In today's business environment, sustainable procurement practices are increasingly driving companies' purchasing decisions, policies and reputation. With operations in 60 countries around the world and a complex, extensive value chain, at Johnson & Johnson we have a truly global reach in our ability to influence the sustainability practices in our supply base. We are committed to engaging and partnering with suppliers who are transparent about their sustainability goals, can assure us that they are responsibly producing the goods and/or services we are buying, and can verify the legal and regulatory compliance of their supply chain. Together, we work to accelerate environmental and social improvements across our value chains.
Today, the impact that companies have on individuals, the environment and society are the criteria that consumers and patients use to make decisions about who they want to do business with. That is critically important as we look to the future—and we recognize the responsibility we have across our entire supply base. By using our procurement leverage, influence and market position, we are able to partner with our suppliers to create innovative solutions to some of today’s most pressing issues, and to strengthen our Company.
At Johnson & Johnson we partner with approximately 80,000 suppliers. We organize these suppliers into 30 categories grouped into five families, including:
In 2016, we established our Citizenship Center of Excellence (CoE) to help us leverage our supplier relationships for the greater global good, going well beyond what would be expected of traditional procurement organizations. The Citizenship CoE strengthens our approach to advancing citizenship and sustainability in our supply base by strategically connecting the existing programs within the Procurement functions, including Sustainable Procurement Program (SPP) and Global Supplier Diversity & Inclusion (GSDI) among others.
Executive leadership and sponsorship are provided by our Chief Procurement Officer; Vice President, Procurement Citizenship; Head of Sustainable Procurement; and Head of GSDI.
Our Sustainable Procurement Program (SPP) combines the focus on supplier compliance with legal and regulatory requirements with our aspiration for our suppliers to achieve world-class supplier sustainability. With respect to the latter, we have an ambitious target to enroll suppliers covering 80 percent of spend in our SPP by 2020 (see Health for Humanity 2020 Goals). To achieve this, we set incremental annual targets for percentage of spend with suppliers enrolled in SPP, targeting the top 40 percent of spend in 2016. Suppliers within the annual percentage spend target are required to participate in the SPP. Participating suppliers must conform to our Responsibility Standards for Suppliers and fulfill one or more of four requirements listed below, determined for each supplier category by category leadership:
A supplier’s conformance to our Responsibility Standards is measured through completion of an EcoVadis assessment.
Supplier assessments under SPP run in tandem with our Environment, Health, Safety & Sustainability (EHS&S) risk management program for suppliers. While the process to enroll suppliers in our SPP is prioritized on supplier spend, the EHS&S risk management program prioritizes supplier engagement based on a supplier’s EHS&S risk profile.The respective teams work together closely to integrate our supplier assessment processes for increased efficiency and better risk mitigation.
Under the EHS&S program, as a starting point the suppliers are screened for risk of non-compliance with relevant EHS&S standards. The criteria used for this review are the suppliers' geographic location and the types of products/services they provide (see Responsible External Supply chart). Suppliers determined as low priority in the initial review require no further immediate action. Suppliers categorized as high priority undergo a formal EHS&S risk assessment through an EcoVadis assessment. Depending on the findings, the risk assessment may trigger a supplier site audit. All suppliers who are external manufacturers, active pharmaceutical ingredients (API), biologics suppliers, and in some cases, strategic R&D suppliers or chemicals suppliers, are automatically designated as high priority and must complete EcoVadis assessments at the site level. All new external manufacturers and API or biologics suppliers located in a “high risk” country are automatically subject to a site audit.
Supplier assessments conducted by EcoVadis through participation in the SPP or EHS&S risk management program, follow the same assessment process. All site audits are conducted using the audit protocol and checklist developed by the Pharmaceutical Supply Chain Initiative (PSCI). We identify audit findings in the areas of suppliers' Management Systems, Ethics, Labor/Social Responsibility, Environmental Compliance and Health & Safety Compliance. We categorize findings as critical, major and minor, and communicate them to each supplier along with our expectations that they must implement time-bound corrective actions and demonstrate improvement. GRI 308-1; 414-1; 414-2
The Sustainable Procurement and EHS&S teams use the final assessment score to rank suppliers as low, medium or high risk. Where the individual supplier score falls below our minimum rating, we request that the supplier institute a formal improvement program. If we discover non-conformances, we work with the supplier to identify problem areas and develop strategies to improve performance. If significant non-conformances cannot be resolved, the relationship with the supplier may be terminated.
