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We expect our suppliers to conduct themselves in a manner consistent with our sustainability requirements.
In selecting and developing our suppliers, we consider their performance in regard to sustainability. This is based on our globally applicable corporate purchasing standards and the Safety, Health and Environment standards that we formulated as early as 1997, thereby demonstrating even at that time our commitment to assuming responsibility along the entire value chain.
Henkel currently has suppliers and other business partners from about 130 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 also increasingly opening up new purchasing markets in states that are not OECD members. We place the same exacting demands on suppliers worldwide. Our suppliers are assessed in a comprehensive process that covers sustainability performance and risks as well as key commercial and operating indicators.
Compliance with the cross-sector Code of Conduct of the German Association of Materials Management, Purchasing, and Logistics (BME) is mandatory for all Henkel’s suppliers worldwide. Henkel joined the BME in 2009, as its code 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 crosssector BME code – and hence the principles of the Global Compact – or produced their own comparable code of conduct.
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 2011, Henkel and five other companies in the chemical industry established the initiative Together for Sustainability – The Chemical Initiative for Sustainable Supply Chains” (TfS). The TfS initiative aims to harmonize the increasingly complex supply chain management processes with regard to sustainability and to optimize the dialog among worldwide business partners. At the heart of the initiative is the idea: “An audit for one is an audit for all.” Suppliers only have to undergo one assessment or one audit. These are conducted by independent experts. An internet platform is then used to make the results available to all members of the initiative for information and approval.
The TfS grew once again in 2016 and the number of members has more than tripled from the original six to 19. In 2015, the first companies from the USA joined the initiative. Since the formation of TfS, the sustainability performance of more than 6,000 suppliers has been assessed. Moreover, the initiative had also received more than 700 audit reports.
In May 2016, TfS and EcoVadis were presented the SPLC Public Market Transformation Award. At the sixth presentation of the Responsible Business Awards of the Ethical Corporation in London in 2015, the TfS initiative received a mention as “highly commended” in the Best Supplier Engagement category.
Our six-stage “Sustainable Sourcing Process” is a core element of our supplier assessment approach. This focuses on two main challenges. First, ensuring that all of our suppliers comply with our defined sustainability standards. Second, we aim to purposefully work with our strategic suppliers to continuously improve sustainability standards in our value chain – for example, through knowledge transfer and continued education about process optimization, resource efficiency, and environmental and social standards. This process is an integral part of all our purchasing activities. We perform this process both at the beginning of our relationship with a supplier and as a regular check of our existing suppliers. Using this process for the assessment of sustainability performance, we currently cover more than 85 percent of the volume we source from our suppliers in the areas of packaging, raw materials, and contract manufacturers.
Henkel uses an 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 risk for our company. This helps us to identify countries and purchasing markets that may require special precautions.
The results of the pre-check and the risk assessment then flow into our supplier “onboarding process”. We expect our suppliers to recognize our supplier code (BME code) and our SHE annex. Our onboarding process is anchored in a globally uniform registration system and provides a standardized summary of our sustainability requirements.
We use supplier self-assessments based on questionnaires and have them examined as assessments by the independent experts EcoVadis. These cover our expectations in the areas of safety, health, environment, quality, human rights, employee standards, and anticorruption. We also regularly request repeat self-assessments, referred to as re-assessments. In 2016, 65 percent of our re-assessed suppliers had improved their sustainability performance.
Based on the assessments and the suppliers’ self-assessments, we classify suppliers according to a “traffic light” system. A “red” score always leads to an audit. In the case of a “yellow” score, the areas where improvement is needed are identified and the supplier is audited if necessary.
Henkel works with independent audit companies to audit compliance with the defined standards in TfS audits. Our audits include on-site inspections, e.g., at production sites, and discussions with local employees. Follow-up measures after an audit ensure that suppliers implement the corrective actions that have been specified. Repeated serious non-compliance leads to prompt termination of the supplier relationship. 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. In 2016, we conducted a total of 1.058 assessments and audits.
As part of our supplier management activities, we work intensively with our suppliers to improve sustainability performance. We strive to initiate positive changes throughout the value chain, through training programs and joint projects. Overall, we did not receive any notification throughout 2016 of an infringement by any of our strategic suppliers that would have given cause for terminating our relationship with that supplier.