UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------
TANG HOA THUAN
INEFFECTIVENESS SUPPLY CHAIN PERFORMANCE IN
JOHNSON & JOHNSON VIETNAM
MASTER OF BUSINESS ADMINISTRATION
SUPERVISOR: PHAN THI MINH THU
Ho Chi Minh City – Year 2020
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------
TANG HOA THUAN
INEFFECTIVENESS SUPPLY CHAIN PERFORMANCE IN
JOHNSON & JOHNSON VIETNAM
MASTER OF BUSINESS ADMINISTRATION
SUPERVISOR: PHAN THI MINH THU
Ho Chi Minh City – Year 2020
CONTENTS
EXECUTIVE SUMMARY .......................................................................................................... 1
CHAPTER 1: PROBLEM CONTEXT....................................................................................... 3
1.1 Company background ............................................................................................................ 3
1.1.1 Company introduction & organization chart ...................................................................... 3
1.1.2 Key competitors of Johnson & Johnson products .............................................................. 6
1.1.3 Positioning strategy ............................................................................................................ 8
1.1.4 Distribution Channel .......................................................................................................... 9
1.2 Situation and symptom analysis .......................................................................................... 11
1.2.1 Symptom 1: Low operational sales performance ............................................................. 11
1.2.2 Symptom 2: Low customer service level ......................................................................... 14
CHAPTER 2: PROBLEM IDENTIFICATION ...................................................................... 18
2.1. Possible problems ................................................................................................................. 18
2.1.1. The first tentative problem: High Mean Absolute Percentage Error (MAPE) ................ 18
2.1.2. The second tentative problem: High Forecast BIAS ....................................................... 20
2.1.3. The third tentative problem: Low On Time IN Full (OTIF) ........................................... 22
2.1.4 The fourth tentative problem: High turn-over rate ........................................................... 23
2.1.5 The fifth tentative problem: complexity internal process ................................................ 24
2.2 The central problem ............................................................................................................. 25
CHAPTER 3: CAUSE VALIDATION ..................................................................................... 28
3.1 Potential causes ..................................................................................................................... 28
3.1.1 Potential cause 1: Transportation failure .......................................................................... 28
3.1.2 Potential cause 2: Customer service failure ..................................................................... 29
3.1.3 Possible cause 3: Customer order un-expectation ............................................................ 31
3.1.4 Possible cause 4: Slow moving stock and obsolete (SLOB) ............................................ 33
CHAPTER 4: ALTERNATIVE SOLUTION .......................................................................... 37
4.1 Suggested Solutions............................................................................................................... 37
4.1.1 Solution 1: Enhance transportation service provider (2PL) performance ........................ 37
4.1.2 Solution 2: Disengage current transportation service vendor .......................................... 38
4.1.3 Solution 3: Move to inhouse transporters ........................................................................ 39
4.2 Solution comparation ........................................................................................................... 39
4.4 Designed plan ........................................................................................................................ 42
CONCLUSION ........................................................................................................................... 44
Supporting documents ................................................................................................................ 45
REFERENCE .............................................................................................................................. 52
LIST OF FIGURES
Figure 1: Johnson & Johnson organization chart ............................................................................ 4
Figure 2: Supply Chain Department organization chart ................................................................. 5
Figure 3: Johnson & Johnson consumer health products............................................................... 6
Figure 4: Top five suppliers in Fast Moving Consumer Goods (FMCG) industry ........................ 7
Figure 5: Top 3 competitors in consumer healthcare products ....................................................... 7
Figure 6: Gartner 2020 Supply Chain Top 25 ................................................................................ 8
Figure 7: Top 3 competitors in consumer healthcare products ....................................................... 9
Figure 8: Distribution channel in Vietnam ................................................................................... 10
Figure 9: Consumer distributor in Vietnam .................................................................................. 10
Figure 10: Organic growth among top main competitors ............................................................. 14
Figure 11: Organic growth of main competitors........................................................................... 15
Figure 12: Deep-dive analysis of customer surveys ..................................................................... 15
Figure 13: Distribution complaint based on category ................................................................... 16
Figure 14: MAPE monitoring between 2018 and Year to Date (YTD) Nov-2019 ...................... 18
Figure 15: On Time In Full (OTIF) monitoring in 2019 .............................................................. 22
Figure 16: Update cause and effect map of J&J Company by using literature review ................. 25
Figure 17: Final update cause and effect map of Johnson & Johnson company by using literature
review and data according to in-depth interview, primary and secondary data............................ 27
Figure 18: The routine of information and transportation in a basic supply chain management . 28
