WEC Asia-Pacific Roundtable October 18-19, 2005 Karl F. Schmidt VP, WW Process Excellence Greening the Supply Chain

Agenda J&J background Supply Chain areas of focus Case studies/Examples Benefits

Overview / Strategic Principles Most broadly- based Human Health Care Company – 114,000 employees, 3 major segments Decentralized Management – 200 companies, 57 countries Manage for the Long Term – 72 consecutive years of sales increases –43 consecutive years of dividend increases Credo-based values – Customers, employees, community, shareholders

Supply Chain Areas of Focus J&J WW Environmental Program – Vision, Goals, policy Initial focus: risk reduction Current: includes operational efficiencies WEC Cleaner Production Project – Mexico, Brazil EPA / Green Supplier Network – Specific projects applying Lean production

Environmental Vision “ We are committed to environmental leadership, instilling the highest environmental values in all employees, utilizing the best environmental practices in all we do, and focusing on global sustainable growth.”

Air Drinking Water Wastewater Hazardous NPO PCB’s Chemical Emergency Preparedness Storage Tanks Site Remediation Non-Hazardous Waste Handling and Storage External Manufacturers Supplier Responsibility Commitment & Policy Environmental Planning Checking & Review Implement & Operate Compliance & External Mfg. Continuous Improvement toward “0” All EM’s Audited & Acceptable Management System Goals ISO Cert. Of all Mfg/R&D Sites New Products & Processes EI Assessments for all new Products & Packages Conservation & Community Outreach Protection of Ecological Systems Outreach Plans implemented CO2 / Energy Reduce CO2 Emissions Increase Energy Efficiency Water Reduce Water Use Employ Best Practices Raw Material & Packaging Reduce Raw Material & Packaging Use Waste Reduction Reduce Waste Increase reuse, recycling, reclamation Global Standards & Goals Key Business Benefits: Enhances Reputation Reduces Regulatory & Market Risks Builds Credibility in our Communities Reduces Cost & Improves Operational Efficiency

Supply Chain - Why does it matter?  Increasing Volume and Dollar ($) spend on Suppliers and External Manufacturers (EM)  Knowledge / control of suppliers and EMs can be limited:  Compliance, safety and regulatory risks  Labor concerns  Business Continuity Planning issues  Public expectations and risk to reputation

External Manufacturer (EM) Metrics Dashboard Criteria

“Win – Win” for Risk Reduction 2004 EM Assessment Status* Over 300 EMs audited since 1999 Now <2% Repeat Marginal ratings No Repeat Unacceptable ratings Janssen’s Success with Hanjiang Pharmaceutical McNeil’s Success with Cardinal Healthcare * N = 1250 EM in database

Supply Chain-Scope of Environmental, Health & Safety Involvement Product Development Manufacturing DistributionUse Before Now and future Increasing volume by external 3 rd party

WEC: Capacity Building for Environment “Greening the Supply Chain Project” Focus: drive environment and sustainable development among SMEs in the developing world What: leverage influence of MNEs to promote Cleaner Production and Energy Efficiency improvements among the thousands of supplier SMEs Who: partnership with WEC, USAID, MNE (both Corp and in country), local technical partner, supplier SME How: 2 day training workshops, technical visit/assessment of opportunity, action plan and follow-up report Benefits for Supplier SME Increased competitiveness (less waste, increased efficiency, lower cost) Market responsiveness (more attractive for other MNE to use) Promotes sustainable development (social/economic/environment gain)

J&J/ Supplier Examples in Mexico and Brazil J&J Mexico and J&J Brazil hosted 2 supplier sessions with World Environment Council (WEC) in – Pueblo, Mexico, 12 suppliers – Sao Jose dos Campos, Brazil 13 suppliers Typical Pilot Impacts: – Printing Co: $26,500/yr in recycling/avoided disposal – Packaging Co: 100,000 gal/yr water savings – Chemical Co: add’l $8,000/yr revenue for cleaned drums 13 key suppliers are participating in Lean Manufacturing Assessment project in Brazil - Kick-off meeting held in April, 2004

Green Suppliers Network (GSN) An Innovative Industry-Government Collaboration including EPA/GSN/ Dept of Commerce, OEMs Green Suppliers provides “Lean & Clean” technical assistance to small and mid-sized manufacturers yielding improved competitiveness through environmental and economic benefits Lean & Clean approach expands the traditional Lean definition of waste from eliminating non-value added time, labor, money to include environmental wastes (energy, emissions) Since 2004, over $9.7MM in savings from just 20 projects

Lean & Clean Approach Clean Strives For... – Nature-friendly Substitutes – Optimized Material And Energy Efficiency – Waste Elimination – Air/Water Emission Reductions – Solid/ Haz Waste Reduction – Toxic Material Reduction Or Substitution – Efficient Packaging Lean Eliminates... – Defects – Overproduction – Waiting – Non-utilized People – Transportation – Inventory – Motion – Extra processing

How Green Suppliers Network Works Step 1. EPA engages one or multiple OEMs Step 2. Facilitate Supplier Engagement Step 3. EPA engages Tech.Consultant to provide Lean and Clean assistance to supplier Step 4. Tech. Consultant works with supplier facility to identify, prioritize and implement solutions that achieve business and environmental results Step 5. Consultant aggregates data for EPA and OEM Step 6. All cost savings and company sensitive data remain with supplier

Lean Thinking and Continuous Improvement Lean Thinking is a Systematic Approach of Identifying and Eliminating Waste (non-value-added activities) Through Continuous Improvement Green Suppliers Network Reviews Focus On The First Three Steps Use of Six Sigma and Lean tools: – Process maps – Root cause analysis – Value Stream maps Understand the Current State Analyze System Conditions Generate Options for Improvement Implement Evaluate Performance Standardize Processes Continuous Improvement

Benefits to J&J US EPA,US Department of Commerce, Green Supplier Network partnering with J&J local company suppliers in Puerto Rico Suppliers trained in Lean, at minimal cost to J&J Suppliers reduce waste, save money, improve cost Collaboration with government agencies enhance reputation Typical supplier savings (1 st project with bottle supplier) $180,000/yr from “leaned” changeover process Now able to replicate on other internal processes

Summary “Greening the Supply Chain” Benefits: Enhances Reputation Reduces Regulatory & Market Risks Builds Credibility in our Communities Reduces Cost & Improves Operational Efficiency Promotes Sustainable Development