Procurement Leaders in Chicago: The Johnson & Johnson Experience — A CPO Perspective (Dispatch 3)
Please click here for the first post in this series on J&J from Procurement Leaders Forum in Chicago.
J&J not only has a massive global spend. As I mentioned in my last post, it has a massive number of suppliers in total: 87,000. Today, J&J's spend pretty much follows the 80/20 rule. 80% of its spend rests with just under 2,700 suppliers. Yet the bottom 20% of its spend is spread across over 84,000 vendors. Moreover, 70% of spend is single-sourced (in what sounded like the direct or "supply chain" area, as Hans Melotte, Worldwide VP and Chief Procurement Officer of J&J, described it). Going forward, supplier consolidation will be key. But Melotte does not want his organization to "whack suppliers for the sake of it."
Rather, the remedy will take a more targeted approach, involving "right sizing" suppliers at the top end of the spend profile spectrum. In addition, J&J will "shift to preferred suppliers" in key areas and "cleanse" the tail end of its supply base. But perhaps most interesting, J&J plans to tackle spend further upstream in the R&D process by "institutionalizing new product introduction (NPI) discipline." The strategy here will require that J&J does not launch a new product unless multiple sources of supply are qualified for it or alternative suppliers are identified prior to launch (with back-up plans in place).
Looking forward, one innovative approach J&J is taking to tapping supplier creativity is a new Innovation Exchange, where procurement team members can post challenges they have and ask suppliers to respond. In reality, such an approach represents an open crowdsourcing forum within the approved supply base. For example, a packaging supplier can respond to a question about how optimal structure and reduced costs for a new product. Who says social networking models and sites don't have their place in corporate procurement?
Incidentally, if you're curious about how J&J stacks up relative to its peers, we considered them an "Innovator" on the Geoffrey Moore scale the last time we measured procurement sophistication in pharma and CPG. Joining them at the upper end of the bell curve were GSK, Merck and a handful of others. This is further proof why companies should push the limits of procurement technology by investing in new programs like J&J's Innovation Exchange.