Our company procures many raw and packaging materials, technical products, components, and services from around the world. We aim to promote supply chain stability while providing our customers with high-quality products and services. We expect our suppliers to respect our ethical, social and compliance standards and apply these to their own supply chains.
Our approach to sustainable procurement
In 2022, the total value of the goods and services we purchased from around 54,000 suppliers in more than 140 countries was approximately € 10.2 billion, compared with approximately € 8.6 billion in 2021, representing an increase of 18.5%.
With our supplier management endeavors, we aim for compliance with fundamental environmental and social standards in addition to high quality, reliable delivery and competitive prices. Therefore, we have introduced relevant strategies, processes and guidelines to prevent violations of supply chain standards and continuously improving our sustainability performance. Unless stated otherwise, the approaches presented apply to direct suppliers. Furthermore, our supplier management activities include special measures particularly for indirect suppliers working in the area of conflict minerals.
To achieve our sustainability goals, our Group Procurement team is working closely with our suppliers. We aim to create transparency in all our sourcing regions and fully integrate sustainability into all our value chains. To this end, we have defined two key indicators to measure our journey towards increasing this transparency by evaluating the sustainability performance of our relevant suppliers with valid sustainability assessments. Our definition of valid sustainability assessment includes assessments carried out over the last three years and performed by a reliable, approved source. Relevant suppliers either indicate a specific country and industry risk or contribute to a significant percentage of our supplier spend (at least 50%). For the risk evaluation, we previously used the risk data provided by EcoVadis. For the country risk, we have developed our own more comprehensive country risk score in 2022.
In 2022, 46% (2021: 33%) of our relevant suppliers were covered by a valid sustainability assessment; 82% (2021: 74%) of our spend generated from these suppliers were covered by suppliers with a valid sustainability assessment. To achieve comparability of our key indicators over the years, we applied this new country risk score also retrospectively for 2021 data, the starting point of our measurement.
We view our approach to supply chain sustainability as a journey and continuously work to improve and develop our policies and processes. While doing so, we consider all applicable legal requirements and initiate corresponding measures where necessary. For this purpose, in 2022, we implemented measures to operate compliant with the German Supply Chain Due Diligence Act. Among other things, the Head of Corporate Sustainability, Quality and Trade Compliance has been appointed as Human Rights Officer.
Our Supplier Decarbonization Program is a key element of achieving our Science Based Target. Through the program, we aim to reduce greenhouse gas emissions associated with purchased goods and services as well as capital goods. More details on this program can be found here; more information on our climate-related targets can be found in the Climate action chapter.
Risk management process
To ensure security of supply, we select our suppliers based on criteria such as country risk, material risk, supplier risk, and their strategic importance to the business. This process helps our sourcing managers identify potential mitigation actions with relevant suppliers and supports them in making improvements. The approach towards our strategic suppliers which account for approximately 49% of our total supplier spend includes the identification, monitoring and assessment of supply security risks. It comprises four main elements:
- Supplier Risk Assessments: to capture the overarching risks at the supplier level, considering multiple risk domains.
- Alert system: to notify our Procurement organization about risk events arising with any of our suppliers.
- Material Risk Assessments: to identify and mitigate the risks of the materials used in our most significant finished products.
- Risk Response Tracker: a system to create and monitor risk mitigation activities in inter-disciplinary teams.
We calculate risk factors for suppliers and raw materials by multiplying risk probability and risk impact. We have simplified our risk methodology to focus on the ten most relevant risk categories - including but not limited to economic freedom, social unrest, unfair business practices, and poor labor practices - grouped into three risk domains. We also include criteria for identifying supplier relationships impacted by key sustainability risks, such as mineral sourcing and animal welfare. In 2022, numerous initiatives were developed to ensure our supply continuity including second source qualifications, regionalization of supply and financial support to suppliers under special circumstances, among others.
Due diligence process for responsible sourcing of minerals
We source and sell products that contain minerals commonly referred to as “3TG” (tin, tungsten, tantalum, gold – collectively also known as conflict minerals). These minerals involve the risk of being extracted, traded, handled, and exported from conflict-affected and high-risk areas (CAHRAs) where human rights are not always respected and violations thereof need to be prevented.
Our company operates in global and complex supply chains, in many cases with several tiers of suppliers between us and the original sources of the minerals used in our products. To address the risk of this complexity, we are a member of the Responsible Minerals Initiative (RMI). RMI provides us with tools and resources to make sourcing decisions that improve regulatory compliance and support responsible sourcing of minerals from CAHRAs.
Our aim is to source materials in a responsible and conflict-free manner and not to contribute to adverse impacts through our activities. Therefore, we have a due diligence program that applies across all our business sectors and is in line with applicable laws and international standards.
In order to continuously improve our due diligence practices, we have a system to store and maintain supplier information across our business sectors. This system supports increased transparency of our supply chain. In addition, we are working on the integration of further control mechanisms into our due diligence framework for high-risk suppliers. Furthermore, we are in constant exchange with suppliers, industry peers and cross-company collaborations to enhance regulatory compliance.