We maintain processes to assist our suppliers in assessing and, where necessary, improving their performance. Assistance is provided through follow-up visits and business reviews with direct coaching and guidance, and in part through our Sustainability Toolkit for Suppliers and supplier relationship management engagement. While the Responsibility Standards for Suppliers set the standard expectations, additional expectations may also be defined in supplier contracts. Assistance is also offered to suppliers through Johnson & Johnson’s membership in PSCI in the form of supplier capability building conferences, webinars and tools available on the PSCI website.
At Johnson & Johnson we believe that supplier diversity is equally important as the diversity of our own workforce; supplier diversity plays a major role in the success of our businesses and it is a vital part of our Procurement function. Through our GSDI organization, we have been investing in diverse supplier development, education, and collaboration for nearly 20 years.
Our GSDI Program provides qualified small and diverse businesses with a pathway to become an official provider of goods or services for Johnson & Johnson. Suppliers that qualify for this program include: Certified Minority-Owned Businesses, Small and Large; Certified Small Disadvantaged Businesses; Small Veteran-Owned and Service Disabled Veteran-Owned Businesses; Certified Women-Owned Businesses, Small and Large; Certified Gay/Lesbian-Owned Businesses, Small and Large and Small, Certified HUBZone Businesses.
As we expand our diverse supplier programs beyond the United States, we are also establishing systems to track the success of these global programs. For more information about the expansion efforts of our diverse supplier community, see Health for Humanity 2020 Goals Progress Scorecard. And, for more information on our Supplier Diversity program, see Supplier Diversity page on our Company website.
We maintain a set of expectations for purchased products such as packaging, office paper, printed marketing materials and wood-based furniture (see Responsibility Standard—Forest-Based Materials & Products), and for palm oil (see Responsible Palm Oil Sourcing Criteria). Processes have been established to implement our responsible sourcing standards, and to measure conformance.
As one of Johnson & Johnson's suppliers, we appreciate the opportunity to have a conversation and share the progress around our responsibility and sustainability efforts on an ongoing basis, and the encouragement from a forward-looking client like Johnson & Johnson to continue aggressively driving our ESG strategy forward.
In 2016, we counted an annual procurement spend of approximately $291 billion. Procurement spend by business segment and by region is shown below.
At the end of 2016, we more than tripled our supplier engagement compared to 2015, with approximately 44 percent of spend, or $12.8 billion, representing 328 suppliers enrolled in our Sustainable Procurement Program (SPP). Of these, 307 completed EcoVadis assessments in 2016, with the remaining suppliers under assessment; 228 joined the SPP in 2016. The number of suppliers completing EcoVadis assessments increased to 435 when site level assessments of select supplier categories are added at the request of our Environment, Health, Safety & Sustainability (EHS&S) group. GRI 308-1; 414-1 Additionally, 196, or approximately 60 percent, of the suppliers in our SPP met our target of having two or more publicly reported sustainability goals.
The total number of EcoVadis assessments completed in 2016 is just under 500, which indicates that some suppliers may receive more than one assessment. The regional distribution of these assessments is shown below. Of these, approximately 46 percent were designated as low risk, 45 percent as medium risk, and nine percent (43 sites) as high risk. GRI 414-2
Under the EHS&S risk management program, our EHS&S team completed 156 audits and technical visits2 of suppliers identified as potentially high risk, including those identified as high risks prior to 2016. The regional breakdown of audits and technical visits is shown in the table below.
By the end of 2016, 82 critical findings were identified during the audits, and out of 43 sites initially designated as high risk, 31 sites were confirmed to be high risk as a result of audits. The critical findings primarily fell into the following categories: fire safety, process safety management, and chemical safety/industrial hygiene. Supplier category managers are regularly kept informed of the risk levels identified and corrective activities being implemented using a standardized risk reduction scorecard that is published quarterly. GRI 308-1; 308-2 A total of six suppliers reported serious EHS&S incidents all of which were fire-related.
