Supplier Social and Environmental Assessment9 min
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.
Why it matters
We believe truly sustainable supply chains ensure the well-being of the people and environments they procure from, while seeking to grow the business through ethical and legal business practices. dormakaba is therefore committed to leveraging our purchasing power to benefit those partners whose beliefs align most closely with ours.
Read about how we talk about sustainability with our suppliers in this interview with Dr. Hossam Mahmoud, Commercial Director, Gulf Extrusions Co., LLCRead interview
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 must proactively monitor and manage those dimensions. Our global supply chain is large and complex, which can pose a challenge in this regard. Global purchasing volumes with external vendors correspond to approximately 53% of total sales, making the company’s procurement strategy highly relevant to achieving our financial and sustainability targets. The number of active suppliers is approximately 22,500. Direct material spend with our top 100 suppliers is focused in Europe (49%), North America (27%), and Asia (22%).
The dormakaba Supplier Code of Conduct outlines our requirements with regard to human rights, fair working conditions, environmental responsibility and business ethics, among others. It is integrated in our online bidding system and is further included as part of new or extended standard supplier contracts. As a result of feedback from sustainability rating agencies, our Supplier Code of Conduct was revised in the financial year 2018/19. The revised version now includes:
- Clear reference to the ILO Forced Labor Convention & ILO Minimum Age Convention;
- Clearer definition of working hours, occupational health and safety, and freedom of association and collective bargaining stipulations; and
- Inclusion of stipulations on conflict minerals regulations and data privacy and protection.
To ensure our suppliers contribute to social and environmental wellbeing, dormakaba focuses on three areas:
- Identifying supply chain risks
- Supplier self-assessments
- Supplier audits
Identifying supply chain risks
In the financial year 2017/18, dormakaba developed a target group for sustainability assessment based on identified sustainability risk factors – such as country-level and the material content of the goods purchased. The latter refers to material compliance topics that were included in the European Union’s REACH regulations and RoHS Directive. Suppliers over a certain procurement threshold were taken into consideration as part of the categorization work.
To determine sustainability risk factors on a country-level, the impact assessment and hotspot analysis we conducted in the financial year 2017/18 was used as a baseline. The hotspot analysis identified the following sustainability topics as being of highest relevance in the supply chain: (1) Energy and Emissions; (2) Effluents and Waste; (3) Occupational Health and Safety; (4) Materials; (5) Training and Education; (6) Freedom of Association; (7) Human Rights. For these high-impact topics, any supplier from countries listed as high-risk was included in the sustainability target group for assessment. This list will be reviewed in the regular course of future impact and materiality assessments in our sustainability management.
Supplier categorization for sustainability assessment
As a further step in assessing the sustainability performance of our existing suppliers, dormakaba has developed a sustainability self-assessment questionnaire. The survey covers nearly 40 questions related to such issues as human rights, labor conditions, environmental management systems and packaging. 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 third time the company has issued the self-assessment to our suppliers. For the financial year 2018/19, we invited 123 suppliers to participant in the self-assessment, of which 70 suppliers complied (60% participation rate, representing 5% of total procurement spend).
Furthermore, we have developed a comprehensive self-assessment for all potential new suppliers as part of the supplier qualification process. This supports the comparison of qualified candidates and the onboarding decisions we have made to date. This general self-assessment also includes sustainability elements, such as management practice related to occupational health and safety, social engagement and environmental management. The self-assessment questions related to sustainability will be regularly assessed and improved based on changes in our sustainability strategy and regulatory trends.
In order to examine our suppliers’ situation on-site, we developed a standard audit questionnaire that contains topics related to quality system management, as well as sustainability. As on-site audits require immense effort and cost, we have introduced a risk assessment process that takes into account the potential risk from specific locations, products and performance. This risk assessment results in a score ranking, indicating the frequency of auditing required for the relevant supplier.
In the financial year 2018/19, we conducted on-site audits for potential new suppliers which had already passed our first “gate” as part of the supplier pre-qualification process. Out of the 30 conducted audits we identified some quality process weaknesses but no social or environmental issues. These results confirmed that the self-assessment process (see section above) had led to a pre-selection of potential new suppliers already meeting a good level of sustainability management based on the audit criteria.
The financial year 2018/19 was the third pilot year for our sustainability self-assessment for existing suppliers. Of the 70 self-assessment participants, 56 were identified as having significant actual and potential negative social or environmental impacts. These impacts in the supply chain included: lack of management systems to ensure compliance with applicable environmental laws (5 suppliers), lack of greenhouse gas emissions reporting and management (56 suppliers), lack of safe and hygienic living conditions in dormitories (2 suppliers), or lack of written employment contracts with their workers (3 suppliers), among other impacts. Improvement plans were not agreed upon yet for any of these suppliers as a result of the assessment, nor were any business relationships terminated. An accompanying escalation process will be the key focus in the financial year 2019/20.
Our biggest achievement was the selection of an external partner to support us in scaling up self-assessments and supplier ratings. Discussions with potential partners reconfirmed that our management approach – including self-assessment questionnaires, risk classifications and feedback to affected suppliers – was a good foundation for further initiatives. This was confirmed, once again, by the Carbon Disclosure Project, which rated dormakaba at an A- level for our Supplier Engagement Rating in 2018.
This was an important step in addressing the biggest challenges we face in our assessments, which are the lack of internal resources and a large supplier base spread across the globe. As a result, we have agreed to work with a leading service provider called EcoVadis to reduce risk for a sustainable procurement. The lack of internal resources, however, remains a challenge and we did not achieve our goal of setting up an escalation process for suppliers in the financial year 2018/19 as originally planned.
We plan to develop the escalation process in the financial year 2019/20, with a rollout beginning in the subsequent financial year. Additionally, we will be able to increase the number of supplier assessments in the short-term due to our collaboration with EcoVadis. We plan to perform several assessment waves during the upcoming financial year including scoring and corrective action plans where necessary for around 500 suppliers, which can be digitally monitored, tracked and exchanged via the EcoVadis platform.
Talking with our suppliers about sustainability
Interview with Dr. Hossam Mahmoud, Commercial Director, Gulf Extrusions Co., LLC
Gulf Extrusions has been an important supplier of aluminum profiles in the Middle East market for dormakaba these last five years. And your company has been a participant in a recent dormakaba stakeholder dialogue on sustainability. What can you tell us about the expectations from dormakaba in terms of sustainability for its business partners, and how have these been received internally by your company?
We have been approached about sustainability by other customers before, mainly those from Europe or Canada. But these mainly focus on Supplier Codes or audits. By asking us to join a dialogue, dormakaba took things one step further than most. This made a good impression. We were happy to see the interest from dormakaba – we feel that there are still not too many customers moving in this direction. This gives us the impression that dormakaba is ahead of the market, with a strong focus on quality. And that it is about working together toward the common goal of environmental and social sustainability for the industry.
What kind of trends is your company seeing on the topic of sustainability?
We have noted increasing interest from our customers for transparency, either in the form of a corporate social responsibility report or product declarations, particularly Environmental Product Declarations. These documents are often a prerequisite for entering into tenders for building projects due to new regulations from the Dubai government. New buildings in Dubai have to meet, at a minimum, the bronze rating by LEED, or the building will not be given permits. And the LEED certification scheme allocates credits for Environmental Product Declarations. Not working on the topic is no longer an option.