Supplier Social and Environmental Assessment10 min
We believe sustainable supply chains are ones which ensure the well-being of the people and environments we procure from, while seeking to grow the business through ethical and legal business practices. It is therefore our responsibility to leverage our purchasing power to the benefit of those partners which align most closely to this definition.
Our supply chain
The rise of supply chain transparency legislation points to the increasing mandate that a company must be aware of the economic, environmental and social dimensions of its supply chain, and that it proactively monitors and manages those.
With a global presence, the dormakaba supply chain is large and complex, which can pose a challenge in this regard. Global purchasing volume with external vendors corresponds to approximately 46% of total sales, making the company’s procurement policy therefore highly relevant to achieving our financial and sustainability targets. The number of active suppliers is approximately 22,000. dormakaba's direct material spend for our top 100 suppliers are focused in Europe (54%), North America (25%), and Asia (21%).
Supplier Code of Conduct
dormakaba has already taken important steps in embedding sustainability in the supply chain, namely by setting expectations to our suppliers. The dormakaba Supplier Code of Conduct (SCoC) came into effect in the 2016/17 financial year and outlines minimal requirements with regards to human rights, fair working conditions, environmental responsibility and business ethics, among others. The dormakaba SCoC is integrated in the company’s online bidding system. It is further included as part of new standard supplier contracts.
As a further important step in assessing the sustainability performance of its suppliers, dormakaba has developed a sustainability self-assessment questionnaire. The survey covers nearly 40 questions related to human rights, labor conditions, environmental management systems and packaging, for example.
It addresses the most relevant compliance topics such as the UK Modern Slavery Act, anti-corruption and various reporting obligations under the Carbon Disclosure Project and the UN Global Compact. This is the second time the company issues the self-assessment to our suppliers. In the 2016/17 financial year, 10% of suppliers based on procurement spend were in scope. In the 2017/18 financial year, the company focused on systematically defining a broader target group for self-assessment and on inviting suppliers with the highest risk indices to participate (Disclosure 102-43).
In the 2017/18 financial year, dormakaba categorized the supply chain based on sustainability risk factors on a country-level, procurement spend, and material content of the goods purchased. The latter was focused on material compliance topics including the REACH regulations and RoHS Directive in the European Union.
The sustainability impact assessment and hotspot analysis revealed the following topics of highest potential impact in procurement:
- Effluents & Waste
- Occupational Health & Safety
- Training & Education
- Freedom of Association
- Human Rights
- Supplier Social & Environmental Assessment
For these high-impact categories, any country listed as high-risk according to various indicators was included in the target group. The underlying indictors for the categorization are as follows:
- Energy intensity per country (GDP per energy use)
- Greenhouse gas emissions per capita per country
- Risk a country is not enforcing freedom of association rights
- Risk a country is not enforcing collective bargaining rights
- Access to advanced education per country
- Risk of child labor per country
- Fatal injury rate per industry and country
- Noise exposure risk by industry and country
- Life loss risk due to airborne particles by industry and country
- Waste collection coverage per country
- Risk of pollution per country
- Risk of forced labor by industry and country
- Risk of human rights violation per country
Of the suppliers who were asked to participate, 76% filled out the self-assessment survey. Over twice as many suppliers submitted responses compared to the 2016/17 financial year in absolute terms. This represents 10% of procurement spend of the sustainability target group defined above. Combined with the previous reporting year’s results, dormakaba has now assessed 28% of the target group based on procurement spend.
Overall, 26% of participating suppliers were evaluated as either "Excellent" (4%) or "Good" (22%), based on an initial rating method. These suppliers are now being recognized with a Certificate of Appreciation based on their level, to acknowledge their efforts towards sustainability.
The remaining suppliers have been rated as either “Average” (28%), "Below Average" (29%) and “Unsatisfactory” (16%). These suppliers will be targeted in future in the Supplier Evaluation and Supplier Development processes and in the development of escalation and non-conformance processes.
The following graphic highlights some of the baseline results from the participating suppliers. The results showed, for example, that the vast majority acknowledge our Supplier Code of Conduct and ensure labor conditions where staff can openly voice grievances or collectively bargain. In addition, there is good commitment to energy efficiency activities. On the other hand, few suppliers are engaging with their own supply chain in terms of sustainability. Less than half have sustainability related policies and only one in three have a related management system in place. These results improve when analyzing suppliers with over 250 employees, as larger organizations tend to manage these topics more strategically. Supporting suppliers in developing and improving these aspects will be a focus in future.
The process to approve suppliers is in accordance to DIN and ISO requirements, as are the supplier evaluation and assessment processes. Audits are performed on demand, for example, for new suppliers or covering quality issues. The auditing method for Asia is currently being amended to include sustainability topics. In addition, an escalation process for suppliers not accepting the SCoC or showing low ratings in the supplier self-assessment will be developed in the 2018/19 financial year.
Evaluation of the management approach
The management approach has been evaluated based on investor feedback from various rating agencies. These revealed, for example, an expectation to name and include more international frameworks in the SCoC, such as a clear mention of the International Labor Organization’s Minimum Age Convention. As a result, the SCoC is currently under revision, with a new version expected in the 2018/19 financial year (Disclosure 102-44).