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Note 13: Supply chain


Risk management

Our main objective is to create a sustainable supplier base, supporting our license to operate. In 2012, we continued to optimize our supplier management processes, aiming to secure supply of the materials we need for the products for our customers, as well as contributing to the continuous reduction of our footprint. We have specified two supplier segments:

  • Critical suppliers – suppliers in emerging countries supplying products for which no technical alternative products are available, or for which no commercially attractive alternative suppliers are known. We want to ensure that the labor conditions, environmental conduct and business integrity of these suppliers is in line with the standards of our Vendor Policy and the AkzoNobel Code of Conduct
  • Key suppliers – specified because of their importance to our business, based on the level of spend, the risk for the business or business dependency, and the level of cooperation and innovation potential

These supplier segments form the highest risk for our business in terms of our manufacturing sites’ production capacity and/or our company’s reputation.

Supplier management

The supplier management processes we have in place are:

  • Vendor Policy, which covers 97 percent of the product related (PR) spend, including all critical suppliers and key suppliers
  • Supplier Support Visits, which include all critical suppliers, represents 14 percent of our PR spend in high growth countries
  • Key supplier management, for all key suppliers covers 38 percent of our global PR spend

Supplier management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ambition

 

Ambition

 

Ambition

% of spend value

 

2009

 

2010

 

2011

 

2012

 

2012

 

2013

 

2015

1

Non-product related. From 2011 we have combined the NPR supplier reporting.

Product related suppliers Vendor Policy signed

 

85

 

91

 

95

 

97

 

96

 

96

 

96

NPR1 business suppliers Vendor Policy signed

 

 

62

 

77

 

80

 

80

 

80

 

80

NPR1 centrally contracted suppliers Vendor Policy signed

 

89

 

100

         

Suppliers on SSV program since 2007

 

185

 

266

 

304

 

373

 

 

 

 

From 2013, we will use a new KPI: Critical PR spend covered by supplier management framework, which gives a better view of the spend impact of the capability and capacity building efforts with our suppliers. Our 2013 ambition is 80 percent. The supplier management framework includes our key supplier management process, our Supplier Support Visit process, as well as our Vendor Policy process. It provides an overall framework to select the most effective process for each of our suppliers, focused on emerging markets.

Vendor Policy

Our aim is to have all our suppliers sign the AkzoNobel Vendor Policy, which includes our Code of Conduct. We have signed agreements with 97 percent of product related and 80 percent of centally contracted non-product related suppliers (by spend value), in which they confirm their compliance with environmental, social and governance factors. This covers about 92 percent of our total spend.

Supplier Support Visits

In 2007, we implemented Supplier Support Visits. These visits focus on critical suppliers and are carried out by teams from Procurement and HSE. The Supplier Support Visits program remains highly successful, with 373 visits having been conducted since the start of the program. Of all Supplier Support Visits, 46 percent have resulted in a developmental score, which means actions have been formulated and discussed with the supplier. Follow up visits are arranged to verify implementation and progress.

Key suppliers

In 2012, as part of the operational effectiveness program, we further developed our key supplier management process. This involved implementing a Supplier Sustainability Decision Tree and process flow. Decision criteria include signing of the Vendor Policy, spend value, critical spend, eco-footprint and the capability to collaborate in sustainable innovation opportunities. This new process for key supplier management was introduced and piloted at the top three key suppliers.

The existing process has focused primarily on suppliers of value today. In the new process, we will define and identify suppliers that are critical to AkzoNobel today and in the future and manage them in a differential way. These suppliers are essential to supporting us in realizing our strategic objectives.

Collaborative initiatives

We are a founding member of the International Supply Chain Management Congress in Amsterdam. In 2012, we were again part of the leadership for the organization, sponsorship and support for the congress, which is recognized as a valuable contributor to the development of sustainability thinking and supply chain processes.

Our activities do not target specific suppliers, but rather the value chains in which we participate as a whole.

Strategies going forward

The procurement strategy for the coming years is to move further beyond availability-price-synergy towards cross-functional sourcing, integration and value chain orientation. Buying on price moves towards total cost of ownership. Supplier relationships move towards cooperation and partnering. We see this as a way to leverage the size and scope of our global business, our position with suppliers and to drive competitive advantage.

