Vertical Integration at Johnson & Johnson

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Johnson & Johnson: Planning Vertical Integration
Team Synergy
April 4, 2011

In a competitive market to which Johnson and Johnson operates, the smallest of errors can lead to consequences which can cut revenue. When large mistakes occur, millions of dollars are lost, and even worse, there is a loss of customer confidence. Johnson and Johnson has had numerous recalls in their consumer healthcare division recently, which rocked the organization’s once sound image, and diminished its profits. These recalls have hurt Johnson and Johnson’s stocks and cost the company about $900 million in sales last year (Rockoff, 2011). Opportunity

For Johnson and Johnson to continue being an industry leader, change is needed. An overhaul of the company’s production management must be examined. Recalls like ones they have been experiencing are unacceptable in the medical field. Mr. Weldon acknowledged customers were smarting from the recalls, and vowed to regain their trust and confidence once the recalled medicines return to the market at the end of this quarter (Rockoff, 2010).

These recalls have led to the closing of plants, and loss of profits. Johnson and Johnson must reestablish itself as a premier, family oriented health care organization. Establishing consumer confidence once again and finding ways to regain its market share is the company’s primary strategic plan. An integration of the McNeil arm (which produces the products recalled) to the Johnson and Johnson production standards is needed. The recall problems have not been a one and done case. In the fiscal year of 2010 the FDA reported that Johnson and Johnson had to recall “approximately 288 million drug product units” (Perrone, 2011).

Johnson and Johnson needs to find a way to control this problem before this arm of their corporation ruins its image which has been built over years. An integration of product management must be implemented with proper oversight, and execution. The ultimate goal is to minimize any potential danger to its clients, and turn the McNeil arm into a profitable one, once again. Solutions

The current vertical integration of Johnson & Johnson follows the backward integration ideology, with a focus on diversifying products closer to their production. Johnson & Johnson is responsible for the manufacturing, marketing, and distribution of its products. Through backward integration Johnson & Johnson has more control over the beginning stages of production. Retailers that sell Johnson & Johnson products rely and trust that customers are receiving high quality products. After several product recalls, it is the primary objective of the Executive Team to create a new strategy to insure that the best quality products are being produced. Two specific solutions have been proposed to address the growing problems related to the vertical integration of Johnson & Johnson.

The key issue with product recalls is a lack of quality control throughout the various branches of management. The Executive Team should create a new position, Senior Director of Quality. This individual will report directly to the CEO and be responsible for the quality control initiatives being implemented. This Senior Director of Quality will head the corporate quality program, Signature of Quality (SOQ). This is a committee present in each J&J arm and is tasked with improving operations from the manufacturing process to product performance. As an organization that relies heavily on suppliers for chemicals and raw materials, it is essential that the products meet J&J’s high standards for quality. Supplier evaluations are critical when receiving raw materials used in the manufacturing of J&J products. Incoming quality inspections must be administered, data recorded, and tracked.

J&J has been successful in past by acquiring other businesses that are able to help the organization advance. Continued vertical integration through acquisitions will help the organization increase revenue and...
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