WEC Asia-Pacific Roundtable October 18-19, 2005

Karl F. SchmidtVP, WW Process Excellence

Greening the Supply Chain

Agenda

• J&J background

• Supply Chain areas of focus

• Case studies/Examples

• Benefits

Overview / Strategic Principles

• Most broadly- based Human Health Care Company– 114,000 employees, 3 major segments

• Decentralized Management– 200 companies, 57 countries

• Manage for the Long Term– 72 consecutive years of sales increases

– 43 consecutive years of dividend increases• Credo-based values

– Customers, employees, community, shareholders

Supply Chain Areas of Focus

• J&J WW Environmental Program

– Vision, Goals, policy• Initial focus: risk reduction

• Current: includes operational efficiencies

• WEC Cleaner Production Project

– Mexico, Brazil

• EPA / Green Supplier Network

– Specific projects applying Lean production

Environmental Vision

“We are committed to environmental leadership, instilling the highest

environmental values in all employees, utilizing the best environmental practices in all

we do, and focusing on global sustainable growth.”

AirDrinking

WaterWastewater

HazardousNPO

PCB’s

ChemicalEmergency

PreparednessStorage Tanks

Site Remediation

Non-HazardousWaste

Handlingand Storage

External Manufacturers

SupplierResponsibility

Commitment& Policy

EnvironmentalPlanning

Checking & Review

Implement &Operate

Compliance &

External Mfg.

Continuous Improvement toward “0”

• All EM’s Audited & Acceptable

Management System Goals

• ISO 14001 Cert. Of all Mfg/R&D Sites

New Products & Processes

• EI Assessments for all new Products & Packages

Conservation & Community Outreach

• Protection of Ecological Systems

• Outreach Plans implemented

CO2 / Energy

• Reduce CO2 Emissions

• Increase Energy Efficiency

Water

• Reduce Water Use

• Employ Best Practices

Raw Material & Packaging

• Reduce Raw Material & Packaging Use

Waste Reduction

• Reduce Waste

• Increase reuse, recycling, reclamation

2001-2005 Global Standards & Goals

Key Business Benefits:• Enhances Reputation

•Reduces Regulatory & Market Risks• Builds Credibility in our Communities

• Reduces Cost & Improves Operational Efficiency

Supply Chain - Why does it matter?

Increasing Volume and Dollar ($) spend on Suppliers and External Manufacturers (EM)

Knowledge / control of suppliers and EMs can be limited:

Compliance , safety and regulatory risks

Labor concerns

Business Continuity Planning issues

Public expectations and risk to reputation

External Manufacturer (EM) Metrics Dashboard Criteria

Category On-Target Caution Needs Attention

External Manufacturing

(EM) Agreement

More than 95% of EM have contracts or written agreements to comply with EHS laws and regulations. (2 points)

80-94% of EM have contracts or written agreements to comply with EHS laws and regulations (1 point)

Less than 80% of EM have contracts or written agreements to comply with EHS laws and regulations. (0 points)

EM Assessments

100% of new EM evaluated before use (2 pts)

Plan and budget approved to assess all EM by end of 2005 (2 pts)

Budget is allocated to assess all EM by end of 2005 (1 pt)

Less than 100% of all new EM evaluated before use. (0 pt)

No plan or budget in place (0 pt)

EM Program Effectiveness

Less than 10% “repeat marginal” sites used. (2 pt)

No “Unacceptable” EM being used. (2 pt)

11-30% of “repeat

marginal” sites used. (1 pt)

‘Unacceptable” EM on track to become “acceptable” in one year. (1 pt)

More than 30% of EM used are ‘repeat marginal” (0 pt)

“Unacceptable” EM still in use one year after assessment. (0 pt)

Dashboard color based on points

9- 10 points 5-8 points 4 points or less

“Win – Win” for Risk Reduction

2004 EM Assessment Status*

• Over 300 EMs audited since 1999

• Now <2% Repeat Marginal ratings

• No Repeat Unacceptable ratings

• Janssen’s Success with Hanjiang Pharmaceutical

• McNeil’s Success with Cardinal Healthcare

* N = 1250 EM in database

Supply Chain-Scope of Environmental, Health & Safety Involvement

Product Development

Manufacturing Distribution Use

Before

Now and future

Increasing volumeby external 3rd party

WEC: Capacity Building for Environment

“Greening the Supply Chain Project”