Figure 19: The percentage of late order. ....................................................................................... 31
Figure 20: Distributor inventory (week) ....................................................................................... 34
Figure 21: Cause and Effect mapping ........................................................................................... 36
LIST OF TABLES
Table 1: Key retails chain in Vietnam .......................................................................................... 11
Table 2: Reported sales by quarter – Unit: MM Dollar ................................................................ 12
Table 3: Reported sales by quarter – Unit: MM Dollar ................................................................ 12
Table 4: Reported sales by quarter – Unit: MM Dollar ................................................................ 13
Table 5: Reported sales by YTD – Unit: MM Dollar ................................................................... 13
Table 6: Deliver Service Excellence in 2019 ................................................................................ 16
Table 7: Interpretation of typical MAPE values ........................................................................... 19
Table 8: Forecast bias performance in 2019 ................................................................................. 20
Table 9: Turn over-rate in Supply Chain ...................................................................................... 23
Table 10: OTIF failure analysis FY-2019 ..................................................................................... 29
Table 11: Root cause analysis for MAPE & error bias ................................................................. 32
Table 12: SLOB expense monitoring and tracking....................................................................... 33
Table 13: Solution description comparation based on theory....................................................... 39
Table 14: Feasible and Infeasible analysis.................................................................................... 40
Table 15: Benefit and expected results ......................................................................................... 41
Table 16: Design plan and expected results .................................................................................. 42
EXECUTIVE SUMMARY
This thesis of “Ineffectiveness supply chain performance through customer service logistics and
operational planning process (S&OP)” has been proposed and finished in four main parts:
problem context, cause validation, alternative solutions, conclusion and supporting documents.
Chapter 1: Problem context contained company background beginning from industry general
overall, company history and business competitors and the vision, mission and the organization
structure of the firm in Ho Chi Minh. Furthermore, in this session, the author has explored two
(2) symptoms which are concerns of stakeholders of the company according to a wide variety of
in-depth interview, surveys, primary and secondary data regarding company profits and loss,
performance trending and tracking in supply chain division.
Chapter 2: Problem identification means that a problem mess had been faced according to all
symptoms, organization results and problems as a general image. Additionally, a key issue of
ineffective supply chain organization structure was selected to be multiple resolutions as a
central problem of company with the modification of its existence and critical factor. The author
shows ineffectiveness supply chain performance through customer service logistics and
operational planning process (S&OP) should be central problem based on high MAPE, high
BIAS and low OTIF indicators.
Chapter 3: After validating there possible problems and choosing the main issue of the firm,
three potential causes of central problem noted down as transportation failure, customer failure,
customer order unexpectation and slow moving stocks were carefully verification and
determination so as to provide out multiple solutions which were representative in the sector.
Chapter 4: In this argument, the long-term solution is suggested to offer proper transportation
issue at the change moment of business in the future. In the parallel, there are there proposals
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for Enhance transportation service provider (2PL) performance, disengage current transportation
service vendor and move to inhouse service to tackle problem with digital application. The final
debate was named as the supporting documents to support all information and sources for the
above three chapters. It composed sections of in-depth interview transcript to justify central
problem and selected solution. In-depth interviews were widely used at various levels from many
related departments of Johnson & Johnson (JNJ) Vietnam to select data and to analyze various
perspective
of
the
problem.
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CHAPTER 1: PROBLEM CONTEXT
1.1 Company background
1.1.1 Company introduction & organization chart
Johnson & Johnson is the USA international firm started in 1886 that manufactures medical
devices diagnosis, drug and consumer goods industry. Its popular stock is a component of
the Dow Jones Industrial Average and the company is the top of 37 in the 2018 Fortune
500 magazine of the largest United States corporations by total revenue. The company is one
of the most valuable around the word.
Johnson & Johnson headquarter located in New Brunswick, New Jersey. The cooperation has
totally 250 branches with operations in 60 countries and products sold in over 175 nations.
Johnson & Johnson had sales volume of $81.5 billion during financial report 2018 in the
word.
Mission: “For nearly 125 years Johnson’s® mission has been to create the gentlest baby
products in the world. Products so mild, they can be used for every age and stage of a baby’s
life. That is our standard of gentle. But gentle isn’t only in our bottles, it is also in our heart”.
Johnson and Johnson Vietnam (LTD) is one of a part of Global Johnson and Johnson. Its
representative office is located at No. 5 Me Linh Vietbank Tower, Ho Chi Minh city. It is a
well-known and high-quality brand in consumer health sector for baby care industry such as
bodywash, shampoo, wipe and baby powder… with organization chart as following areas:
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Figure 1: Johnson & Johnson organization chart
Deliver Operations division takes responsibility the flow of import products and services and
includes all procedures that transfers from manufacturers upcoming local distributors. The
duties include in the active streamlining of a business's supply-side activities to give the best
customer valuable and win the competitive advantage in heart of consumers.
