried in a file cabinet. Every 60 days, the company releases a "moment of truth" video to the entire supply-chain organization, showing how well it's been engaging with the customer. A group that once had little exposure to the consequences of its actions is now very much exposed.

"It seems like the supply-chain organization is becoming the truth-tellers at J&J," said Wagner.

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Keywords: supply chain, supply chain management, inventory control, logistics services, supply chain services, supply chain planning, retail supply chain, healthcare supply chain, pharmaceuticals supply chain

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