Responsible Management of External Manufacturing Tish Lascelle May

Responsible Management of External Manufacturing Tish Lascelle May 2006

External Manufacturing - Why does it matter? Ø Ongoing Credo responsibility Ø Increasing use of external manufacturers Ø Increasing public expectations and risk to reputation

Our Current Program • 1999 - EHS practices for External Manufacturers –Contract language –Audits/Ratings for high risk EMs based on legal compliance • 1999 - Johnson & Johnson Policy on Employment of Young Persons added to requirements and audits • 2000 - Minimum standards for all suppliers –Risk assessment –Communication regarding compliance and ISO 14000 • January 2004 - Scope of audits changed to include all External Manufacturers by end of 2005.

Our progress …. . • Over 95% contract manufacturers with EHS compliance language in contracts • Over 90% contract manufacturers audited since 1999 • Less than 1% with unacceptable performance • Zero repeat unacceptable performers

Future program: Standards for Responsible External Manufacturing • Broader set of expectations for external manufacturers and API suppliers –New: Ethics, labor and management systems. –Based on universal norms and standards for human rights and the environment. –Closes gaps where legal requirements do not exist or are not satisfactory to protect human rights and the environment.

Future Challenges… • With new standards will come new challenges for us and our supply chain partners – Balancing universal and local norms – Accepting continuous improvement as a reality • Our partners have told us they will need our help – Identifying capacity building opportunities – Developing partnerships with NGOs and governments to improve supplier capacity – Building upon our experience with the green supplier projects

Green Supplier Network Framework Approach: Link Process Excellence and Environmental Goals -

Process Excellence = Cleaner Production= Environmental and Economical Benefits WASTE REDUCTION PROJECTS PROCESS EXCELLENCE PROJECTS MATERIAL USE EFFICIENCY PROJECTS

The Process • Identify suppliers (focus on medium and small businesses) • Invite to introductory meeting • Voluntary sign up for training and projects • Provide raining on PE and lean methodologies • Suppliers identify and implement projects • Follow up • Data reporting and verification • Inform and build the business case • Repeat 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 Challenges • Collecting and verifying savings to build the business case • Creating a sustainable funding model • Motivating suppliers to maintain lean thinking in their business decisions • Reaching Tier II suppliers

Final thought… Knowing where we want to go (e. g. setting standards) and understanding how far we have to go to get there (e. g. conducting audits) are just the first steps in a long journey…getting thousands of diverse suppliers to come along for the ride (e. g. building capacity) is what makes the trip worthwhile!

Thank you! Questions? ?