(Luận văn thạc sĩ) ineffectiveness supply chain performance in johnson johnson vietnam

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 fou

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

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

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:

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:

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

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

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

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

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:

Figure 8: Distribution channel in Vietnam

Figure 9: Consumer distributor in Vietnam Source: J&J Supply Chain Vietnam

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”

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

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

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

Table 5: Reported sales by YTD – Unit: MM Dollar

Reported sales by YTD – Unit: MM Dollar

Quarter 2019- YTD 2018- YTD Percentage Change

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:

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

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

Table 6: Deliver Service Excellence in 2019

Deliver Service Excellence Jan Feb Mar Apr May Jun Jul Aug Sep Oct Total

Product not delivered on

time

Source: J&J customer service in 2019

Figure 13: Distribution complaint based on category

Source: customer service in 2019

Incorrect quantity – Short

Product damage in transit

Product not delivered on time

Product not delivered

Other - Wrong product

Documentation Error

Other Incorrect delivery location/address

Incorrect quantity – Excess

Distribution Complaint by category

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Distribution complaint or deliver service issue as table and figure above is with the top issue

of incorrect quantity – Short That’s what demonstrated that deliver service issue is not effective in line with the result of customer survey

In conclusion, Customer service level versus competitors is prominent symptom that Johnson

& Johnson Consumer Healthcare sector should pay more attention based on primary data including actual deliver service issue and customers’ survey

CHAPTER 2: PROBLEM IDENTIFICATION 2.1 Possible problems

2.1.1 The first tentative problem: High Mean Absolute Percentage Error (MAPE)

MAPE data showed that actual accuracy of forecast in the period of Full Year 2018 and YTD-Nov-2019 is in the weak and inaccurate forecasting In fact, MAPE performance does not meet KPI setting at the Reasonable forecasting zone For example, Nov-2019 is 69% and YTD is 57.5% Therefore, it is the result of poor sales performance in 2019 After reviewing operations point of view, the author will give multiple solutions for improvement in next chapter

Figure 14: MAPE monitoring between 2018 and Year to Date (YTD) Nov-2019

Source: Supply Chain Division

The mean absolute percentage error (MAPE) is the common calculate process of the demand planning accuracy due to benefits of independence ratio It is advised in most popular textbooks and was certainly applied according to the preliminary measurement in the module competition according to Kim (10) summary Therefore, it is measured the average percentage the unknown of percentage mistake

Meanwhile, Lewis (1982) summed up a table in details including typical MAPE values for industrial and business data and their interpretation

Table 7: Interpretation of typical MAPE values MAPE percentage Forecast accuracy

Source: Lewis textbook published 1982, page40

On the other hands, MAPE plays the vital disadvantage producing infinite or undefined valuable data for zero or close-to-zero actual values In order to trigger this problem, the author suggested a new way of forecast accuracy That’s what is called the mean arctangent absolute percentage error (MAAPE)

According to Mr Ly Nhat Vu – CLS specialist said that demand accuracy is very importance

to reduce destruction goods with slow moving products in the markets S&OP monthly

meeting discussed a lot of MAPE indicator But, there have not found the root cause to analyze the reason to inaccurate forecasting zone (>50%)

2.1.2 The second tentative problem: High Forecast BIAS

Forecast bias is a really key concern in terms of demand forecast YTD-2019, at the end of

2019 was worse than at the first sixth months It increased significantly from 5.3% in August

up to 25.1% in Dec-2019 as table 6 below:

Table 8: Forecast bias performance in 2019

There are no products can be planned that following up an unreliable biased forecast Trend and track tool are the quality control point for assessing the accurate The tracking mechanism in every cycle is measured as following areas:

After BIAS is calculated in every cycle, the value is updated to analyse the overall tracking and trending A demand forecast history completely avoidance of bias will revert to zero value, within 13 gaps In the worst possible result would turn up either +13 (low-forecast) or -13 (high-forecast) Generally sharing that a forecast data base shall convert a value greater than 4.5 or less than negative 4.5 would be concerned that BIAS will be out of controllable

A fast initiative investigation on making better the forecast accuracy in the represent of bias Next, bias had been recognized, correcting the forecast mistake is creatively high easy It could be met by revising the forecast during challenging encounter by the appropriate quantity in the right instruction, for example, go it up in the situation of low-forecast bias, and decline it in the case of high-forecast bias

