Note 7: Supplier management

Supplier segmentation

AkzoNobel works closely with suppliers to identify and minimize supply chain risks in order to provide a secure and sustainable supply to its customers. Supplier management programs are in place to drive continuous improvement of existing supply chains and 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 emerging markets 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 formalized our sustainable supply framework, as reflected below.

Supplier sustainability framework

Value chain management – Supplier sustainability framework (graphic)Value chain management – Supplier sustainability framework (graphic)

Our is based on AkzoNobel’s core principles and company values. We demand the highest ethics and integrity in all supplier relationships. The company’s new explains what we stand for as a company, what we value and how we run our business. It brings our core principles of safety, integrity and sustainability to life, and shows what they mean in practice.

Three formal processes are in place to help AkzoNobel ensure compliance, manage risks and promote supplier development. Our Supplier Support Visits and Key Supplier Management programs focus on two distinctly different supplier segments: critical suppliers in emerging markets and globally strategic (key) suppliers. Together for Sustainability (TfS), applies to all supplier segments. TfS provides standardized, third party assessments and audits into our routine supplier management process to identify and minimize risks and promote continuous improvement. These various elements enable AkzoNobel to measure supplier development and delivery against the company’s goals.

Our critical product related (PR) spend is actively managed by 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 emerging markets around the world.

We have defined critical spend as all PR spend (raw materials and packaging) from emerging markets. 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/or audit program (TfS)
  • The supplier has a signed the Business Partner , delivers less than €5 million from emerging markets and is not classified as a critical supplier (and therefore not part of the Supplier Support Visits program)

As a result of these continued efforts, we raised our critical PR spend coverage again from 83 percent in 2014 to 87 percent in 2015. Even though we made a good improvement, we missed our challenging target by a small margin. We will increase our critical spend coverage in 2016 by closely monitoring our SSV visits, setting clear targets with our businesses and increasing the number of third party assessments (TfS).

The Supplier sustainability framework has been 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.

Key performance indicators – supplier management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2013

 

2014

 

2015

 

Ambition 2015

 

Ambition 2016

 

Ambition 2017

1

PR – Product related (raw materials and packaging).

2

Partner CoC – .

3

NPR – Non-product related.

4

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

5

Includes TfS shared assessments/audits.

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

 

69

 

80

 

83

 

87

 

88

 

90

 

90

Product related suppliers signed Partner CoC 2 (% of spend)

 

97

 

96

 

98

 

98

 

98

 

98

 

98

NPR 3 suppliers signed Partner CoC 2 (% of spend)

 

80

 

83

 

80

 

81

 

80

 

85

 

85

Suppliers on SSV program since 2007 4

 

373

 

392

 

432

 

455

 

 

 

Third party online sustainability assessments (TfS) 5

 

 

 

539

 

724

 

600

 

700

 

800

Third party on-site sustainability audits (TfS) 5

 

 

 

20

 

65

 

40

 

60

 

80

Business Partner Code of Conduct

The Business Partner Code of Conduct covers 98 percent of the product related (PR) spend and 81 percent of the non-product related (NPR) spend. Both critical suppliers and key suppliers have to confirm their compliance with environmental, social and governance factors. Our aim for 2016 is to increase the coverage of our NPR suppliers to 85 percent.

Supplier Support Visits

The Supplier Support Visits (SSV) program is designed to develop long-term local suppliers in emerging markets by raising their capability and performance. Introduced in 2007, the SSV program is an important supplier management tool. The supportive visits focus on critical suppliers and are carried out by teams from Procurement and Health, Safety and Environment (). 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 emerging markets, selected approved SSV suppliers continue their sustainability journey by entering AkzoNobel’s third party assessment and audit programs. Awareness of, and compliance with, corporate social responsibility is measured with continued support from local, cross-functional AkzoNobel teams.