Focus: drive environment and sustainable development among SMEs in the developing world

What: leverage influence of MNEs to promote Cleaner Production and Energy Efficiency improvements among the thousands of supplier SMEs

Who: partnership with WEC, USAID, MNE (both Corp and in country), local technical partner, supplier SME

How: 2 day training workshops, technical visit/assessment of opportunity, action plan and follow-up report

Benefits for Supplier SME

• Increased competitiveness (less waste, increased efficiency, lower cost)

• Market responsiveness (more attractive for other MNE to use)

• Promotes sustainable development (social/economic/environment gain)

J&J/ Supplier Examples in Mexico and Brazil

• J&J Mexico and J&J Brazil hosted 2 supplier sessions with World Environment Council (WEC) in

– Pueblo, Mexico, 12 suppliers

– Sao Jose dos Campos, Brazil

13 suppliers

• Typical Pilot Impacts:

– Printing Co: $26,500/yr in recycling/avoided disposal

– Packaging Co: 100,000 gal/yr water savings

– Chemical Co: add’l $8,000/yr

revenue for cleaned drums13 key suppliers are participating in Lean Manufacturing Assessment project in Brazil- Kick-off meeting held in April, 2004

Green Suppliers Network (GSN)

An Innovative Industry-Government Collaboration including

• EPA/GSN/ Dept of Commerce, OEMs

• Green Suppliers provides “Lean & Clean” technical assistance to small and mid-sized manufacturers yielding improved competitiveness through environmental and economic benefits

• Lean & Clean approach expands the traditional Lean definition of waste from eliminating non-value added time, labor, money to include environmental wastes (energy, emissions)

• Since 2004, over $9.7MM in savings from just 20 projects

Lean & Clean Approach

Clean Strives For...

– Nature-friendly Substitutes

– Optimized Material And Energy

Efficiency

– Waste Elimination

– Air/Water Emission Reductions

– Solid/ Haz Waste Reduction

– Toxic Material Reduction Or

Substitution

– Efficient Packaging

Lean Eliminates...

– Defects

– Overproduction

– Waiting

– Non-utilized People

– Transportation

– Inventory

– Motion

– Extra processing

How Green Suppliers Network Works

Step 1. EPA engages one or multiple OEMs

Step 2. Facilitate Supplier Engagement

Step 3. EPA engages Tech.Consultant to provide Lean and Clean assistance to supplier

Step 4. Tech. Consultant works with supplier facility to identify, prioritize and implement solutions that achieve business and environmental results

Step 5. Consultant aggregates data for EPA and OEM

Step 6. All cost savings and company sensitive data remain with supplier

Lean Thinking and Continuous Improvement

• Lean Thinking is a Systematic Approach of Identifying and Eliminating Waste (non-value-added activities) Through Continuous Improvement

• Green Suppliers Network Reviews Focus On The First Three Steps

• Use of Six Sigma and Lean tools:

–Process maps

–Root cause analysis

–Value Stream maps

Understand the Current State

Analyze System Conditions

Generate Options for

Improvement

Implement

Evaluate Performance

Standardize Processes

Continuous Improvement

Benefits to J&J

US EPA ,US Department of Commerce , Green Supplier Network partnering with J&J local company suppliers in Puerto Rico

• Suppliers trained in Lean, at minimal cost to J&J

• Suppliers reduce waste, save money, improve cost

• Collaboration with government agencies enhance reputation

Typical supplier savings (1st project with bottle supplier)

• $180,000/yr from “leaned” changeover process

• Now able to replicate on other internal processes

Summary

“Greening the Supply Chain” Benefits:

• Enhances Reputation

• Reduces Regulatory & Market Risks

• Builds Credibility in our Communities

• Reduces Cost & Improves Operational Efficiency

• Promotes Sustainable Development