How Kenvue De-Risked Its Supply Chain

Global disruptions that cause sudden swings in consumer demand are becoming more commonplace today, changing the way we think about supply chains and de-risking them. If the pandemic has taught us anything, it is that organizations have a responsibility to manage these disruptions better. Many organizations have learned, through this period, that further strengthening responsive supply chains is a critical element to quickly addressing the needs of consumers.

Kenvue (formerly a Johnson & Johnson company) has seen this firsthand, especially across their Self Care and Essential Health businesses, and moved quickly to be there for consumers across their portfolio of brands, including Adult Tylenol (Paracetamol), Listerine, Zyrtec, and Pepcid, to name a few. During the pandemic, Kenvue experienced initial demand spikes of five to 10 times their pre-Covid numbers and then sustained needs of two-to-threefold demand across select brands. This surge and reset of baseline demand required a strategic shift in the way Kenvue managed their end-to-end supply chain capacity. Specifically, Kenvue invested in:

• Surge Capacity: Kenvue built excess capacity internally versus externally, providing the capability to move and scale production quickly as close as possible to where the demand is.

• Partnership Investments: They make sure that every stakeholder (from suppliers to customers and even government agencies) feels part of the solution and is agile enough to facilitate quick response to the needs of the market.

• Data and Process Investments: They created and continue to create real time data capabilities and agility/speed through process improvements.

These strategies can be thought of as insurance policies. They are commitments to reduce risk and build capacity and resiliency, which require an investment to secure timely intervention options. Let’s take a closer look at what the investments involved.

Self-Care Surge Capacity

For many organizations that faced unparalleled disruptions during the pandemic, the lesson learned is the need for surge capacity and end-to-end integration in the supply chain. This combination is there to ensure upside demand is met when there is a need, but it can be quite an expensive hedge as surge capacity must be available end-to-end because we often do not know where the bottleneck will arise in a period of disruption.

Kenvue’s approach to enhancing the supply chain for Listerine (mouthwash), one of their top brands, is a case in point. While the organization focused on cost-effective supply chain designs that relied on distributed inventory in the past, the new Listerine supply chain focused on surge capacity. The new operational infrastructure includes on site or local raw material and equipment parts manufacturing; significantly higher slack in bottle filling line capacity; the capability to activate local and global third parties quickly; and optimization models that focus on working with customers to maximize supply output and shelf presence.

Kenvue’s approach for pediatric products like Children’s Tylenol and Children’s Motrin, also involves rapid activation of secondary/tertiary raw material and manufacturing parties; engaging with regulators to provide status updates as well as approve and import globally sourced products or supplies; investing in primary manufacturing equipment and labor capacity; and focusing finished goods customer distribution in geographical areas of most need.

Kenvue’s solid dose Tylenol network faced the same unprecedented demand necessitating an immediate response. Here, unlike pediatric products, capacity was achieved through strategic third-party manufacturing and packaging partners. In addition, tight coordination and partnership with key retailers, the portfolio was optimized to focus on patient access: smaller count size bottles over larger ones. This maximized production, while allowing retailers to stock as many store shelves as possible.

This approach has also been applied to the equipment and support functions making the product. 3-D printing is a practice Kenvue has implemented in their primary manufacturing sites, allowing them to manufacture parts immediately on-site should a piece or part be unavailable in a moment’s notice. Digitally enabled batch record release reduced cycle time by 50%. Remote monitoring/real time data for equipment condition-based maintenance for early detection to predict equipment failure saved eight weeks production downtime in one year.

Like insurance policies, surge capacity comes in different forms and costs, and needs to be custom fit for the supply chains they protect. These radical changes would not have even been dreamed of a decade ago, but the pandemic experience has encouraged Kenvue to move the focus of these critical supply chains from cost-efficiency to responsiveness.

Partnership Investments

The second set of strategic capabilities relates to the company’s relationships with key stakeholders:

Retailers

During the pandemic, maximizing consumer access to needed medicines was Kenvue’s primary focus. To address this short-term challenge, Kenvue collaborated closely with its retailers, daily sharing data on consumers, production capacities, output to make decisions on what products to get quickly on the shelves and into distribution centers. In addition, long-term strategic conversations on network capacity were needed to pivot from addressing typical industry growth to providing end-to-end surge capacity capabilities to handle disruptive events such as 200–300% surges in demand.