Roles and responsibilities
Group Procurement is responsible for integrating sustainability requirements into the relevant stages of our sourcing and supplier management processes. Our Center of Excellence for Supply Security coordinates the relevant measures, such as updating our guidelines where necessary, examining processes and coordinating our participation in external initiatives. Sourcing managers responsible for selecting and contracting suppliers are made aware of and regularly updated on our guidelines and sustainability requirements through internal communication channels and training.
Our commitment: Guidelines and standards
We expect all our suppliers and service providers to comply with our environmental and social standards, which are primarily derived from the core labor standards of the International Labour Organization (ILO) and the UN Global Compact. We expect our suppliers to ensure that their subcontractors respect the same rules. In the reporting year, we have developed a Supplier Code of Conduct which details our expectations towards suppliers and business partners regarding human rights, health and safety, business integrity, environmental protection, continuous improvement, and management of their respective suppliers more comprehensively. It replaces our Responsible Sourcing Principles as of January 2023.
Our Responsible Minerals Sourcing Charter demonstrates our commitment to responsible sourcing of minerals from conflict-affected and high-risk areas. It applies to all our legal entities and subsidiaries worldwide. The charter complements the requirements set out in our Supplier Code of Conduct.
To ensure that we work based on industry standards and can rely on comparable data analytics and expert analysis, we collaborate with our peer companies in industry initiatives. For example, we are a member of Together for Sustainability (TfS), the Pharma Supply Chain Initiative (PSCI), the Responsible Mica Initiative, and the Responsible Minerals Initiative (RMI). We call on our suppliers to let us or trusted partners conduct assessments or audits to increase our supply chain transparency and identify fields of activity to improve sustainability performance or mitigate infringement risks. Regarding our mica supply chain, we engage with a global consultancy firm to conduct audits and the Indian organization IGEP to conduct inspections.
Supply chain assessments and audits
Together for Sustainability supplier assessments and audits
Through the TfS initiative, suppliers are assessed either based on information obtained during audits or based on self-reported and publicly accessible information provided by EcoVadis, an independent rating agency. EcoVadis assesses suppliers from more than 160 countries and 200 sectors across the four categories of Environment, Labor and Human Rights, Ethics, and Sustainable Procurement. On top of the assessments, suppliers are also monitored through a 360-degree news watch. The results are shared among TfS member companies in compliance with all restrictions stipulated by antitrust law.
Through the TfS initiative alone, we have access to more than 1,700 valid scorecards on the assessment of our suppliers, more than 1,100 of which completed a new assessment or re-assessment in 2022. In some cases, these were initiated by us and in other cases by other TfS members.
In 2022, we collaborated closely with member companies in TfS workstreams focusing on sustainability capacity building and supplier decarbonization. We supported the development of a capability-building concept and deployed the TfS Academy. This training platform offers sourcing managers, interested employees and suppliers of TfS member companies 165 courses in up to nine languages on topics such as sustainable procurement, environment, health and safety, as well as labor and human rights. We also contributed to several best practice sharing and collaboration formats such as the TfS Talks as well as TfS Coordinator Roundtable. Furthermore, we supported the development and launch of the TfS Product Carbon Footprint (PCF) Guideline, which harmonizes PCF calculation methodology across the industry, and led the development of decarbonization training materials for TfS member companies and their suppliers.
Supplier Decarbonization Program
Our cross-functional Supplier Decarbonization Program team within Group Procurement is driving the execution of a ten-year program as part of the decarbonization strategy that was defined in 2021. In 2022, we continued to provide training sessions and materials for procurement managers and sourcing teams and engaged further with suppliers by sharing information about our climate targets. Follow-up discussions were again held regarding the supplier decarbonization questionnaire to assess the current decarbonization status and progress made since last year. This allows our sourcing managers to collate relevant supplier data in a global monitoring database.
We have also developed an automated carbon accounting tool to manage the large quantities of data on the CO2 emissions of our suppliers. It has been available since the beginning of 2022 and we will continue adding new functionalities in the coming years.
In the United States, we have specific supplier diversity programs in place to comply with local legislation. We are focusing our efforts in the United States on enhancing our current supplier locator tool by broadening the rollout among sourcing managers to improve our ability to connect with and potentially award business to a wide range of vendors. Additionally, we continue to work on internal awareness campaigns and training seminars for our sourcing managers and are investing in tools to expand our database of small and diverse vendors. Starting in 2023, we plan to expand these efforts beyond the current focus on the sourcing category marketing & sales.
Ambassadors for sustainable procurement
We are active participants and contributors to the Sustainable Procurement Pledge, a TfS initiative established out of the social network LinkedIn in 2019. Since then, it has evolved to become a knowledge exchange platform for procurement professionals, academics and other stakeholders, hosting various online best practice exchange events.