1. Responsible Management of External Manufacturing Tish Lascelle May 2006

2. External Manufacturing - Why does it matter?  Ongoing Credo responsibility  Increasing use of external manufacturers  Increasing public expectations and risk to reputation  Ongoing Credo responsibility  Increasing use of external manufacturers  Increasing public expectations and risk to reputation

3. Our Current Program 1999- EHS practices for External Manufacturers 1999- EHS practices for External Manufacturers – Contract language – Audits/Ratings for high risk EMs based on legal compliance 1999- Johnson & Johnson Policy on Employment of Young Persons added to requirements and audits 1999- Johnson & Johnson Policy on Employment of Young Persons added to requirements and audits 2000- Minimum standards for all suppliers 2000- Minimum standards for all suppliers – Risk assessment – Communication regarding compliance and ISO 14000 January 2004- Scope of audits changed to include all External Manufacturers by end of 2005. January 2004- Scope of audits changed to include all External Manufacturers by end of 2005. 1999- EHS practices for External Manufacturers 1999- EHS practices for External Manufacturers – Contract language – Audits/Ratings for high risk EMs based on legal compliance 1999- Johnson & Johnson Policy on Employment of Young Persons added to requirements and audits 1999- Johnson & Johnson Policy on Employment of Young Persons added to requirements and audits 2000- Minimum standards for all suppliers 2000- Minimum standards for all suppliers – Risk assessment – Communication regarding compliance and ISO 14000 January 2004- Scope of audits changed to include all External Manufacturers by end of 2005. January 2004- Scope of audits changed to include all External Manufacturers by end of 2005.

4. Our progress ….. Over 95% contract manufacturers with EHS compliance language in contracts Over 95% contract manufacturers with EHS compliance language in contracts Over 90% contract manufacturers audited since 1999 Over 90% contract manufacturers audited since 1999 Less than 1% with unacceptable performance Less than 1% with unacceptable performance Zero repeat unacceptable performers Zero repeat unacceptable performers Over 95% contract manufacturers with EHS compliance language in contracts Over 95% contract manufacturers with EHS compliance language in contracts Over 90% contract manufacturers audited since 1999 Over 90% contract manufacturers audited since 1999 Less than 1% with unacceptable performance Less than 1% with unacceptable performance Zero repeat unacceptable performers Zero repeat unacceptable performers

5. Future program: Standards for Responsible External Manufacturing Broader set of expectations for external manufacturers and API suppliers Broader set of expectations for external manufacturers and API suppliers – New: Ethics, labor and management systems. – Based on universal norms and standards for human rights and the environment. – Closes gaps where legal requirements do not exist or are not satisfactory to protect human rights and the environment. Broader set of expectations for external manufacturers and API suppliers Broader set of expectations for external manufacturers and API suppliers – New: Ethics, labor and management systems. – Based on universal norms and standards for human rights and the environment. – Closes gaps where legal requirements do not exist or are not satisfactory to protect human rights and the environment.

6. Future Challenges… With new standards will come new challenges for us and our supply chain partners With new standards will come new challenges for us and our supply chain partners – Balancing universal and local norms – Accepting continuous improvement as a reality Our partners have told us they will need our help Our partners have told us they will need our help – Identifying capacity building opportunities – Developing partnerships with NGOs and governments to improve supplier capacity – Building upon our experience with the green supplier projects With new standards will come new challenges for us and our supply chain partners With new standards will come new challenges for us and our supply chain partners – Balancing universal and local norms – Accepting continuous improvement as a reality Our partners have told us they will need our help Our partners have told us they will need our help – Identifying capacity building opportunities – Developing partnerships with NGOs and governments to improve supplier capacity – Building upon our experience with the green supplier projects

7. Green Supplier Network Framework Approach: Link Process Excellence and Environmental Goals -

8. Process Excellence = Cleaner Production Cleaner Production= Environmental and Economical Benefits PROCESS EXCELLENCE PROJECTS WASTE REDUCTION PROJECTS MATERIAL USE EFFICIENCY PROJECTS

9. The Process Identify suppliers (focus on medium and small businesses) Identify suppliers (focus on medium and small businesses) Invite to introductory meeting Invite to introductory meeting Voluntary sign up for training and projects Voluntary sign up for training and projects Provide raining on PE and lean methodologies Provide raining on PE and lean methodologies Suppliers identify and implement projects Suppliers identify and implement projects Follow up Follow up Data reporting and verification Data reporting and verification Inform and build the business case Inform and build the business case Repeat cycle Repeat cycle Identify suppliers (focus on medium and small businesses) Identify suppliers (focus on medium and small businesses) Invite to introductory meeting Invite to introductory meeting Voluntary sign up for training and projects Voluntary sign up for training and projects Provide raining on PE and lean methodologies Provide raining on PE and lean methodologies Suppliers identify and implement projects Suppliers identify and implement projects Follow up Follow up Data reporting and verification Data reporting and verification Inform and build the business case Inform and build the business case Repeat cycle Repeat cycle

10. Benefits for customers... Improved efficiency of the supply chain Improved cost-effectiveness of the supply chain Improved competitiveness of the supply chain Improved capability of the supply chain to meet customer needs Improved communications and relationships with suppliers through better understanding of mutual expectations and building trust Improved compliance with environmental requirements Reduced environmental footprint of suppliers

11. Benefits for the suppliers... Improved efficiency Improved cost-effectiveness Improved competitiveness Improved capability to meet customer needs Improved communications and relationships with customers through better understanding of mutual expectations and building trust Improved compliance with environmental requirements Reduced environmental footprint of suppliers Trained staff to sustain performance and identify continuous improvement opportunities Recognition by customers & regulatory authorities

12. Program Challenges Collecting and verifying savings to build the business case Collecting and verifying savings to build the business case Creating a sustainable funding model Creating a sustainable funding model Motivating suppliers to maintain lean thinking in their business decisions Motivating suppliers to maintain lean thinking in their business decisions Reaching Tier II suppliers Reaching Tier II suppliers Collecting and verifying savings to build the business case Collecting and verifying savings to build the business case Creating a sustainable funding model Creating a sustainable funding model Motivating suppliers to maintain lean thinking in their business decisions Motivating suppliers to maintain lean thinking in their business decisions Reaching Tier II suppliers Reaching Tier II suppliers

13. Final thought… Knowing where we want to go (e.g. setting standards) and understanding how far we have to go to get there (e.g. conducting audits) are just the first steps in a long journey…getting thousands of diverse suppliers to come along for the ride (e.g. building capacity) is what makes the trip worthwhile!

14. Thank you! Questions??Questions??