Johnson & Johnson Case Study

Principles of Managerial Accounting

The worlds largest healthcare product provider Johnson & Johnson sought improving financial efficiency. The company participated in a finance benchmarking survey and realized that they were in a hole compared to the average the survey produced. Johnson & Johnson immediately began thinking of ways to fix a problem they have not defined yet. The company did not have trouble with sales, but they were high cost due to internal inefficiency. Two concepts that were intended to help Johnson & Johnson were common systems and shared services. Accounts payable and corporate purchasing decided on using new, off the shelf systems. The challenge was to merge the two new off the shelf systems into one large company wide system called PACT. While moving service facilities to New Jersey and cutting down on the number of employees, the work force was split into teams and trained on how to use PACT. As soon as the system went live, it crashed for nearly a week and the backup of invoices grew. Instead of the PACT system making the employees jobs easier, it proved to be too confusing despite the training. The accounts payable employees had to re-input many vendors into the system, requiring more work than what was originally planned.

Preliminary to the reengineering process, accountants in corporate and operating units would be spending a majority of their time in their offices. According to Shared Services article, “payroll accountants were filing more than 40,000 tax forms annually, the closing process took more than 20 days to get the core set of reports out the door, and T&E policies ran to 30-odd pages when they were stacked together”. (26) Accounts payable had a lot of responsibilities. They had to communicate between vendors and material control. A lot of the accountants’ time was consumed with mismatches. These mismatches occurred when the “purchase order, receiving document, and the invoice disagreed”. (105) These...