We expect our suppliers to conduct themselves in a manner consistent with our sustainability requirements. These are based on our globally applicable corporate purchasing standards and the safety, health and environment standards that we formulated as early as 1997. We thus demonstrated even at that time our commitment to assuming responsibility across the entire supply chain. In selecting and developing our suppliers and other business partners, we consider their performance in regard to sustainability.
Our supplier base currently includes suppliers and other business partners from about 125 countries. More than 70 percent of our purchasing volume comes from countries that belong to the Organization for Economic Cooperation and Development (OECD). However, we are increasingly opening up new purchasing markets in states that are not OECD members. We place the same demands on suppliers from these countries. Our suppliers are assessed in a comprehensive process that covers sustainability performance and risks as well as key commercial and operating indicators.
The cross-sector Code of Conduct of the German Association of Materials Management, Purchasing and Logistics (BME) is our globally valid supplier code. Henkel signed on to the BME initiative in 2009, as it is based on the ten principles of the United Nations Global Compact and can therefore be used internationally. The BME code serves as the basis for contractual relationships with our strategic suppliers. This means that they have either recognized the cross–sector BME code – and hence the principles of the Global Compact – or produced their own comparable code of conduct. To make it easier for our suppliers to respond, we translated our Code of Conduct and all associated questionnaires into ten languages in collaboration with the BME in 2012.
Henkel has been a member of AIM-PROGRESS, a forum of companies in the consumer goods industry, since 2011. It was assembled in order to promote responsible sourcing practices and sustainable production systems. A key objective of AIM-PROGRESS is that of providing a discussion platform for exchanging views and sharing experience regarding sustainable supply chains. Another goal is to support effective collaboration and potential convergence with other global initiatives having similar aims or interests. The forum also seeks to develop and promote the use of shared evaluation methods to determine sustainability performance along the value chain. Member companies derive significant efficiency gains through the collection, assessment and sharing of non-competitive information. In particular, this concerns the mutual recognition and sharing of audit results.
In line with our sustainability strategy, we intend to achieve more with less. To do this, we have introduced an updated, five-step Responsible Supply Chain Process. This focuses on two main challenges. Steps 1 to 3 are designed to ensure that all of our suppliers comply with our defined sustainability standards. Through steps 4 and 5, we aim to purposefully work with our strategic suppliers to improve sustainability standards in our supply chain – for example, through knowledge transfer and continued education about process optimization, resource efficiency, and environmental and social standards.
Step 1: Risk assessment
In 2011, Henkel further developed its early warning system for sustainability risks in global purchasing markets. We begin by estimating the potential risks in a market or a region. In doing so, we concentrate on countries identified by international institutions as being associated with heightened levels of risk. The assessment includes the criteria of human rights, corruption, and the legal environment. We also appraise a second dimension, that of risk value chains. These are industries and sectors that we consider to potentially represent a specific risk for our company. By considering risk countries in conjunction with hot topics, Henkel has identified those of its purchasing markets that pose the highest risks and initiated appropriate measures.
Step 2: Self-assessment
We pursue a strategy of supplier self-assessment on the basis of questionnaires. These cover our expectations in the areas of safety, health, environment, quality, human rights, employee standards, and anti-corruption. In 2012, the emphasis was on assessing strategically important suppliers in all material categories in the identified risk countries – such as suppliers of key raw materials and packaging materials, as well as business partners in telecommunications and technical materials.
Step 3: Analysis
Based on our own risk assessments and the suppliers’ self-assessments, we classify suppliers according to a “traffic light” system. “Red” (non-compliant) leads to prompt termination of the supplier relationship. In the case of “yellow,” the areas where improvement is needed are identified and the suppliers are audited.
Step 4: Audit
In this area, we also actively participate in cross-sectoral initiatives with the aim of improving the transparency and efficiency of supplier audits and helping to establish cross-company standards – for example, by encouraging the sharing of existing audit results.
Step 5: Further development
As part of our supplier management activities, we work intensively with our suppliers to improve sustainability standards. We strive to initiate positive changes throughout the supply chain, through training programs and joint projects on process optimization, resource efficiency, and environmental and social standards. One example is a project we conducted in 2012 with a supplier of raw materials for vegetable oil derivatives from India. We provided our assessment principles for this supplier to use in evaluating his own suppliers. The supplier now intends to pass this knowledge on to its industry association for vegetable oils, to ensure uniformly high standards. We thus not only train our direct suppliers, but attempt, ideally, to reach an entire industry along our value chain.
On the whole, the strategic suppliers and other business partners that were assessed in 2012 satisfied our expectations. We terminated one supplier relationship because of socially unethical practices.
One example of a risk market is the purchasing of raw materials for soldering pastes and similar products for the electronics industry. These contain metals – mainly silver, copper and tin – to make them electrically conductive. In some countries, the mining of cassiterite (the main source of tin) is often associated with military conflicts and human rights violations. In recent years, we have repeatedly reviewed our direct suppliers of metals and requested them to supply documentary evidence that they do not purchase or process metals from critical regions.
In 2012, working with external partners, we also developed additional early warning systems that identify risk profiles as early as the assessment phase. These now cover approximately 100 purchasing markets and all risk countries. In the USA and other countries, we are collaborating closely with electronics industry associations to define an official auditing process for metals suppliers. Another example is the purchasing of advertising giveaways, which are often manufactured by third-party suppliers in low-wage countries. To ensure compliance with our sustainability standards in this area as well, we analyze the profiles of the relevant suppliers before awarding any contracts for such goods.
The systematic expansion of the audit program for suppliers will be the main focus of our work in the coming years. In 2012, Henkel and five other companies in the chemical industry established an initiative entitled “Together for Sustainability – The Chemical Initiative for Sustainable Supply Chains.” It is based on the principles of the United Nations Global Compact and the Responsible Care Initiative of the International Council of Chemical Associations (ICCA). The Initiative’s aim is to harmonize the increasingly complex supply chain management processes and to optimize the dialogue between worldwide business partners. Above all, synergies are to be created and exploited, so that resources can be used more efficiently and with a minimum of administrative effort, not only among the six member companies but with all of our shared suppliers. At the heart of the Initiative is the idea: “An audit for one is an audit for all.” In the future, suppliers will only need to perform one self-assessment or audit. The results of the report will then be shared among the members of the Initiative. The Initiative is managed by the chief purchasing officers of the member companies. Supervision by external antitrust attorneys ensures that no conflicts occur in regard to competition legislation.