Supplier Social and Environmental Assessment9 min
To further develop partnerships in the supply chain based on responsible business behavior, we are engaging our suppliers and trading partners in our endeavor to foster sustainable development.
Why it matters
We believe 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 – where we have it – to benefit those partners whose values align most closely with ours.
Read about how we raised the sustainability awareness of procurement colleagues in this interview with our Procurement Development and Training Manager, Thiri Kay Khine.Read 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 poses a challenge in this regard. Global purchasing volumes with external vendors correspond to approximately 48% of total sales, making the company’s procurement strategy highly relevant to achieving our financial and sustainability targets. The number of active suppliers for goods and services is approximately 26,500 focused in Europe (50%), North America (20%), and Asia (13%).
The dormakaba Supplier Code of Conduct (SCoC) 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 part of our standard supplier contracts.
To ensure our suppliers contribute to social and environmental well-being, dormakaba focuses on three areas:
- Identifying supply chain risks
- Supplier off-site assessments
- Supplier on-site audits
Identifying supply chain risks
dormakaba has defined a target group for sustainability assessment based on identified sustainability risk factors – such as origin country and the material content of the goods purchased. The latter refers to material compliance topics that are 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 were 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
Supplier off-site assessments
As a further step in assessing the sustainability performance of our suppliers, dormakaba has partnered with a leading provider for monitoring sustainability in global supply chains called EcoVadis to reduce supplier risk and support supplier development. The assessment covers 21 sustainability criteria across four themes (environment, labor and human rights, ethics, sustainable procurement).
We apply a comprehensive self-assessment for all potential new suppliers as part of the supplier qualification process. This general self-assessment includes basic sustainability elements, such as management practice related to social benefits, formal employee suggestion programs, and environmental management systems. The self-assessment questions related to sustainability will be regularly assessed and improved based on changes in our sustainability strategy and regulatory trends.
Supplier on-site audits
To examine our suppliers’ situation on-site, we developed a standard audit questionnaire that contains topics related to quality system management. Among these, sustainability topics such as internal Code of Conducts (CoCs), the dormakaba SCoC, and labor, health and safety and environmental standards are checked. Auditors are asked to check documentation on-site related to:
- Workers’ ages and identity records
- Receipt of wages
- Training and communication on internal CoC
- Signature of the dormakaba SCoC
- Hazardous materials storage and worker training on safe handling
- Injury rates
- Development of water, energy and waste metrics over recent years.
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 2019/20, we conducted on-site audits for 65 suppliers in China, Malaysia and India. As regards sustainability criteria, the main gap identified was a lack of energy use reduction strategies.
In the financial year 2019/20, we made significant progress in our supplier sustainability engagement strategy in three key areas:
- Scaling up supplier off-site assessments in collaboration with EcoVadis
- Development of procedures in case of non-participation or non-compliance
- Training of procurement employees on sustainability and the processes related to off-site assessments.
Scaling up off-site supplier assessments
The financial year 2019/20 was the first year of collaboration with EcoVadis on supplier off-site assessments. We were able to scale up our efforts and increased the number of invited suppliers substantially versus the prior financial year, having invited 475 suppliers to join the assessment in a series of three waves. Prior to the launch of each wave, a kick-off was held to explain the process in detail to all local buyers with invited suppliers.
Unfortunately, 218 suppliers did not participate, either not responding to the invitation at all or refusing to participate, mainly due to the assessment fee. As at 30 June 2020, 171 suppliers were still under assessment, as we had extended deadlines in light of the Covid-19 pandemic.
Of the 86 assessed suppliers, eleven were identified as having significant actual and potential negative environmental impacts, and three were identified as having significant actual and potential negative social impacts in terms of labor and human rights. Overall, 35% of assessed suppliers achieved a bronze, silver or gold rating by EcoVadis, considered as moderate or advanced performance. However, the majority of assessed suppliers (62%) had only partial performance, with an additional 3% considered to have insufficient performance. Improvement plans were not agreed upon yet for any of these suppliers as a result of the assessment, nor were any business relationships terminated. The experiences and lessons learned, particularly on supplier’s reasons for refusing to be assessed, were considered in the development of procedures for non-participation and non-compliance.
Overall score distribution
Procedures in case of non-participation or non-compliance
In the financial year 2019/20, we developed procedures and process flows for auditing rules and corrective action plans in terms of sustainability performance of suppliers, which have been approved by Management. At its core is the integration of a sustainable development clause in contracts for new suppliers and for existing suppliers in the course of contract renewals. The sustainable development clause establishes and describes the suppliers’ obligation to participate in and pay for off-site assessments and/or on-site audits, and to commit to and implement an improvement plan if performance is below our defined benchmarks.
At the beginning of the supplier relationship, the supplier is presented with the dormakaba SCoC for signature. Suppliers refusing to sign the SCoC or who do not have their own of equal quality are blocked.