Supply Chain division coordinates the logistics of all aspects of the supply chain which
consists of five steps:
•
The strategy of planning
•
The capable of imported products or export
•
Producing (concentrated on efficient and effectiveness)
•
Shipping and warehouse
•
Products returned and destruction (for defective or unwanted products)
Human Resource organization chart as following areas:
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Figure 2: Supply Chain Department organization chart
Common consumer healthcare products including skin health products (NEUTROGENA;
AVEENO, CLEAN & CLEAR…), OTC Products - TYLENOL and necessity healthy goods
brands such as LISTERINE, BAND-AID, JOHNSON’S
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Figure 3: Johnson & Johnson consumer health products
1.1.2 Key competitors of Johnson & Johnson products
In Consumer Products segment, other major companies include Unilever International,
Nestle, Kimberly-Clark Corporation, and Procter & Gamble. Among of competitors, Johnson
& Johnson gains appropriately 10.4% of the total contribution in terms of sales volume.
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Figure 4: Top five suppliers in Fast Moving Consumer Goods (FMCG) industry
Source: Neilsen’s research in 2019
Figure 4 showed that Johnson & Johnson is behind Fav Score compared to competitors such
as Procter & Gamble; Unilever and Colgate-Palmolive. Therefore, to win customer heart or
repurchase of customers need to be proactive and react as fast as possible. Now, Johnson &
Johnson is the fourth range in the list. The company should move up level to win sales
performance.
Figure 5: Top 3 competitors in consumer healthcare products
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Figure 6: Gartner 2020 Supply Chain Top 25
Source: J&J source
Industry rewards and recognition provide another opportunity to benchmark the progress we
are making through the lens of our outside stakeholders. I am proud to share that Gartner, Inc.
– the worldwide on he top quantitative research and consultant firm – has pointed out ranking
as #3 on the 2020 Supply Chain Top 25 list. This recognition reinforces that J&J is
delivering on the strategic journey we’ve been on for the past several years to become even
more customer-focused (all while continuing to strengthen our operations in areas like digital,
planning and manufacturing technologies). More importantly, this recognition reaffirms the
importance of every single one of us driving the future of supply chain for our customers and
our industry.
1.1.3 Positioning strategy
The beginning journey to find out the scope of level alternatives is to gather many ways
which a level strategy could be received as well as executed. After that, six approaches to
positioning strategy will be showed and debated positioning by attribute including money that
customers are ready to buy, functions, products aiming, classification, and the competitors.
Johnson and Johnson consumer health goods created the mission “the gentlest baby products
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in the world” for 125 years as Positioning by the Product User compared to Unilever, P&G
and Nestle.
Figure 7: Top 3 competitors in consumer healthcare products
Source: J&J marketing department source
1.1.4 Distribution Channel
J&J Consumer Vietnam is an importer from J&J Malaysia and Thailand exporter. Then, J&J
Vietnam dedicate for third party service logistic (3PL) for handling, storage and
transportation to distributors (DKSH, Tien Thanh and Duong Anh), Key Account (Coopmart)
and Convenience Store (Bach Hoa Xanh, Concung, Circle K, The Guardian) as following the
flows:
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Figure 8: Distribution channel in Vietnam
Figure 9: Consumer distributor in Vietnam
Source: J&J Supply Chain Vietnam
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Table 1: Key retails chain in Vietnam
Source: USDA
In summary, it mentioned clearly that the distribution channel of Johnson & Johnson is likely
other competitors both general trade channel and modern trade channel. In 2019, it was
ranked the fourth in the list based on Fav Score according to Neilsen’s research. It was
known as the gentlest baby products in the world” for 125 years.
1.2 Situation and symptom analysis
1.2.1 Symptom 1: Low operational sales performance
Chief Executive Officer Alex Gorsky said that “We delivered strong underlying sales and
earnings growth in 2019, driven by the strength of our Pharmaceutical business, accelerating
performance in our Medical Devices business and improved profitability in our Consumer
business”.
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SEGMENT COMMENTARY in financial report Q4-2019 and full year 2019
Pharmaceutical
Sales in the company’s pharmaceuticals division rose 3.5% to $10.55 billion. Strong sales
growth for anti-inflammatory drug Stelara and cancer drug Darzalex helped offset sales
declines for cancer drug Zytiga and anti-inflammatory drug Remicade due to generic
competition.
