The Most Game-Changing Deal in My Career

I want to talk a little bit about the most game changing deal in my career - most importantly, the people I really wanted to thank in my life that were a part of that deal who helped drive the tremendous outcome for the business.

The players: Dave Radeke, who was the CPO then. Raymond Kirton, a direct materials guy, Sixto Hernandez, another direct materials guy, manager level and director level, respectively. Those people were tasked in my first deal, four months in at Johnson & Johnson, for a critical stent manufacturer (medical device). Because of the hard work that the team put together to get after it, it changed my life.

What was the challenge? It was a sole source supplier supporting a billion-dollar product blockbuster for Johnson & Johnson. It was a key medical device component that had high switching cost times which was two to three years due to validation, regulatory stuff, etc. and there were huge barriers to switching like proprietary process upgrades. 

The supplier had a single location for manufacturing, located in this 100-year-old legacy building from when their company started. That particular facility represented massive financial risk with no backup in the event that if anything didn’t go as planned, you could only do one-year deals. I had a constraint from my boss's boss, who was the VP of operations - I can only do one-year deals. All the deals within the business were one-year deals and we had a massive “should-cost” gap, north of 35%. In other words, we thought we should have been paying materially less for this product than we were paying. In addition, we needed to radically increase output for customer demand. That would mean that we needed to get more product. Right? 

The desired outcome was to either go to a dual source by either taking half the business to another supplier or go to a dual location with the existing supplier to protect customers in manufacturing. We wanted to dramatically increase the output to unleash more revenues for our business. We wanted to pivot the relationship from a tactical relationship to a strategic relationship. We wanted to ensure that our supplier and our company's interests were met.  

We used an interest-based negotiation approach, which was awesome. We wanted to drive to the optimal cost framework as quickly as we could, while increasing output as a key deliverable. I think most people had low expectations. We were expecting to have to actually deal with a price increase and ended up getting one of the largest price decreases in my career - 35.2% in year one, and then we had successive reductions in multiple years.

It was a massive cost reduction over time. We identified automation opportunities at the three phases of their operation in 1. electrical electro polishing, 2. by going to faster automation for carriage assembly, and 3.  in quality inspection, going to fine scan visual inspection. Going from people to machines allowed for throughput to go through the roof and for us to actually deliver better outcomes.   

We had found opportunities for them to reduce their costs and pass through that savings. But we had to have commitments so that they, the suppliers, could afford to make the needed investments. In other words, we had to accommodate the risk they accepted in order to reduce our costs by committing to the volumes for multiple years.  Now remember, I was only authorized to do one-year deal.  That meant getting my boss’s boss’s approval. 

Well that is where the team came together and helped compel that VP of operations (shout to Vic Chance) to allow us to make this commitment and reduce our piece price.  

So, what was the outcome? After four months at Johnson & Johnson, I closed one of the biggest deals with that team. We went to the location, we negotiated with the company, and we get what looks like the largest savings deal in J&J’s history, one of the biggest savings deals in the medical devices sector at that time. It was about $100 million savings over four years. We materially increased throughput for the business, which allowed us to unlock more revenues. 

Now this went beyond just a savings outcome. I continued to speak with the CFO during the deal closure and over time after we closed this deal.  He initially had revenue expectations of about a half-billion dollars in net income contributions for this product that the component was critical to, but we ended up delivering a full billion dollars because we had the ability to produce the volumes and match market demand. So a billion with a B in, in profits for the franchise that year because we were able to pivot the supplier and our internal policies for the best interest of our business.  

When it was all said and done, what happens to the players? One of the players in this deal was promoted to take over the sector on the supply-chain side. I get promoted into his role and becoming an extraordinarily young vice-president reporting to a man by the name of Vic Chance and ultimately transformed my entire career. 

To Ray Kirton, Sixto Hernandez, David Radeke and Vic Chance – I thank them all for the phenomenal work they did on that deal.  The impact we has which became folklore for Johnson & Johnson, and was the most game-changing deal of my career.