Third-Party Suppliers

Products that can comprise no less than 20 different components require strategic partnerships with suppliers who are credentialed with specific expertise to produce them. In addition, each of those suppliers must be qualified and have the ability to scale production up or down with agility in order to deliver the final goods to a retail store. But while large manufacturers can invest more in building agile supply chains, they can’t always count on their third-party suppliers to do the same.

As Kenvue began to see the limitations in their broader supplier network, they recognized new opportunities for improvements. They started qualifying those suppliers within their network on whom they could rely for delivering on time. They also have worked to ensure priority third-party suppliers were sitting near or within manufacturing sites, giving them instant visibility to Kenvue’s needs and the ability to scale up production as needed. As mentioned before, Listerine bottles are now produced on site and directly feed bottling operations. Tylenol bottles, cartons, and labels are produced and stocked locally.

This agile structure ensures consistent reliability and facilitates surge capacity execution. It is also a win-win-win: the supplier sees a consistent revenue stream from a semi-captive customer; Kenvue receives reliable supply keeping lines running 24/7; and retailers/consumers receive needed medicines.

Government Agencies

As we saw last year during a pediatric RSV, flu, and Covid surge that wasn’t predicted by experts across the country and world, regulators have a role to play during product demand surges, especially when the product is an essential medicine, as are Children’s Tylenol and Children’s Motrin. That surge provided Kenvue with an opportunity to be in communication and regularly providing updates to the U.S. FDA and Health Canada.

During this time of unprecedented demand, FDA and Health Canada visited one of Kenvue’s U.S. and Canadian manufacturing sites so that they could see the 24/7 manufacturing efforts underway to get essential products to consumers. Open communications can help these health authorities identify global product availability and, as necessary, advance the approval and importation processes for these products. Also, an open line of communication with regulators can ensure truth in the messaging delivered to important stakeholders at times of unpredictable demand.

Data and Process Investments

In the age of disruptions and ever-growing demand uncertainty, supply chain operations are no longer left to the engineering minds alone. Supply chain operations require more data and broader interpretation of that data. It is also an end-to-end game involving all stakeholders who bring deeper insights on how consumer mindset plays into demand: data scientists and AI using regional and historical indicators to predict category needs, customer teams who report real-time consumption data and profile shopping patterns to direct product shipments to specific distribution centers and more.

Integration of data in supply chain operations is essential to success today, but it’s where you pull your data from, how you interpret it and respond to it in real-time that helps you meet consumer needs. In this context, Kenvue has learnt that data needs to be analyzed consistently by both internal and external parties and from multiple sources using more advanced technology. This requires investments on both supply and demand grounds:

Real-time Production Planning

The ability to track the movement of your products today from manufacturing line to product shelf or consumer’s home provides data that helps you understand how you can improve delivery to consumers. If a product is moving fast, you can move quickly to increase production on that specific unit, if it’s moving slow, you can prioritize other products within your portfolio that are moving faster. Production plants with insight as to where products are in their lifecycle can be more agile in the moment to ensure demand is being met.

Demand Sensing Indicators

Understanding the indicators that drive demand for individual products, and then tracking them real-time to deliver for consumers are critical if your company is to meet the demand for those products. In the sunscreen category, for example, Kenvue tracks regular weather patterns to understand how rainy or sunny a season may be in different regions. This is similar for allergy medications, for which Kenvue tracks temperature patterns and pollen count real time. In the cough, cold, flu category it’s about predicting demand via partnerships with third parties like KINSA, who report real-time, community level illnesses via smart thermometer data that tells Kenvue where people are getting sick first. They continue to refine, iterate, and supplement these data sources to ensure they have the latest and most accurate tools possible.

Kenvue also has employed machine learning multivariate forecasting with a third-party AI firm that integrates causal data (social, environmental, weather, etc.), customer/consumer buying patterns, and internal promotional strategies. Kenvue has seen a more than 40% reduction in forecast error as a result.

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The pandemic has taught us that in this new age of operations performance and responsible business practice go hand in hand and require investments in internal insurance. The focus on cost-efficiency is no more, and these insurance investments will remain fundamental to the operations function. Welcome to the world of capacity, end-to-end partnerships, and data.

Copyright 2023 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

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