Table 2: Reported sales by quarter – Unit: MM Dollar
Reported sales by quarter – Unit: MM Dollar
Quarter
2019
2018
Percentage Change
Q4
7.47
6.60
+13.2%
Q3
7.85
6.51
+20.7%
Q2
6.64
6.39
+3.8%
Q1
7.23
6.24
+16%
Medical Devices
Sales in its medical-devices business fell 0.5% to $6.63 billion. Some product segments, such
as contact lenses and artificial hips, had sales growth, but a decline in surgery products
weighed on the medical-device unit. Mr. Gorsky said he was disappointed in the performance
of some of its surgical segment, and the company is developing plans to address that.
Medical Devices operational sales, excluding the net impact of acquisitions and divestitures
grew 5.3%* driven by the growth of electrophysiology products.
Table 3: Reported sales by quarter – Unit: MM Dollar
Reported sales by quarter – Unit: MM Dollar
Quarter
2019
2018
Percentage Change
Q4
3.77
3.36
+12.2%
Q3
3.57
3.20
+11.5%
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Q2
3.66
3.23
+13.7%
Q1
3.43
3.04
+12.6%
Consumer sector
According to company data of sales performance, I noticed that Sales of consumer healthcare
products in full-year 2019, which include Neutrogena beauty products and Tylenol medicine,
rose 0.9% to $3.57 billion. Over-the-counter medicine sales rose, but partially offset by lower
sales of baby care products, which include Johnson’s Baby Powder, posted a sales decline.
Table 4: Reported sales by quarter – Unit: MM Dollar
Reported sales by quarter – Unit: MM Dollar
Quarter
2019
2018
Percentage Change
Q4
9.1
12
-24.1%
Q3
8.5
11.6
-26.7%
Q2
9.9
8.9
0%
Q1
8.7
9.7
-10.9%
2019- YTD
2018- YTD
Percentage Change
Q4
36.2
42.2
-14.2%
Q3
27.7
30.6
-9.5%
Q2
18.6
18.6
0
Table 5: Reported sales by YTD – Unit: MM Dollar
Reported sales by YTD – Unit: MM Dollar
Quarter
Source: Johnson & Johnson quarterly report
In summary, it is obvious to show that sales growth rate significantly declined around 14% in
terms of baby care products segment since the first quarter in 2019.
Otherwise, main competitors are consistently organic sales growth, for example, P&G (7%),
Nestle (4%) and Unilever (3%) as the figure 8 below:
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Figure 10: Organic growth among top main competitors
Source: The companies
All in all, consumer sector is the sales growth rate significantly declined around 14% in
terms of baby care products segment since the first quarter in 2019. In the contrast, Medical
device sector and pharmaceutical sector are good sales performance with high rise. Therefore,
Sales decline in consumer sector is considered as the symptom of the company.
1.2.2 Symptom 2: Low customer service level
According to customer experience indicators clearly mentioned that customer service level of
slightly improve compared to 2018. Distributors’ expectation is also an important driver to
know how to customers’ need and want is meet and love. To measure customer satisfaction is
to create a survey annually to know service level through three key impact factors are
Emotion, Effectiveness and Ease.
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Figure 11: Organic growth of main competitors
Figure 12: Deep-dive analysis of customer surveys
Source: J&J customer surveys in 2019
Based on the customer service survey in 2019, there is a big gap versus key competitors in
terms of supply chain effectiveness. Effectiveness indicator is main concern of Supply Chain
Operations. For example, proactive communication achieved 50% lower than competitors
and deliver service issue (deliver complete orders including late orders) obtained 37%
compared to competitors.
In addition, Distribution complaint showed that incorrect quantity (short, over and wrong
products) and late delivery are key contributors cause low customer service level in supply
chain service
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Table 6: Deliver Service Excellence in 2019
Deliver Service Excellence
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Total
Incorrect quantity – Short
3
2
4
Product damage in transit
Product not delivered on
3
6
1
3
4
3
4
1
2
1
2
3
1
3
2
3
23
2
1
5
19
5
3
19
2
1
13
1
11
2
1
9
1
2
9
time
Product not delivered
1
Other - Wrong product
3
Documentation Error
Other
2
1
3
3
3
3
2
3
1
Incorrect delivery location
1
Incorrect quantity – Excess
2
1
2
2
1
1
7
2
Source: J&J customer service in 2019
Distribution Complaint by category
Incorrect quantity – Excess
Jan
Incorrect delivery location/address
Feb
Other
Mar
Documentation Error
Apr
May
Other - Wrong product
Jun
Product not delivered
Jul
Product not delivered on time
Aug
Product damage in transit
Sep
Incorrect quantity – Short
Oct
0
5
10
15
20
25
Figure 13: Distribution complaint based on category
Source: customer service in 2019
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