Together for Sustainability (TfS)

Further acceleration of this program in 2015 has impacted all supplier segments, including product related and non-product related suppliers, resulting in more than 50 percent of our total spend being assessed. TfS is an industry initiative made up of 16 leading global 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 sustainability 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 Business Partner across a selected global supplier portfolio
  • Supplements our existing SSV program by ensuring continued development of critical suppliers in emerging 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

The results of our TfS assessments, which use the EcoVadis platform, allow us to identify common areas for improvement across our supply base and focus improvement activities. Improvement areas include the introduction of a formal reporting system on our supplier’s sustainable procurement performance and business ethics issues.

The diagram below shows the 724 suppliers assessed between 2013 and 2015 with risk levels set by AkzoNobel based on the scores given by EcoVadis. If suppliers achieve a score of less than 25 out of 100, they are classified as “high risk”.

We request high and medium risk suppliers to work on corrective actions with a clear priority on the main areas for improvements as mentioned above. Out of the 357 suppliers that were re-assessed, 255 improved their scores.

Overview of risk levels
Total of 724 suppliers

Value chain management – Overview of risk levels (bar chart)Value chain management – Overview of risk levels (bar chart)

As part of the TfS membership criteria, AkzoNobel verifies the quality of its own corporate supplier management activities against industry best practice. The company 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. In our 2015 re-assessment, we were able to defend our position as best performing company in our industry category by further improving our scores.

Key Supplier Management

As part of our ongoing operational effectiveness program, our Key Supplier Management process helps focus our internal resources on 35 suppliers we have defined as strategic 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 new key supplier agreements. The current focus is improvement, renewable materials and innovation opportunities.

Measurable development and delivery

In 2015, we trialed a Supplier Sustainability Balanced Scorecard (SSBC) designed to measure the current level of sustainability awareness and maturity of our key suppliers and suppliers important to our sustainability performance (see also Performance improvement and innovation). 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 resource efficiency. The SSBC consists of six stages of maturity and is divided into two sections: “Compliance and risk management” and “Advanced contribution”. Following trials with a few key suppliers, it will be further implemented in 2016.

Performance improvement and innovation

Our Key Supplier Management program has already moved our supplier relationship beyond risk management to opportunities for partnership in performance improvement and innovation.

During 2015, we identified a wider group of suppliers who have a significant impact on our sustainability resource efficiency objectives. We have now embarked on a structured program to identify opportunities to drive sustainability value and carbon footprint reduction.

  • Prioritization: Analyzing our raw material carbon footprint gave us a clear direction regarding which suppliers to contact about particular raw materials
  • Supplier engagement: Suppliers completed a questionnaire that we designed to give us an estimate on reduction potential. The results of the questionnaire were than discussed in a series of follow-up meetings to agree on internal reduction targets and improvement plans

This process is creating insight into our suppliers’ sustainability programs which we didn’t have previously and is helping to create real partnerships to identify and maximize shared benefits.

Through this collaboration with our suppliers, we have a list of innovation projects in place and first commitments on year-on-year improvement targets that will result in carbon footprint reduction, starting in 2016.

Supplier sustainability framework

Business Partner Code of Conduct, Supplier Support Visits, Key Supplier Management and Together for Sustainability are all elements of our supplier sustainability framework.

Business Partner Code of Conduct

Explains what we stand for as a company, what we value and how we run our business. It brings our core principles of Safety, Integrity and Sustainability to life and shows what they mean in practice.

Code of Conduct

Our Code of Conduct defines our core principles and how we work. It incorporates fundamental principles on issues such as business integrity, labor relations, health, safety, environment and security and community involvement.

Business Partner Code of Conduct

Explains what we stand for as a company, what we value and how we run our business. It brings our core principles of Safety, Integrity and Sustainability to life and shows what they mean in practice.

HSE

Health, safety and environment.

Code of Conduct

Our Code of Conduct defines our core principles and how we work. It incorporates fundamental principles on issues such as business integrity, labor relations, health, safety, environment and security and community involvement.

Carbon footprint

The carbon footprint of a product or organization is the total amount of greenhouse gas (GHG) emissions caused during a defined period, or across the total or part of a product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.

Carbon footprint

The carbon footprint of a product or organization is the total amount of greenhouse gas (GHG) emissions caused during a defined period, or across the total or part of a product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.