The External Operations
Planning is part of the Production Planning process inside the PLAN
organization. This team is responsible for finished goods planning produced by
external suppliers. This is a cross-business-unit team, which handles products
from joints reconstruction, trauma, spine, sports
medicine, cranio-maxillofacial (CMF), power tools and biomaterials.
In DePuy Synthes in Zuchwil, Switzerland, external operations planning
handles 31 worldwide suppliers that ship finished good directly to the primary
hub in Selzach, Switzerland. These external suppliers deliver products only for
trauma, spine, cranio-maxillofacial and power tools. Figure shows the distribution of suppliers
based on yearly purchasing values in USD. 25% of suppliers represents around 80%
of the total amount spend last year by the external operations planning in
Switzerland. As for Flextronics, this is the major supplier in the portfolio as
it represents 30% of the overall spend.
Following Johnson & Johnson’s Credo, which dictates culture, values
and priorities inside the business; the first responsibility of every team and
employee in the organization is with the end customers (Johnson & Johnson, 2017). The organization
must meet their needs offering high quality of products, with a prompt and
accurate service, and constantly strive to reduce costs. For a planning
perspective, inventory level must be set up accordingly to reach the target
service level. Inventory levels will depend mainly on lead time for each arch
of the network. Specifically to the external operations planning team, the
longer the lead time from placing an order to suppliers and receiving finished
goods at the primary hub, the greater the amount of inventory the company needs
to hold in order to serve properly customer needs. As lead time is one of key
supply parameters, Figure
shows current lead time of finished goods suppliers, not considering the time
for placing the order neither the time for receiving finished goods at the
As we can see, average lead time for external suppliers is eight weeks
but it can go up to six months. A longer lead time implies a higher risk for
the company, as demand volatility increase and supply-demand mismatch costs
arises either from ordering more than actual demand or stocking-out (de
Treville et al., 2014a). What it is more surprising is that the biggest
supplier of the portfolio has a lead time that doubles the average of others.
This reduces the agility and responsiveness to end customer, which may lead to loss
of profits and bad reputation.
The rest of the study focus on Flextronics and the relationship with
DePuy Synthes. The aim is to explain the current situation, evaluate the value
of lead time with this supplier and make some recommendations for both
companies to reduce lead time and increase agility and flexibility to improve
service levels with end customers.