Responsibility along the supply chain

We expect our suppliers and other business partners to conform to our standards of corporate ethics. These are based on our globally applicable corporate purchasing standards and the safety, health and environment standards that we formulated as early as 1997, thus demonstrating even at that time our commitment to assuming responsibility across the entire supply chain. In selecting and developing our suppliers and other business partners, we therefore consider their performance in regard to sustainability.

Worldwide purchasing markets

Our supplier base currently includes suppliers and other business partners from about 125 countries. Approximately 75 percent of our purchasing volume comes from countries that belong to the Organization for Economic Cooperation and Development (OECD). We are, however, increasingly opening up new purchasing markets in states that are not OECD members. We place the same demands on suppliers from these countries. Our suppliers are assessed in a comprehensive process that covers sustainability performance and risks as well as key commercial and operating indicators.

Supplier code

The cross-sector Code of Conduct of the German Association of Materials Management, Purchasing and Logistics (BME, known in English as AMMPL) is our globally valid supplier code. Henkel signed on to the BME initiative in 2009, as it is based on the ten principles of the United Nations Global Compact and can therefore be used internationally. The BME code serves as the basis for contractual relationships with our strategic suppliers. This means that they have either recognized the cross-sector BME code – and hence the principles of the Global Compact – or produced their own comparable code of conduct.

Responsible supply chain process

In line with our new sustainability strategy of “achieving more with less,” we have introduced an updated, five-step Responsible Supply Chain Process. This focuses on two main challenges. Steps 1 to 3 are designed to ensure that all of our suppliers comply with our defined sustainability standards. Through steps 4 and 5, we aim to purposefully work with our strategic suppliers to improve sustainability standards in our supply chain – for example, through knowledge transfer and continued education about process optimization, resource efficiency, and environmental and social standards.

“Through targeted collaboration with our suppliers, we aim to help improve sustainability standards throughout our supply chain.”

Photo Karl-Heinz Ott
Karl-Heinz Ott
Purchasing manager with global responsibility for sustainability.
Logo BME

Henkel is a signatory to the cross-sector Code of Conduct of the German Association of Materials Management, Purchasing and Logistics (BME/AMMPL).
www.bme.de

Responsible Supply Chain Process

Graph „Responsible Supply Chain Process“

Step 1: Risk assessment

In 2011, Henkel further developed its early warning system for sustainability risks in global purchasing markets. We begin by estimating the potential risks in a market or a region. In doing so, we concentrate on countries identified by international institutions as being associated with heightened levels of risk. The assessment includes the criteria of human rights, corruption, and the legal environment. We also appraise a second dimension, that of risk value chains. These are industries and sectors that we consider to potentially represent a specific risk for our company. By considering risk countries in conjunction with hot topics, Henkel has identified those of its purchasing markets that pose the highest risks and initiated appropriate measures.

Step 2: Self-assessment

We continue to pursue a strategy of supplier self- assessment on the basis of questionnaires. These underline our expectations in the areas of safety, health, environment, quality, human rights, employee standards, and anti-corruption. In 2011, the emphasis was on the renewed assessment of strategically important suppliers, such as suppliers of key raw materials and packaging materials, as well as business partners in telecommunications and technical materials.

Step 3: Analysis

Based on our own risk assessments and the suppliers’ self-assessments, we classify suppliers according to a “traffic light” system. “Red” (non-compliant) leads to prompt termination of the supplier relationship. In the case of “yellow,” the areas where improvement is needed are identified and the suppliers are audited.

Schritt 4: Audit

The systematic expansion of the audit program for suppliers will be the main focus of our work in the coming years. With this in view, we also actively participate in cross-sectoral initiatives with the aim of improving the transparency and efficiency of supplier audits and helping to establish common cross-company standards – for example, by encouraging the sharing of existing audit results.

Step 5: Further development

Through targeted collaboration with our suppliers, we contribute to improving sustainability standards throughout the supply chain. Examples include training programs and joint projects on process optimization, resource efficiency, and environmental and social standards. In a pilot project, we have begun to include strategic raw materials suppliers in our reporting system to record the relevant environmental data. By sharing our knowledge regarding data metrics and quality, we aim to improve the data basis along our value chains in the long term.

On the whole, the strategic suppliers and other business partners that were assessed in 2011 satisfied our standards of corporate ethics. We terminated two supplier relationships, one because of inadequate environmental standards, the other due to socially unethical practices.

Early warning system for risk markets

One example of a risk market is the purchasing of raw materials for soldering pastes and similar products for the electronics industry. These contain metals – mainly silver, copper and tin – to make them electrically conductive. In some countries, the mining of cassiterite (the main source of tin) is often associated with military conflicts and human rights violations. In 2011, we again reviewed our direct suppliers of metals and requested them to supply documentary evidence that they did not purchase or process metals from critical regions. In the USA and other countries, we are collaborating closely with electronics industry associations to define an official auditing process for metals suppliers.

Another example is the purchasing of advertising giveaways, which are often manufactured by third-party suppliers in low-wage countries. To ensure compliance with our sustainability standards in this area as well, we analyze the profiles of the relevant suppliers before awarding any contracts for such goods.

Last updated: March 8, 2012