If a supplier is invited to participate in the EcoVadis off-site assessment, further actions are determined by their assessment score. For suppliers with bronze, silver or gold level, further reassessments are required in three to five years. For suppliers with partial performance, an annual reassessment is required, and an improvement plan is defined within the EcoVadis system.
Refusal to participate in an off-site assessment qualifies a supplier for an on-site audit. Likewise, suppliers’ whose off-site assessment score is insufficient are shortlisted for on-site audit. A corrective action plan is defined in the course of the on-site audit, with a one-year implementation deadline. Suppliers are blocked or in active elimination for lack of implementation.
Additionally, a Responsible Procurement Steering Committee will be formed to take decisions on a case-by-case basis for special circumstances, such as when dealing with monopoly suppliers, quality checks of suppliers’ internal CoCs, acceptance of sustainability assessments by providers other than EcoVadis, and monitoring and evaluation of suppliers listed as blocked or in active elimination due to sustainability performance.
Training of procurement employees
To raise more awareness of the process and sustainability in general across the procurement organization, a dedicated procurement training manager developed a training in a two-pronged approach. One training module was to raise general sustainability awareness (sustainability context, sustainability at dormakaba, sustainability in procurement), and another module was specifically focused on the supplier sustainability assessments (sustainability procurement targets, risk categorization of suppliers, EcoVadis assessment process). Participation in the latter was mandatory for our procurement organization, and for the first module employees from HR, operations, product development, controlling, sales and marketing were also invited to participate on a voluntary basis.
As at 30 June 2020, over 400 employees participated in the general sustainability training, including 65% of the procurement organization. Of those participants giving feedback, 91% said the training did an excellent or very good job at improving their understanding of sustainability and 59% were very likely to recommend the module to others.
In addition, 53% of the procurement organization took part in the supplier assessment module. Of those giving feedback, 48% felt the training was extremely useful in preparing to face any objections from suppliers who refuse to participate in the EcoVadis assessments. Participants also expressed the need for greater understanding of the consequences for suppliers for non-participation, which we will address in the upcoming financial year through the rollout of the abovementioned procedures.
We plan to continue our collaboration with EcoVadis in the financial year 2020/21, aiming to complete the assessments launched in the financial year 2019/20 and to invite around 500 suppliers to be assessed. We will also roll out the abovementioned procedures in case of non-participation or non-compliance and continue the training initiatives.
Why supplier sustainability engagement fails without internal training
Interview with Thiri Kay Khine, Procurement Development and Training Manager, dormakaba Group
You have recently launched a sustainability training program for your procurement colleagues and quickly invited people from other functions to join in. Tell us a little about how you got into the topic and what you had to consider in the development of the training modules.
I was initially asked to develop a training around the EcoVadis Supplier Assessment program for our procurement colleagues. After further discussions, we felt a need to develop more awareness on the topic of sustainability itself as a general overview of our strategy and how sustainability plays an integral part of our business foundation.
Sustainability touches every aspect of our business and covers a wide spectrum of topics, so the toughest consideration for me was to develop a general overview that has sufficient breath on the Why (context, risk and benefits) and What (strategy framework) while adding extra depth on the How (procurement process).
I reflected on the flow to engage the Heart (emotional), Head (rational analytical) and Hands (practical) of the learner. Creating the module captivated me, as I was really motivated to make a difference on this topic, which I feel so strongly about, and to share this topic with my colleagues in a compelling and authentic way.
Why do you think training internal procurement colleagues on sustainability is so important?
Procurement has a large impact on sustainability as we have a substantial spend volume, and what we procure from our suppliers impact our own operations and final product. Our procurement colleagues are our frontline with our suppliers, therefore training would provide them with the understanding, knowledge and vocabulary to convince and collaborate with suppliers to make the best choice for dormakaba, and all our stakeholders.
I believe if you were the owner of this business, you would be very attentive to sustainability and you would want to protect your business for the current and future generations.
We employees are the heart of our business, likewise, we are the custodians of our planet. The individual choices we make collectively impact the business and our planet. Therefore, training is critical to empower our colleagues, to help people understand that what happens in the greater organization lies in the hands of every one of us.
The decisions that my colleagues and I make each day impacts the business and the world in a profound way. Training, if effective, will inspire us and will help us realize that the choices lie in our hands and that we have a great sense of responsibility towards our business and our stakeholders.
What was some of the feedback you received after the training sessions?
Virtual training has the key advantage to touch many employees simultaneously and create a sense of bonding, especially in this time of the Covid-19 pandemic, to reflect on how we can continue to build a resilient sustainable business model. It is very heartwarming to receive feedback from many colleagues who mention how happy they are to learn that our company shares the same values as them on saving and protecting our planet.
What’s next for you in your sustainability engagement?
Continue to deliver training and for our colleagues and even expand to our supplier network. Sustainability covers a lot of topics, so we could break it down into different competence areas and find ways to share the information in small chunks with the right audience. In procurement, we have a tracking tool to evaluate our Procurement KPIs for cost savings and cost avoidance, so I hope to contribute to developing Procurement KPIs also for sustainability.