In summary, it is appropriate for organizations to look at forecast bias as a major impediment standing in the way of improving their supply chains because any bias in the forecast means that they are either holding too much inventory (over-forecast bias) or missing sales due to service issues (under-forecast bias) Most organizations have a mix of both: items that were over-forecasted and now have stranded or slow-moving inventory that ties up working capital plus other items that were under-forecasted and they could not fulfill all their customer demand

According to Ms Nguyen Thuy Huong, the leadership team wants to increase sales performance at least 11% in 2019 versus 2018 The strategic goal keeps continuing slowdown

to the consumer sector to make a monthly budget as well as action plans how to meet the objective Next, action plans will be capture into a demand forecast If business head can’t be able to recognize how to achieve while the planning proceeding is accordingly As a result, it might be 3% gaps creation – it could lead to the conclusion as unclear However, according

to 3 and 3.5 months finished goods unrestricted shipping barrier becomes closure, if it seems

to be no clear guidance, the demand planning must be revised downward If it is not modified

is whereas the bias issue will happen

2.1.3 The third tentative problem: Low On Time IN Full (OTIF)

Figure 15: On Time In Full (OTIF) monitoring in 2019 OTIF is the abbreviation of On Time In Full term That’s what calculates of delivery health during supply chain network and tracks how long the distributors received what they would rather obtain at the time that their preferable

We use OTIP to monitor the effectiveness of logistics performance to distributors Total quantity of shipping cases delivered should contains all shipping cases that the customer ordered (cases which the customer needs), in response to the readiness and the cooperation of total orders Total number of cases delivered - are dispatched outer cartons from distribution center Number of quantity cases delivered on-time is according to the customer’s requested such as the order shipping date and appointment time, as agreed with/provided by the

customer) Just in case, delivery dates are not aligned with the customer Finally, standard delivery lead will be set up

According to Mr Tran Trong Tuan Customer Logistic Service Manager; OTIF does not achieve the target after transition distributors as well as transporters Transporters have not known customer rules and policy It caused delivery delayed, full shipment rejection at the end of cycle selling In addition, moving from authorized distributors to normal distributors is really challenge encounters New distributors do not focus on full efforts for J&J products As

a result of low customer service level, that is the reason to low on time in full indicator

2.1.4 The fourth tentative problem: High turn-over rate

According to turn-over rate in Supply chain; turn-over rate is high The attrition rate contributes 26.66% in year 2019

Table 9: Turn over-rate in Supply Chain

Source: Human Resource Department – J&J

Chowdhury Abdullah, A M., & Hasan, M N (7) argued that employee turnover term is really a good expression is applicable in each organization That KPI is identified as the percentage of employees quit the firm and need time for replacement Chowdhury Abdullah,

A M., & Hasan, M N (7) also cited staff quite ratio is risen a vital problem, especially in the area of human resource management To fulfill the basic needs and offer an excellent working condition facility as employees’ satisfaction, competitive salary and good recruitment approach Every firm want to increase the productivity and lessen turnover, thereby leading to be profitable Another approach demonstrated that both lower job satisfaction level and staff commitment are with the higher rate of turnover (Tam and Le, 8)

According to Ms Vu Dang Khanh Talent Acquisition Lead mentioned that turn over rate in company is really high It is much higher than competitor in the same industry due to three sectors operations

The author has reviewed with management team, high turn over rate becomes common in Vietnam market and need to have big efforts and resources So, the thesis can not solve this problem in the organization

2.1.5 The fifth tentative problem: complexity internal process

According to Marlene Kuhn et al (9), Process complexity is really a future challenge The purpose of this paper is to integrate process complexity as an object of analysis within effective quality management The authors identified and specified four complexity characteristics, which we integrated in a holistic process complexity model (PCM) In addition, developing the idea of internal and external process complexity and demonstrated that internal complexity needs to balance external complexity

As mentioned above, there are 3 sectors pharmaceutical, medical devices and consumer health sectors with high turn-over rate It causes difficulties for new employees to approach right system and process That is the reason to run a smooth procedure internally how to make proactive communications compared to competitors according to Ms Phan Dan Tam – Head of Market Access

The authors have evaluated how to make the process smoothly and simple These procedures are under global level review and controlled of changes Therefore, it will be out of scope the thesis research