Responsible Management of Responsible Management of External ManufacturingExternal Manufacturing

Tish LascelleTish LascelleMay 2006May 2006

External Manufacturing - Why External Manufacturing - Why does it matter?does it matter?

Ongoing Credo responsibilityOngoing Credo responsibility

Increasing use of external manufacturersIncreasing use of external manufacturers

Increasing public expectations and risk to Increasing public expectations and risk to reputationreputation

Ongoing Credo responsibilityOngoing Credo responsibility

Increasing use of external manufacturersIncreasing use of external manufacturers

Increasing public expectations and risk to Increasing public expectations and risk to reputationreputation

Our Current ProgramOur Current Program

• 1999- EHS practices for External Manufacturers1999- EHS practices for External Manufacturers–Contract languageContract language–Audits/Ratings for high risk EMs based on legal Audits/Ratings for high risk EMs based on legal

compliancecompliance

• 1999- Johnson & Johnson Policy on Employment of 1999- Johnson & Johnson Policy on Employment of Young Persons added to requirements and auditsYoung Persons added to requirements and audits

• 2000- Minimum standards for all suppliers2000- Minimum standards for all suppliers–Risk assessmentRisk assessment–Communication regarding compliance and ISO 14000Communication regarding compliance and ISO 14000

• January 2004- Scope of audits changed to include January 2004- Scope of audits changed to include all External Manufacturers by end of 2005.all External Manufacturers by end of 2005.

• 1999- EHS practices for External Manufacturers1999- EHS practices for External Manufacturers–Contract languageContract language–Audits/Ratings for high risk EMs based on legal Audits/Ratings for high risk EMs based on legal

compliancecompliance

• 1999- Johnson & Johnson Policy on Employment of 1999- Johnson & Johnson Policy on Employment of Young Persons added to requirements and auditsYoung Persons added to requirements and audits

• 2000- Minimum standards for all suppliers2000- Minimum standards for all suppliers–Risk assessmentRisk assessment–Communication regarding compliance and ISO 14000Communication regarding compliance and ISO 14000

• January 2004- Scope of audits changed to include January 2004- Scope of audits changed to include all External Manufacturers by end of 2005.all External Manufacturers by end of 2005.

Our progress …..Our progress …..

• Over 95% contract manufacturers with EHS Over 95% contract manufacturers with EHS compliance language in contractscompliance language in contracts

• Over 90% contract manufacturers audited Over 90% contract manufacturers audited since 1999since 1999

• Less than 1% with unacceptable Less than 1% with unacceptable performanceperformance

• Zero repeat unacceptable performersZero repeat unacceptable performers

• Over 95% contract manufacturers with EHS Over 95% contract manufacturers with EHS compliance language in contractscompliance language in contracts

• Over 90% contract manufacturers audited Over 90% contract manufacturers audited since 1999since 1999

• Less than 1% with unacceptable Less than 1% with unacceptable performanceperformance

• Zero repeat unacceptable performersZero repeat unacceptable performers

Future program: Standards for Future program: Standards for Responsible External Responsible External ManufacturingManufacturing

•Broader set of expectations for external Broader set of expectations for external manufacturers and API suppliers manufacturers and API suppliers –New: Ethics, labor and management New: Ethics, labor and management systems.systems.

–Based on universal norms and standards Based on universal norms and standards for human rights and the environment.for human rights and the environment.

–Closes gaps where legal requirements do Closes gaps where legal requirements do not exist or are not satisfactory to not exist or are not satisfactory to protect human rights and the protect human rights and the environment.environment.

•Broader set of expectations for external Broader set of expectations for external manufacturers and API suppliers manufacturers and API suppliers –New: Ethics, labor and management New: Ethics, labor and management systems.systems.

–Based on universal norms and standards Based on universal norms and standards for human rights and the environment.for human rights and the environment.

–Closes gaps where legal requirements do Closes gaps where legal requirements do not exist or are not satisfactory to not exist or are not satisfactory to protect human rights and the protect human rights and the environment.environment.

