We verify and monitor supplier compliance with our Responsibility Standards for Suppliers through a formal assessment and audit program. Assessments are largely administered through a globally recognized third-party program called EcoVadis. These assessments are conducted for suppliers participating in our Sustainable Procurement Program (SPP) or through our Environment, Health & Safety (EHS) risk assessment program. EcoVadis assessments provide an initial screening of supplier performance, and the results (a score) play an important role in determining which suppliers may require an on-site audit.
We have had a well-established EHS audit program in place for more than 10 years. Since 2017, we have been investing in a new on-site social audit program.
We mostly leverage the environmental and safety expertise of our internal Environmental Health, Safety & Sustainability organization and on-the-ground presence in various geographic regions to conduct supplier EHS audits. We systematically screen suppliers to be audited based on EcoVadis scores, type of goods and services provided, and geographical location. We particularly focus on the following types of suppliers for audits:
- External manufacturers
- Active pharmaceutical ingredients (API) suppliers
- Biologics/vaccine suppliers
- R&D suppliers
- Chemicals suppliers
New external manufacturers and API or biologics/vaccine suppliers located in a “high-risk”44 country are automatically subject to an on-site audit.
All EHS site audits are conducted using the audit protocol and checklist developed by the Pharmaceutical Supply Chain Initiative (PSCI). We identify supplier non-compliances in the areas of environment, health and safety, and management systems. We categorize these non-compliance findings as critical45, major and minor, and communicate them to each supplier along with our expectations that they must implement time-bound corrective actions and demonstrate improvement. When critical findings are identified, we expect immediate mitigation of the risk. If significant non-conformances with our standards cannot be sufficiently resolved, we will either not engage if it is a new supplier or withdraw business if it is a current supplier. However, we value our supplier relations and prefer to maintain the partnership for the long term. Therefore, we have processes in place to support our suppliers in improving their performance, including through:
- Follow-up technical visits that include expert training and best practice sharing;
- Business reviews with direct coaching and guidance;
- Information provided in Sustainability Toolkit for Suppliers;
- Supplier relationship management engagement at category level; and
- Participation in supplier capability-building conferences, webinars and other resources available through Johnson & Johnson’s membership in the PSCI.
In 2017, we conducted 189 EHS audits and technical visits. The regional breakdown of these audits and summary of critical findings can be found below in the performance section. Critical findings are broadly categorized into safety-related and environment-related for the purposes of this report.
In 2017, we continued our work to establish an enterprise-wide framework for addressing human rights in our supply base. In addition to expanding the human rights requirements in our updated Responsibility Standards for Suppliers, a cross-functional Human Rights Working Group met regularly to guide and inform the development of the Company’s human rights risk assessment approach and audit program.
The full roll-out of the supplier social audit program is scheduled to take place in 2018. Supplier selection and prioritization criteria will include results for EcoVadis scores on Labor and Business Ethics, location in a country considered high risk for violation of human rights, and the supplier category. We will engage credible third-party audit firms with relevant expertise to conduct these audits on our behalf. Our revised Human Rights training for Global Procurement employees is also scheduled to be rolled out in 2018.
While we work hard to positively impact the suppliers within our immediate sphere of influence, achieving complete visibility into multi-tier supply chains requires concerted efforts from industry and other stakeholders. This is one of the reasons we actively participate in global healthcare industry forums that aim to raise the bar on supply chain responsibility and transparency by addressing systemic issues that no one company can solve alone.
We are a founding member of the Pharmaceutical Supply Chain Initiative (PSCI) that brings together a group of pharmaceutical and healthcare companies to formalize, implement, and champion responsible supply chain practices. Johnson & Johnson endorses the Principles established by the PSCI. The Initiative's supplier audit collaboration and capacity-building programs are helping to streamline the audit processes across the industry, as well as accelerate knowledge exchange and learning. We continue to use PSCI standardized audit tools and processes for all our supplier EHS audits. In addition, our suppliers benefit from PSCI-organized training and capacity building activities. We are an active member of PSCI events and lead two of the Initiative’s committees. In 2017, we used the PSCI Principles to help guide and update our own Responsibility Standards for Suppliers, supporting more industry-wide cohesion and leveraging applied learning.
Johnson & Johnson is also a member of the Consumer Goods Forum (CGF). Our Worldwide Chairman of the Consumer segment, Jorge Mesquita, serves on CGF’s Board of Directors. We are also actively involved in various CGF working groups that aim to standardize and advance environmental and social sustainability practices across the consumer goods supply chains. In 2017, CGF announced a new social resolution on forced labor, which can be found here. The resolution’s principles, which align with industry principles, have been incorporated into our supplier audits and helped to inform the update of our Responsibility Standards for Suppliers.
In addition, we are an active participant and member of the Business for Social Responsibility Human Rights Working Group, established in 2012 to help companies implement the UN Guiding Principles on Business and Human Rights.
* A technical visit is a follow-up visit to the initial audit.
** We define a critical finding as: 1) evidence of imminent threat to human life or potential catastrophic impact to facility, community or environment and/or 2) evidence of imminent threat to Johnson & Johnson supply chain and/or reputation. We expect suppliers and potential suppliers to address critical findings immediately.
44 Our high-risk country classification is based on a list of countries that we establish and update regularly using various external sources of information such as the U.S. Department of State Travel Warnings, the World Bank’s country ranking on Worldwide Governance Indicators, the United Nations Human Development Index, and Transparency International’s Corrupt Perception Index.
45 We define a critical finding as: 1) evidence of imminent threat to human life or potential catastrophic impact to facility, community or environment and/or 2) evidence of imminent threat to Johnson & Johnson supply chain and/or reputation. We expect suppliers and potential suppliers to address critical findings immediately.