Case Study and Commentary: Supply Chain
Case studies offer an
insider’s view of change that can stimulate our
thinking and even serve as role models for change in
our own organizations. The case study presented here
describes the process used by a successful firm in a
heavily regulated industry to leverage
customer-supplier teams. Additionally, the two lead
advisors on the project (Patrick Lucansky and Robert
Burke) shared their views on information sharing
with News for a Change.
Advanced Sterilization Products (ASP), a Johnson
& Johnson Company, Case Study
“Knowing what you want, never losing
sight of your objectives, and never losing control of
your plan doesn’t necessarily project success,
but that’s the way to bet.” Paraphrased
from Damon Runyon
Advanced Sterilization Products (ASP), a Johnson
& Johnson Company, manufactures medical
sterilization equipment and sterilant supplies. The
organization grew 13-17% annually during the past
five years and was actively involved in process
improvement efforts designed to address future
challenges. In particular, management was concerned
about strained resources, a common problem for
organizations growing at this rapid rate.
Supply chain issues were identified as a key
opportunity area. A preliminary study revealed that
the functionally structured operations environment
was not achieving optimum results. Partnering skills
with suppliers lagged behind expectations. Given that
ASP made only 10 of its 220 SKUs (store keeping
units) and relied heavily on its suppliers for its
success, the need for a robust supply chain was a
critical component in future marketplace success.
Activity-based costing (ABC) was used to analyze
the existing process. Excessive material handling
expenses, manufacturing lead times, and inventory
levels were discovered, as well as many
non-value-added activities. The incoming materials
inspection process was suboptimal, creating more than
10% internal rejects along with unacceptable scrap
and rework rates.
Project Team Approach
A core team was designed; its charter required a
fact-based, process-driven approach that would
enhance value throughout the organization, focusing
on strategic, long-term success with incremental and
meaningful tactical results.
The team’s objectives were:
- Addressing the immediate need to reduce
inventory and rejects.
- Establishing long-term relationships with
- Receiving cost-effective, quality products in a
- Developing world-class suppliers.
A five-step process was adopted for the
- Pre-analysis phase: Collect data and
identify customer requirements.
- Analyze data: Conduct cross-functional
training and value map the physical and information
flow in the supply chain.
- Redesign: Develop “To Be”
process maps, suggest supply chain redesign,
develop an implementation plan, and agree on
performance measures, benefits, and results.
- Make business case: Propose lean supply
chain techniques and strategy and then scope the
effort and timetable.
- Implement: Implement specific activities
and monitor benefits as they relate to bottom-line
During the pre-analysis phase, 20% of the
components were identified as representing 80% of
ASP’s material costs and inventory value, as
well as more than 90% of the internal rejects. These
components became the focus of improvement
Similarly, 15 suppliers (out of
110) were selected as strategic partners. They not
only produced the majority of key components/
subassemblies for the primary products associated
with the project, but they also had expressed
interest in working with ASP on improving quality,
delivery, cost, etc.
The envisioned supply-chain strategy was presented
to the selected suppliers, and they became actively
involved in the project. The sidebar, “Suppliers Share Their View of the
Project,” describes their perspectives.
Additional project support was obtained from KTG
Consulting. The consultants provided the team with
training and facilitation services, including
development of value maps on all major supply chain
processes, benchmarking, and design of the redesigned
processes and required outputs using lean concepts
One area that required improvement was the
supplier selection/qualification process. New
policies, objectives, procedures, tools, techniques,
and forms were developed to strengthen ASP’s
relationship with their key suppliers. A
comprehensive system was developed that involved
independent parts- and supplier-certification
The revised parts-certification process
incorporated reviews of product specifications, test
requirements, packaging and handling specifications,
and operational processes under strict statistical
process control. Historical assessments of rejection
rates, corrective action trends, costs, etc., also
The supplier-certification process was expanded to
consider business, financial, engineering,
technology, capacity, process control, and management
capabilities of suppliers. Supplier programs for zero
defects, concurrent engineering, just-in-time
practices, continuous improvement strategies, and ISO
9000 certification were encouraged and recognized in
the prequalification assessment process. Based on
this assessment, suppliers could be rated as
partners, preferred, or approved.
Ongoing Supplier Management
In addition to the new supplier selection process,
changes were made to the way the ongoing
relationships would be managed. For instance, steps
were implemented to reduce incoming parts inspection
based on extended good performance. Quarterly reviews
with suppliers were put into practice.