Future Challenges…Future Challenges…

• With new standards will come new challenges With new standards will come new challenges for us and our supply chain partnersfor us and our supply chain partners– Balancing universal and local normsBalancing universal and local norms– Accepting continuous improvement as a Accepting continuous improvement as a

realityreality

• Our partners have told us they will need our helpOur partners have told us they will need our help– Identifying capacity building opportunitiesIdentifying capacity building opportunities– Developing partnerships with NGOs and Developing partnerships with NGOs and

governments to improve supplier capacitygovernments to improve supplier capacity– Building upon our experience with the green Building upon our experience with the green

supplier projectssupplier projects

• With new standards will come new challenges With new standards will come new challenges for us and our supply chain partnersfor us and our supply chain partners– Balancing universal and local normsBalancing universal and local norms– Accepting continuous improvement as a Accepting continuous improvement as a

realityreality

• Our partners have told us they will need our helpOur partners have told us they will need our help– Identifying capacity building opportunitiesIdentifying capacity building opportunities– Developing partnerships with NGOs and Developing partnerships with NGOs and

governments to improve supplier capacitygovernments to improve supplier capacity– Building upon our experience with the green Building upon our experience with the green

supplier projectssupplier projects

Green Supplier Network Green Supplier Network FrameworkFramework

Approach: Link Process ExcellenceApproach: Link Process Excellenceand Environmental Goalsand Environmental Goals

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Process Excellence = Cleaner Production Process Excellence = Cleaner Production

Cleaner Production= Environmental and Cleaner Production= Environmental and Economical BenefitsEconomical Benefits

PROCESS EXCELLENCEPROJECTS

WASTE REDUCTION PROJECTS

MATERIAL USEEFFICIENCY PROJECTS

The Process The Process

• Identify suppliers (focus on medium and small businesses)Identify suppliers (focus on medium and small businesses)

• Invite to introductory meetingInvite to introductory meeting

• Voluntary sign up for training and projectsVoluntary sign up for training and projects

• Provide raining on PE and lean methodologiesProvide raining on PE and lean methodologies

• Suppliers identify and implement projectsSuppliers identify and implement projects

• Follow upFollow up

• Data reporting and verificationData reporting and verification

• Inform and build the business caseInform and build the business case

• Repeat cycleRepeat cycle

• Identify suppliers (focus on medium and small businesses)Identify suppliers (focus on medium and small businesses)

• Invite to introductory meetingInvite to introductory meeting

• Voluntary sign up for training and projectsVoluntary sign up for training and projects

• Provide raining on PE and lean methodologiesProvide raining on PE and lean methodologies

• Suppliers identify and implement projectsSuppliers identify and implement projects

• Follow upFollow up

• Data reporting and verificationData reporting and verification

• Inform and build the business caseInform and build the business case

• Repeat cycleRepeat cycle

Benefits for customers...

• Improved efficiency of the supply chain• Improved cost-effectiveness of the supply chain• Improved competitiveness of the supply chain • Improved capability of the supply chain to meet customer needs• Improved communications and relationships with suppliers through better understanding of mutual expectations and building trust• Improved compliance with environmental requirements• Reduced environmental footprint of suppliers

Benefits for the suppliers...

• Improved efficiency • Improved cost-effectiveness• Improved competitiveness • Improved capability to meet customer needs• Improved communications and relationships with customers through better understanding of mutual expectations and building trust• Improved compliance with environmental requirements• Reduced environmental footprint of suppliers• Trained staff to sustain performance and identify continuous improvement opportunities• Recognition by customers & regulatory authorities

Program ChallengesProgram Challenges

• Collecting and verifying savings to build the Collecting and verifying savings to build the business casebusiness case

• Creating a sustainable funding modelCreating a sustainable funding model

• Motivating suppliers to maintain lean Motivating suppliers to maintain lean thinking in their business decisionsthinking in their business decisions

• Reaching Tier II suppliersReaching Tier II suppliers

• Collecting and verifying savings to build the Collecting and verifying savings to build the business casebusiness case

• Creating a sustainable funding modelCreating a sustainable funding model

• Motivating suppliers to maintain lean Motivating suppliers to maintain lean thinking in their business decisionsthinking in their business decisions

• Reaching Tier II suppliersReaching Tier II suppliers

Final thought…Final thought…Knowing where we want to go (e.g. setting Knowing where we want to go (e.g. setting standards) and understanding how far we standards) and understanding how far we have to go to get there (e.g. conducting have to go to get there (e.g. conducting audits) are just the first steps in a long audits) are just the first steps in a long journey…getting thousands of diverse journey…getting thousands of diverse

suppliers to come along for the ride (e.g. suppliers to come along for the ride (e.g. building capacity) is what makes the trip building capacity) is what makes the trip

worthwhile!worthwhile!

Thank you!Thank you!Questions??Questions??