Operations management framework and key principles

Johnson & Johnson

Business Description

Johnson & Johnson (NYSE:JNJ) is the world's foremost and most technologically advanced supplier of medical products and suppliers, pharmaceutical and healthcare products and services including diagnostics that are leading the healthcare industry into the 21st century. As of the close of the latest calendar year, the company had approximately 114,000 people as of December 31, 2010. In its latest fiscal quarter, the company reported $16B in Revenues with Net Income of $3B. This was in the middle of one of the most severe global recessions of the last several decades and speaks to how efficient the company's operations management strategies and approaches are.

J&J is organized into three distinct strategic product segments including consumer products, medical devices and pharmaceuticals.

Of the many, many product lines the company has actively in the market and under development, J&J is best known for its consumer products in the baby care, skin care, oral and wound care markets., These include many over-the-counter (OTC) products including the best-selling Aveeno skin-care products, Band-Aid adhesive bandages and Clean & Clear acne treatment. The company is best-known for its baby shampoo, a perennial best-seller, in addition to its healthcare products as well. Additional well-known brands include Motrin, Tylenol, Neutrogena, Pepcid AC, Listerine and Reach in addition to Zyrtec and Splenda. The pharmaceutical segment manufactures and marketing products for the therapeutic needs of patients in the areas of cardiovascular, contraceptive, dermatology, and many other areas of treatment. J&J is a leading holder of patents in these core areas of consumer products and has a core competency is quickly translating healthcare innovation into highly successful pharmaceutical products.

The third business unit comprise the company's medical devices and diagnostics segment. The mission of this business unit is to create highly effective and innovative products for nurses, therapists, and physicians. The main products produced by this business unit include circulatory disease analysis and management platforms, orthopedic analysis in addition to about two dozen other smaller, much more focused

Production Summary

J&J relies primarily on a series of lean manufacturing initiatives and programs including a reliance on Just-In-Time Manufacturing techniques in factories located globally. As of their latest annual report, J&J is operating 250 subsidiary business and companies that with manufacturing facilities in 57 different nations as of the close of 2010 (J&J Investor Relations, 2012). These manufacturing centers together serve distribution, selling and services efforts across 175 different nations today (J&J Investor Relations, 2012). The role of a highly distributed network of suppliers and quality management throughout this network are crucial to the ongoing success of the company.

Distribution Summary J&J has one of the most advanced distribution, retailing, and multichannel selling platforms in place of many manufacturer of pharmaceutical products globally, with a high reliance on product, payment and product workflows (J&J Investor Relations, 2012) (Stevenson, 2012). The distribution networks the company relies on globally are specifically designed to support multichannel-based transaction workflows, in addition to payment, product and rebate workflows. Figure 1, J&J Global Distribution Network, shows how these dynamics interact with one another based on analysis from the latest series of filings the company has made with the Securities and Exchange Commission (SEC) (J&J Investor Relations, 2012).

Figure 1: J&J Distribution Workflow For Consumer Products

(Majority of Sales Flow Through This Distribution Network)

The Important Role of Operations Management at Johnson & Johnson

The two most critical areas from an operations management standpoint for Johnson & Johnson are supply chain management and quality management. Taken together, they are the core of the value chain of this business and their coordination operation allow the company to grow quickly into new product lines still retaining quality at the sourced component and production levels (Stevenson, 2012). J&J also has a corporate culture that is heavily reliant on analytics, metrics and lot traceability in both their supply chain management and quality management operations strategies, which was invaluable in responding to the Tylenol tampering and recalls the company has had to contend with (O'Rourke, 2010). As with many pharmaceutical products manufacturers, the extent of supply chain and quality performance has a direct effect on distribution, profitability and services performance as well (Stevenson, 2012).

Beginning with supply chain management, J&J has an intensively level of supplier audits they expect each supplier to pass and also randomly be able to manage as they provide materials, components and subassemblies to the company (Wechsler, 2011). Supplier audits form the interlinking process to Quality Management, another strategic operations management initiative in the comp[any as well. J&J also uses these supplier audits to ensure alignment to the Collaborative, Planning, Forecasting & Replenishment (CPFR) processes which are critical to their success in anticipating global demand for products by business unit (Weill, Ross, 2005). Supply chain management is the unifying operations management strategy that keeping the entire value chain and quality levels of J&J aligned to corporate objectives and standards (Weill, Ross, 2005) (J&J Investor Relations, 2012).

A second major area of focus for J&J is their focus on enterprise compliance and quality management (ECQM) or as it is often called in operations management studies and texts. Quality Management (Stevenson, 2012). For J&J the Quality Management systems form the foundation of their production processes as each step in the development, mixing and production of many of their products must meet Federal Drug Administration (FDA) requirements (Wechsler, 2011). Quality Management is also managed as a strategic initiative within the company with auditors reporting directly to the Office of the CEO (J&J Investor Relations, 2012) What also is critical for Quality Management for a process perspective is the need for reporting back to other business units and at times to foreign governments what the yields are on new pharmaceutical products (Weill, Ross, 2005). J&J has over decades become a company that has worked very hard to quantify the performance of their quality management process and provide lot traceability to the FDA when requested, often during surprise audits by the company completed over time (Wechsler, 2011). Figure 2 provides an overview of the Quality Management process of traceability analysis, showing how tightly coupled supply chain management and quality management are within the company.