Note 7: Supplier management

AkzoNobel works closely with suppliers to identify and minimize supply chain risks in order to provide secure and sustainable supply to its customers. Supplier management programs are in place to drive continuous improvement of existing supply chains and also to develop meaningful collaboration and joint development opportunities.

We have identified two supplier segments for particular attention, based on the potential risks and opportunities:

  • Critical suppliers are those in high growth countries where we want to build a long-term, mature supply base. Selection may be based on risks associated with labor conditions, environmental performance or business integrity, or security of supply of important materials
  • Key suppliers are selected because of their importance to the business – spend or dependency – as well as the potential for partnership, joint innovation and collaboration on long-term sustainability initiatives

In order to improve the alignment between our initiatives for all supplier segments, we have enhanced and formalized our sustainable supply framework, as reflected below.

Supplier sustainability framework

Supplier sustainability framework (graphic)Supplier sustainability framework (graphic)

Key performance indicators – supplier management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2012

 

2013

 

2014

 

Ambition 2014

 

Ambition 2015

 

Ambition 2016

1

PR = Product related (raw materials and packaging).

2

NPR = Non-product related.

3

SSV program targets are included in the Critical PR spend coverage KPI.

4

Includes TfS shared assessments.

5

Includes TfS shared audits.

Critical PR 1 spend covered by supplier management framework (% of spend)

 

 

69

 

80

 

83

 

85

 

88

 

90

Product related suppliers signed Vendor Policy (% of spend)

 

95

 

97

 

96

 

98

 

96

 

98

 

98

NPR 2 suppliers signed Vendor Policy (% of spend)

 

77

 

80

 

83

 

80

 

80

 

80

 

85

Suppliers on SSV program since 2007 3

 

304

 

373

 

392

 

432

 

 

 

Third party online sustainability assessments 4

 

 

 

 

539

 

200

 

600

 

Third party on-site sustainability audits 5

 

 

 

 

20

 

20

 

40

 

Our Supplier sustainability framework is founded on AkzoNobel’s core principles and company values. We demand the highest ethics and integrity in all supplier relationships. AkzoNobel’s Vendor Policy links our principles, values, and Code of Conduct into one cohesive document which sets out our clear expectations regarding adherance to our core principles and company values at all times.

Three formal processes are now in place to help AkzoNobel ensure compliance, manage risk and promote supplier development. Our Supplier Support Visit and Key Supplier Management programs focus on two distinctly different supplier segments: critical suppliers in emerging markets and globally strategic (key) suppliers. Our third and newest program, Together for Sustainability (TfS), applies to all supplier segments. TfS provides standardized, third party assessments and audits into our routine supplier management process.

The above elements equip AkzoNobel to measure supplier development and delivery against the company’s sustainability goals.

In 2013, we began reporting a new KPI: the Critical product related (PR) spend that is actively managed by one of our supplier framework processes. This KPI provides a meaningful measure of how well AkzoNobel is building the sustainability, capability and capacity of its suppliers in critical high growth markets around the world.

In 2014, third party supplier assessments and audits from the TfS initiative were effectively integrated into our program to further secure our critical spend coverage and maximize supplier contributions toward our sustainability objectives.

We have defined critical spend as all PR spend (raw materials and packaging) from high growth countries. Spend is considered to be covered by this metric if at least one of the following conditions is met:

  • The supplier is part of our Key Supplier Management process
  • The supplier is part of our Supplier Support Visits program and has been followed up in compliance with program guidelines
  • The supplier’s sustainability performance has been assessed via AkzoNobel’s third party supplier assessment and audit program
  • The supplier has a signed Vendor Policy, delivers less than €5 million from high growth countries and is not classified as a critical supplier (and therefore part of the Supplier Support Visits program)

As a result of these focused efforts, we raised our Critical PR spend coverage from 80 percent in 2013 to 83 percent in 2014.

The Supplier sustainability framework is put in place to support continuous improvement of suppliers, to prioritize improvement activities across our supply base and to accelerate delivery of our corporate sustainability goals. Each of the elements in the sustainable supply framework is further explained below.

Vendor Policy

The Vendor Policy covers 98 percent of the product related (PR) spend and 80 percent of the non-product related (NPR) spend, including all critical suppliers and key suppliers. Our aim is to have all our suppliers comply with the AkzoNobel Vendor Policy, which includes our Code of Conduct, confirming their compliance with environmental, social and governance factors.

Supplier Support Visits

The Supplier Support Visits (SSV) program is designed to develop long-term local suppliers in high growth markets by raising their capability and performance. Introduced in 2007, the SSV program has been highly successful and is an important supplier management tool. The supportive visits focus on critical suppliers and are carried out by teams from Procurement and HSE. Formal follow-up visits by these teams are conducted to verify implementation of agreed plans and overall progress. In order to ensure continued development of sustainable supply chains in high growth markets, selected approved SSV suppliers continue their sustainability journey by entering AkzoNobel’s third party assessment and audit program. Awareness of, and compliance with, corporate social responsibilities is measured with continued support from local cross-functional AkzoNobel teams.

Key Supplier Management

As part of our ongoing operational effectiveness program, our Key Supplier Management process helps focus our internal resources on suppliers we have defined as critical to AkzoNobel, both now and in the future. These suppliers are essential to supporting us in realizing our strategic objectives. With many of these key suppliers we also have a formal key supplier agreement in place, underpinning the aims of the Key Supplier Management process. Sustainability objectives are now included in all new key supplier agreements.

Together for Sustainability (TfS)

Full implementation of this program in 2014 has impacted all supplier segments, including product related and non-product related suppliers. TfS is an industry initiative made up of 12 leading European chemical companies and continues to expand. It aims to improve sustainability practices within the global supply chains of the chemical industry, building on established global principles such as the United Nations Global Compact and the Responsible Care® Global Charter. With TfS, we aim to implement effective, leading edge practices across the industry. We are implementing standardized global CSR assessments and on-site audits to monitor and improve sustainability practices in our supply chains.

Global implementation of TfS provides the following benefits:

  • Confirms compliance with our Vendor Policy standards and Code of Conduct across a selected global supplier portfolio
  • Supplements our existing SSV program by ensuring continued development of critical suppliers in high growth markets
  • Strengthens our risk identification and mitigation processes
  • Further integrates auditable corrective action planning into the supplier development process
  • Provides third party verification of AkzoNobel activities against industry best practices

As part of an annual third party assessment of AkzoNobel, the quality of our corporate supplier management activities is verified against industry best practice. AkzoNobel was granted a Gold recognition level in 2014 by EcoVadis, putting us among the best performing companies assessed by EcoVadis globally in our industry category.

Our Supplier sustainability framework provides an overall approach to quantifying supplier progression and delivery against key performance elements in both high growth and mature markets.

In 2014, we began piloting an internal supplier rating system designed to measure the current level of sustainability awareness and maturity of our strategic and critical suppliers. Clear and quantifiable key performance indicators are contained in this process to help drive continuous improvement of all suppliers and delivery of sustainability benefits to AkzoNobel in the area of carbon footprint reduction. Progress will be reported in our Report 2015.