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Sustainable supply chain management

TAG overview

Our company procures many raw and packaging materials, technical products, components, and services from around the world. 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 2023, the total value of the goods and services we purchased from around 55,000 suppliers in more than 140 countries was approximately € 9.8 billion, compared with approximately € 10.2 billion in 2022, representing a decrease of 4.5%.

Supplier spend and suppliers per region – 20231

Supplier spend and suppliers per region – 2023 (Graphic)
1) For data processing reasons, 2% of our suppliers (1,161 suppliers) are currently not assigned to any purchase region. This equates to 3.5% of our supplier spend

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 tier-1 suppliers, i.e. direct suppliers. Furthermore, our supplier management activities include special measures particularly for tier-n suppliers, i.e. indirect suppliers, working in the area of conflict minerals.

To achieve our sustainability goals, our 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 reviewing the sustainability performance of our relevant suppliers based on 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. In accordance with our risk management approach, we define relevant suppliers as suppliers, which either indicate a specific country and/or industry risk or contribute to a significant percentage of our supplier spend (at least 50%). For the country risk evaluation, we have developed our own comprehensive country risk score.

In 2023, 66% (2022: 46%) of our relevant suppliers were covered by a valid sustainability assessment; 94% (2022: 82%) of our spend attributable to these suppliers was covered by suppliers with a valid sustainability assessment.

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, such as the German Supply Chain Due Diligence Act, and initiate corresponding measures where necessary. Among other things and in conjunction with the implementation of the German Supply Chain Due Diligence Act, we have implemented a risk management approach focusing on human rights and environmental risks along our supply chain. This risk assessment is conducted annually and ad-hoc when required.

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 under Climate action.

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 Category Sourcing teams to identify potential mitigation actions with relevant suppliers and supports them in making improvements. Our risk management approach comprises four main elements:

  • Supplier Risk Assessments: to capture the overarching risks at the supplier level we consider 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. This element focuses on our business sector Life Science. In 2023 we conducted assessments for more than 2,500 of our critical materials.
  • 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 according to current human rights risk standards. We also include criteria for identifying supplier relationships impacted by key sustainability risks, such as mineral sourcing and animal welfare. In 2023, we conducted further initiatives to support 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 takes into account applicable laws and international standards. Additionally, we have engaged an external auditing firm to carry out an independent assessment in 2023 in order to verify our compliance with regard to the requirements of the EU Conflict Minerals Regulation (EU) 2017/821.

As part of our continuous improvement efforts, we worked on the recommendations from the audit and refined our procedures. Additionally, we established a supply chain traceability system that further increases our supply chain transparency. For our tin imports, which make up the majority of our conflict minerals imports, additional control mechanisms were implemented. These mechanisms include supply chain mapping, information on the country of origin of the mineral, request of audit reports from smelters and refiners, and the revision of agreements, including audit rights, with our suppliers. After careful analysis of the potential risks, no specific risks could be identified that would have required the development of an action plan. We remain in constant contact with our suppliers, industry colleagues and cross-company collaborations to improve the transparency and effectiveness of the framework.

Roles and responsibilities

Procurement is responsible for integrating sustainability requirements into the relevant stages of our sourcing and supplier management processes. Our Center of Excellence for Sustainability coordinates the relevant measures, such as updating our guidelines where necessary, examining processes and coordinating our participation in external initiatives. Category Sourcing teams 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. For this purpose, our Supplier Code of Conduct 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.

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 on the basis of 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 allow us or trusted partners to conduct assessments or audits to increase the transparency of our supply chain 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 175 countries and more than 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 1,860 valid scorecards on the assessment of our suppliers (2022: 1,700), almost 1,790 of which completed a new assessment or re-assessment in 2023 (2022: 1,100). In some cases, these were initiated by us and in other cases by other TfS members.

In 2023, we continued our collaboration with member companies in TfS workstreams. We contributed to several best practice sharing and collaboration formats such as the TfS Talks as well as TfS Coordinator Roundtable. We also introduced the TfS Product Carbon Footprint (PCF) Guideline and rolled it out to employees of TfS member companies, our employees, our suppliers and other stakeholders. This comprehensive guideline harmonizes PCF calculation methodology across the industry. We helped to establish the pilot system of the TfS PCF data-sharing solution. This digital platform enables TfS members and their business partners to safely share product carbon footprint data.

Supplier Decarbonization Program

Our cross-functional Supplier Decarbonization Program team within Procurement is driving the execution of a ten-year program as part of the decarbonization strategy that was defined in 2021. In 2023, we continued to provide training sessions and materials for Category Sourcing Teams and engaged further with suppliers by sharing information about our climate targets. Follow-up discussions were again held based on the supplier answers to our supplier decarbonization questionnaire to assess the current decarbonization status and progress made since last year. To obtain more detailed information from our suppliers taking part in the program, we developed a new supplier questionnaire in 2023. This allows our Category Sourcing Teams to collate relevant supplier data in a global monitoring database.

In order to manage the large quantities of data on the CO2 emissions of our suppliers, we have an automated carbon accounting tool in place to which we continuously add new functionalities. We offer our suppliers access to solutions to reduce their Scope 2 emissions. This includes a renewable electricity supplier toolkit with tips and in-house best practices on renewable electricity, which is available for free download from our website. In addition, we joined the Energize program as a new sponsor. Energize is a collective initiative by a group of industry-leading pharmaceutical and fine chemical companies that have committed themselves to engaging their suppliers to support the adoption of renewable energy and reduce greenhouse gas emissions within their common supply chains. We offer all our suppliers the opportunity to join the program for free and to find out more about renewable electricity options leading to reduced Scope 2 emissions.

Supplier diversity

In the United States, we have a specific supplier diversity program in place to not only comply with local legislation, but also to enhance our company culture. 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 expanding our database of small and diverse vendors in collaboration with our tool provider. In the reporting year, we were able to increase the proportion of orders placed with suppliers classified as diverse. At the beginning of the program, we focused on the sourcing category Marketing & Sales and the category Procurement of Services in the USA. We have since expanded the program to all three business units, including the logistics category. We intend to include additional countries and direct spend categories (e.g. raw materials) in the coming years.

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.

Due diligence
Due diligence means a risk analysis exercised with particular care that is done in preparation for a business transaction, e.g. an acquisition.
Scope 2
This includes emissions from purchased energy such as electricity, heat, steam, or cold.
An evaluation tool for measuring, documenting and controlling activities using metrics.

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