Cross-functional (Procurement, RD&I, Supply Chain and Operations) initiatives including suppliers are increasing in number and impact. An integral part of the key supplier approach is to structure cooperation and joined innovation so that a cross-functional approach is critical.

We continued the development and implementation of the raw material strategies for TiO2, resins and latex. These strategies include elements such as material resource planning, capacity and supply cover, supplier selection and sourcing plans per region, “make” versus “buy” and renewable materials. They are also an instrumental tool in reducing the footprint of our global value chains. In 2012, we focused on making the strategies more robust through thorough review in an integrated cross-functional Process Management Office, run bi-weekly, to embed the overall process and strategy. This process also ensures that we have taken into account interdependencies with a forward-looking perspective, including sustainability.

One outcome of the TiO2 strategy process is the decision to participate in the building of a TiO2 manufacturing site in China. This will mitigate risks by securing part of our supply, understanding the mechanics of that market, having direct contact with the ore suppliers (backward integration) and enabling less price volatility.

We concluded the formulation of our solvent strategy, including the sustainability profile of the solvents we use, especially the VOC and GHG footprint, and the application of bio-based solvents. We have a number of opportunities in scope for evaluating renewable and bio-based raw materials, especially in the solvents and resins supply chains.

Complexity reduction

So-called slates of raw materials in key areas of spend are being developed. These slates define a core list of preferred materials/suppliers. Sustainability aspects such as carbon footprint and product safety are key criteria applied. The objective is to migrate our materials/suppliers over time onto these core materials, making our value chain less complex and more sustainable. The slate approach gives clear information on potential business opportunities to improve our value chains – lower cost, lower carbon footprint and reduced risk. After a first internal phase of analysis, suppliers will become part of the process.

Logistics/distribution

In our performance improvement program, we have started to manage warehousing and logistics at a regional AkzoNobel level. This will result in a reduction of warehouses and combined transport solutions. It will also have a positive effect on our footprint.

We are involved with Smartway in the US and the EU, focusing on CO2 reduction, and with the Clean Shipping Index in Sweden, Germany and the Netherlands, as well as the Sustainable Shipping Initiative facilitated by Forum for the Future in the UK.

Car lease

The carbon emission ambition for our own passenger car fleet is 130 g/km. In Europe, we reduced from 143 g/km in 2011 to 136 g/km in 2012.

Operations management

AkzoNobel is a manufacturing company, so excellence in supply chain management and manufacturing operations is a fundamental requirement for success.

In 2012, the company’s performance improvement program focused on delivering operational excellence in the full supply chain. Based on the Lean Six Sigma improvement thinking, many improvement activities have been initiated in our supply chain and operations:

  • More than 50 manufacturing site improvement projects have started
  • Supply chain planning processes have been improved and standardized
  • Capabilities are being developed through the creation and delivery of the Supply Chain Faculty within the AkzoNobel Academy

Improvement is measured in safety, customer service, cost, quality, working capital and eco-efficiency.

Lifecycle assessments have indicated that for most of our businesses, the environmental footprint of our direct activity is low compared with the impact of raw materials and use of our products. However, we see improving operational eco-efficiency as a fundamental element of manufacturing excellence – helping us to achieve cost reduction, environmental protection and more effective use of raw materials and natural resources.

A key initiative is the implementation of the renewable energy strategy at our sites. Together with a partner, in 2013 we will start to assess opportunities for introducing solar, wind or other renewable energy sources at our manufacturing sites.

Investment decisions

All our major (more than €5 million) investment proposals require a sustainability evaluation alongside the financial case. During 2012, this process was updated to include assessments at different stages in the project development, so that sustainability is considered from the start. At the point of application for capital, the requirements include an eco-efficiency assessment, as well as a full review of health and safety, process and product safety, natural resource/raw material requirements and environmental impacts.

These requirements are fully embedded in the company process for allocating funds for an investment or acquisition. The proposals are reviewed by subject matter experts, who provide comments and advice to the Executive Committee, on both the financial and non-financial issues associated with the investment, to provide a strong basis for the investment decision.


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