CDP Supply Chain Program Participation
Of the 244 suppliers invited to participate in the CDP Supply Chain – Climate Change program, 225, or 92 percent, chose to do so, representing the highest number of suppliers invited and greatest participation rates to date. Additionally, 79 were invited to participate in CDP Supply Chain – Water program, and 46, or 58 percent, participated. Notably, 2016 was the first time CDP took steps to evaluate the ability of organizations to engage with their suppliers on climate change, and provide them with a Supplier Engagement Rating. In 2016, Johnson & Johnson received a score of A- on this rating.
Supplier Recognition and Training
In 2016, our SPP hosted a Supplier Sustainability Awards event to recognize 10 suppliers for their efforts across four categories, as detailed in the table. Prior to the awards event, the suppliers joined representatives from Johnson & Johnson’s Procurement, Risk, and EHS&S teams as well as external partners for an interactive workshop titled "Sustainability through the Lens of Risk and Value Creation." The workshop and awards event emphasized the importance of sharing our sustainability values with our suppliers as key partners in this collaborative effort.
Johnson & Johnson Supplier Sustainability Awards:
Also in 2016, our efforts with Pharmaceutical Supply Chain Initiative (PCSI) continued. As a member of PSCI, we support the initiative’s “vision of better social, environmental and economic outcomes in the communities where we buy.” Through PSCI we can more effectively share knowledge and expertise across our industry. We invited many of our suppliers to a PSCI training and capability-building event in China, during which we explored responsible business practices and conducted supplier training on a range of key topics including: chemical hazard assessment, process safety management, green chemistry, industrial hygiene, responsible labor practices, business ethics, and environmental compliance.
In 2016, we achieved diverse U.S. supplier spending and small U.S. supplier spending of $1.301 billion and $2.692 billion respectively. Compared to 2015, our overall diverse and small supplier spending slightly declined, due in part to the completion of several major one-time projects, supplier optimization efforts and a decrease in overall procurement spending. For more information on the related 2020 Goal, see Health for Humanity 2020 Goals Progress Scorecard.
Our spending with U.S. lesbian, gay, bisexual, transgender (LGBT) suppliers was $1 million, and spending with veteran- and disabled-owned veteran business suppliers was $77.8 million. In partnership with WeConnect International and other partners, we announced a commitment at the Global Citizen Summit to increase women-owned business spend and women-owned small business spend by $100 million, over the next three years.
While in the early stages, we are now able to start reporting spend in some of our markets outside of the United States, including Europe, Middle East and Africa, and Australia. Diverse spend with Tier 1 suppliers in these markets was $24.5 million in 2016.
For the sixth consecutive year, Johnson & Johnson maintained membership in the Billion Dollar Roundtable, an exclusive group of 24 companies that advance corporate best practices for supplier diversity and who spend at least $1 billion dollars (Tier I) annually with certified minority and women-owned businesses.
Supplier Diversity Partnerships
Johnson & Johnson is a corporate member of many supplier diversity and inclusion advocacy organizations, including but not limited to the following:
* Top Corporation Recognition
** First-time Top Corporation Platinum Level Recognition (2016 WBENC “Top Corp” Award)
*** Founding member
Supplier Diversity Awards
Select Recognitions and Accolades in 2016:
Responsible Sourcing – Forest Materials
Our goal is to fully implement our responsible sourcing standards for forest products and ingredients derived from palm oil, including verification of conformance to our standards for high-priority sources by 2020. At the end of 2016, 58 percent of our packaging, 46 percent of our marketing materials, and 61 percent of our furniture was verified by Johnson & Johnson to conform to our standards. Over 80 percent of office paper was verified to contain recycled content and/or certified content and slightly less than 70 percent is Forest Stewardship Council certified.
In 2016, 58 percent of our derivatives were Roundtable on Sustainable Palm Oil (RSPO) certified. Twelve (12) percent of our palm oil derivatives were sourced from RSPO-certified segregated sources and one percent from RSPO-certified mass balance sources. Forty-six (46) percent of our palm oil derivatives were covered by RSPO Greenpalm certificates. We also advanced our goal to achieve greater transparency in our palm oil derivative supply chains with 60 percent of our supply traceable to mills.
1 Reflects spend data available as of 03/31/17.
2 A technical visit is a follow-up visit to the initial audit.