Additionally, a commitment was made to enhance
learning for both ASP and its suppliers. For example,
a foundation for ongoing, periodic training in lean
thinking and continuous quality improvement was
ASP started this project by shaping its vision of
supply chain redesign, consistent with its overall
business strategy to provide value. The primary
objective was to implement a long-term, meaningful
process for mutually beneficial supplier
In addition to completing this broad-based,
cross-functional project to redesign the supply
chain, ancillary improvements were achieved in design
and development producibility, quality, reporting and
data collection, and materials/logistics. A
five-to-one payback was realized on the investment in
supplier training. And the involved suppliers agree
that the results were well worth the effort!
Comments on Information Sharing
NFC: What processes do you see companies
using to communicate and ensure understanding of
their specifications/requirements, as well as other
Lucansky and Burke: Typically, we see
companies using processes that require the joint
participation of appropriate customer and supplier
staff members. End users also may be involved. They
deploy strategic processes, such as concurrent
engineering, design reviews, site visits, and audits.
Tools, including Design for Manufacturing and
Assembly and Design of Experiments, are used to
capture and transfer specific data—both
technical and nontechnical in nature, such as parts
specifications, contact lists, purchase order
procedures, and delivery instructions.
NFC: What documents are routinely exchanged
between customers and suppliers?
Lucansky and Burke: The documents that we
find exchanged routinely are quite varied, but some
of the more common ones include drawings, technical
specifications, bills of materials, test data,
certificates of acceptance, design reviews,
contracts, requests for quotes, purchase orders, and
material return authorizations.
NFC: Is there a difference in the
information exchanged with partners versus that
exchanged with other suppliers?
Lucansky and Burke: Certainly the level of
information exchanged depends on the risk and
involvement of each organization. Partners typically
have access to the most sensitive data, whereas other
suppliers generally are allowed to view only data
necessary to meet their contractual obligations as a
NFC: How important is a free flow of
information to the supply-chain process?
Lucansky and Burke: It’s extremely
important because all parties in the supply chain are
really part of a single process that requires them to
share the data necessary to meet the end users’
expectations. This is one of the most difficult areas
for partnering organizations to define because
traditional business thinking is rooted in an
adversarial, nontrusting context.
NFC: Do most companies require their
suppliers to sign confidentiality agreements? Is this
done for all levels of supplier certification?
Lucansky and Burke: Most customers require
some form of legal agreement with their suppliers.
These agreements often get more complex and broader
in scope as suppliers move up the qualification
ladder from approved to partner status. Even though
the goal is to establish a partnership built on
trust, it is always important to capture the terms
and agreed upon requirements in a legal format that
provides proper protection for both parties.
NFC: Do you find that most customers sign
confidentiality agreements with their suppliers for
all levels of supplier certification?
Lucansky and Burke: Yes, most companies do
sign confidentiality and noncompete agreements with
their suppliers; however, this depends somewhat on
the level of ownership of design, patent rights, etc.
For instance, if commodity items comprise the
principle goods/services, customers and suppliers may
choose not to require that level of formality.
NFC: Do the business and/or management
portions of typical site reviews include assessment
of the suppliers’ ability to maintain
confidentiality? If yes, does this assessment include
a review of historical performance?
Lucansky and Burke: Although not an
everyday process, some customers do assess a
supplier’s ability to maintain confidentiality.
There are three primary reasons that this area may be
- If there is a suspicion that the supplier
committed some breach of security in the past.
- If information related to national security is
involved, such as occurs for DOD contracts.
- If the customer’s industry is highly
competitive and/or extremely sensitive to leaks,
such as pharmaceutical research and software
In these situations, suppliers usually are
required to demonstrate their ability to maintain
secure areas (often using video), ID screening, and
document logging and control rooms.
NFC: How do most customers ensure that
their suppliers do not share trade secrets or other
proprietary information with competitors?
Lucansky and Burke: Companies can protect
sensitive data like trade secrets through specific
contractual agreements and auditing procedures
focused on reviewing such matters. Additionally, they
can establish strategic alliances that require each
party to expose certain key sensitive internal data
important to the partnership. These strategic
alliances form tight bonds between the parties as
each has a vested interest in the health and
prosperity of the other.
PATRICK LUCANSKY is the president of KTG
Consulting, an operations improvement consulting firm
specializing in lean manufacturing, supply chain
management, Six Sigma, and pharmacovigilance. He has
held a variety of positions, including production
manager, director of operations, and small business
owner. Lucansky can be reached via e-mail at email@example.com
or by telephone at 847-395-7076.
ROBERT BURKE is president of Vision Management
Associates (formerly KTG) an operations improvement
consulting firm specializing in lean manufacturing,
supply chain management, ISO 9000, and
pharmacovigilance. He has more than 25 years’
experience in many manufacturing environments. Burke
can be reached via e-mail at firstname.lastname@example.org or
by telephone at 617-803-1325.