Supplier Sustainability Assessment

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, as we seek to grow the business through ethical and legal business practices. We are therefore committed to leveraging our purchasing power to benefit those partners whose values align most closely with ours.

Key activities

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 47% 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 25,600, with spend focused in Europe (47%), North America (26%), and Asia (18%).

The dormakaba Supplier Code of Conduct (SCoC) outlines our requirements with regard to human rights, fair working conditions, environmental responsibility, and business ethics, among other things. It is integrated in our online bidding system and is also part of our standard supplier contracts.

To ensure our suppliers contribute to social and environmental well-being, we focus on three areas:

1. Identifying supply chain risks
2. Supplier off-site assessments
3. Supplier on-site audits

Identifying supply chain risks

We have 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, an impact assessment and hotspot analysis 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, we have 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 also 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 are 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 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 2020/21, we conducted on-site audits for 26 suppliers in China. Regarding sustainability criteria, there were no findings of non-conformance.

Our performance

In the financial year 2020/21, we continued to make significant progress in our supplier sustainability engagement strategy in three key areas:

• Scaling up supplier off-site assessments in collaboration with EcoVadis
• Roll out 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 2020/21 was the second year of collaboration with EcoVadis on supplier off-site assessments. Again, we invited around 450 suppliers to participate in the assessment. We saw substantial improvements in the participation rate, with 146 suppliers joining the assessment versus 86 in the previous reporting year.

Of the 146 assessed suppliers, 37% achieved a bronze, silver, or gold rating by EcoVadis, considered as moderate or advanced performance. However, the majority of assessed suppliers (55%) had only partial performance, with an additional 8% considered to have insufficient performance. Improvement plans for 45 suppliers were requested because of the assessment, and no business relationships were terminated.

Overall score distribution *

*all our rated suppliers in the financial years 19/20 and 20/21

Procedures in case of non-participation or non-compliance

We have rolled out procedures and process flows for auditing rules and corrective action plans in terms of sustainability performance of suppliers in the financial year 2020/21. 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 so-called Sustainability Supplementary Agreement 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.

In addition, 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 meets regularly 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, an eLearning module was developed to train procurement employees on the supplier sustainability assessments with particular focus on the new escalation processes. Upon successful completion of the eLearning, procurement employees were invited to live “role playing” sessions, where participants had a chance to practice how to react to real-world scenarios on supplier’s questions – or refusal – of the EcoVadis assessment. In total, 320 procurement colleagues were trained in the financial year 2020/21.

Outlook

We plan to continue our collaboration with EcoVadis in the financial year 2021/22, aiming to invite around 500 suppliers to be assessed. We will also monitor the progress of the 45 suppliers where we have made requests for improvement.

Supplier engagement program in collaboration with EcoVadis

EcoVadis is the leading provider of business sustainability ratings for global supply chains. They have assessed more than 75,000 companies on their sustainability performance. We sat with Adeline Lefort, Customer Success Manager at EcoVadis to learn her perspective on supplier due diligence and our performance.

 

70% of business impact on social and environmental topics is in the supplier base. How do companies manage it generally?

Companies are more and more aware of their impact and want to mitigate risks along their supply chains. Furthermore, there is a generally increasing demand both from the legislation and customers to ensure more transparency and visibility in the supply chain. According to the Business Sustainability Risk and Performance Index 2020 of EcoVadis, the overall sustainability performance of companies is improving globally. In 2019, 57% of the rated companies achieved scores 45 or higher (meaning good, advanced, or outstanding performance), compared to 45.2% in 2015.

You have been working with us since 2019 on our Supplier Engagement Program. As an expert in the topic, how would you describe our performance?

dormakaba was one of the first big companies in the construction industry to engage with suppliers, which shows how innovative you are. Before 2019, you already had experience in supplier assessment and engagement by using your own self-assessment questionnaire. This “in-house” solution was, however, too time- and resource-consuming and with a limited coverage. Based on this experience, you decided to collaborate with us to expand your Supplier Engagement Program and developed a strategy to focus on high-risk suppliers, materials, and countries in the first round, with ambitious targets set.

This approach already showed your commitment, but in order to perform better, we co-developed an action plan. This includes, for example, the appointment of “regional champions”, to engage with the buyers and through them with the suppliers. We also developed an escalation process, to implement actions in case of refusal of the assessment invitation. By also involving top management in the process, organizing internal sustainability trainings, and setting KPIs publicly, you clearly demonstrate your commitment towards the topic.

Where do you think we could improve?

You have been doing a lot since you started the journey on supplier engagement and assessment, but we are talking here about change management, which needs time to be fully integrated into the daily procurement processes. Procurement is generally reduced to a cost reduction division, although this is also an area where risks can be mitigated and value created. With your Supplier Engagement Program, this is exactly what you are aiming at, together with your buyer organization.

Considering your industry and pioneer role in supplier sustainability assessments, the response rate looks good (about 30%–40% global response rate) but there is still room for improvement. Thanks to the action plan, the baseline for success has been set and will ensure a better response rate.

What is the benefit for suppliers to go through the assessment?

Suppliers are increasingly understanding the value of improved sustainability performance and being assessed by EcoVadis, as it enables them to grow and to create stronger partnerships with their customers; moreover, it has a positive reputational value. If suppliers are at the beginning of their sustainability journey and get a relatively low score during the assessment, we send them a corrective action plan to work on specific topics. They are guided through this action plan, to improve their sustainability performance before the next assessment.