How We Manage Our Responsible Supply Chain
GRI Content: G4-DMA, G4-12, G4-EC9, G4-EN32, G4-EN33, G4-LA14, G4-LA15, G4-HR4, G4-HR5, HR-10, HR-11, G4-SO9, G4-SO10
Sustainable Development Goals: Goal 8, Goal 12, Goal 16
Global procurement strategy
Our global procurement strategy seeks to rationalize our supply base by reducing the number of suppliers in our top 35 countries by around 22% (against a November 2015 baseline). Our strategy has achieved savings of CHF 57 million for the year, representing efficiencies in capital expenditures and operating expenses, as well as cost reductions and cost avoidance.
During the year, we implemented a transportation management tool to optimize efficiency and ease demand planning, established a real estate team to review our leasing and tenure arrangements and incorporated sustainable design techniques into new building designs, and we further developed our supplier innovation program. We also piloted a new inventory management system and we introduced an electronic invoicing and payment system.
We collaborate with our suppliers to coordinate activity and identify financial incentives. Key programs underpinning our supplier engagement in 2017 will include the development of a global supplier portal to facilitate knowledge sharing and exchange across our supplier base, the further development of our supplier incentive program to focus our procurement volume on strategic partners, and our supplier innovation club.
Sustainability forms a central plank of our procurement strategy. We need to ensure that we are managing a sustainable supply chain and that our suppliers understand our social and ethical standards relating to integrity, health and safety, human rights, labor standards, environmental management and community involvement. During 2016, we developed the SGS Supplier Code of Conduct, which sets out the basis of our responsible sourcing approach. It defines not only the non-negotiable minimum standards that we ask our suppliers to respect when conducting business with SGS but also the values that are shared throughout the SGS Group, business lines and affiliates. We also launched the SGS supplier self-assessment questionnaire, designed to align our suppliers’ management approach to our defined standards on integrity, human rights, health and safety, environment and community.
Responsibility for procurement is relatively decentralized, with most procurement occurring at affiliate level. The Vice President Global Procurement has responsibility for procurement at the corporate level, with procurement managers in most affiliates.
Our procurement functions are structured at global, regional and local levels:
Global procurement includes all categories where suppliers operate at a global level. These include field and testing equipment, IT and telecommunications, laboratory equipment and supplies, real estate, subcontracting, supply chain and logistics, and travel and fleet management.
Our category management team is responsible for developing long-term sourcing strategies and optimizing our various sourcing processes. The team also provides the tools that underpin an efficient and best-in-class supply chain, as well as robust industry benchmarking and workshops that encourage knowledge sharing and collaboration. In early 2015, SGS appointed a Sustainability Manager, Sustainable Supply Chain who is responsible for overseeing a Group-wide sustainable supply chain management system.
Regional procurement platforms ensure that our regional sourcing activities are efficient, working with regional supply bases and deploying regional contracts. Regional procurement platforms exist in the US, Brazil, South Africa, Germany, Australia, China, Taiwan and Europe and cover related geographies.
Local procurement operates through global or regional contracts, and is involved in sourcing from local partners.
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The SGS Supplier Code of Conduct sets out how we work with our suppliers and defines our minimum requirements for responsible sourcing. Structured around our four sustainability pillars - Professional Excellence, People, Environment and Community – the Code is informed by the International Bill of Human Rights (the UN Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights) and the International Labor Organization’s fundamental conventions on Rights at Work. The OECD Guidelines for Multinational Enterprises are also referenced.
The SGS Supplier Code of Conduct, which is being implemented across our global supply network in 2017, applies to all SGS suppliers and their affiliates and covers all products and services supplied to SGS. Suppliers are strongly encouraged to promote the requirements of the Supplier Code of Conduct within their own supply chains.
Implementation of the SGS Supplier Code of Conduct is facilitated by a supplier self-assessment process, which evaluates suppliers’ abilities to adhere to our requirements. During 2016, a questionnaire was sent to selected strategic suppliers. From the end of 2017, we plan to conduct supplier audits, using SGS contracted auditors, based on an audit protocol covering supplier performance against recognized sustainability management systems as well as specific topics contained in the SGS Supplier Code of Conduct.
Our standard supplier contract template requires all suppliers to conduct their activities in accordance with environmental, health, safety and employment policies, as well as with relevant standards and legislation. Suppliers are also expected to encourage their own contractors and subcontractors to follow these practices.
SGS global requests for proposals (RFPs) require new suppliers to respond to questions covering sustainability management systems, policies, measurement and reporting of economic, environmental and social impacts, and certifications.
New suppliers must adhere to the SGS Supplier Code of Conduct. They are also encouraged to use our confidential integrity helplines to raise concerns about possible violations with either the SGS Code of Integrity or the SGS Supplier Code of Conduct.
We have developed a supplier scorecard for global suppliers which assesses them using six performance-based criteria: quality, service, responsiveness, innovation, competitiveness and sustainability. Based on a 180-degree appraisal process involving key stakeholders across SGS functions (e.g. Procurement, Finance, Operations, Business Development and Supply Chain Management), suppliers are scored on the extent to which they meet our requirements. In the future, suppliers will be invited to self-assess and review the performance of SGS as a customer. All suppliers have an opportunity to discuss and review their scorecard and put in place a plan to address areas that indicate the need for improvement.
When engaging suppliers from low cost sourcing areas, it is important that lower costs are not achieved at the expense of workers or the environment. Our Low-Cost Country Sourcing (LCCS) initiative is focused on procuring lab consumables and CAPEX projects. Sustainability criteria are included at various stages throughout the supplier and product qualification process, for example:
- In our initial market study, we prefer suppliers with certification to relevant ISO standards, and who have a robust environmental policy
- Potential suppliers must answer questions and provide supporting evidence relating to their sustainability objectives (and those of their own suppliers), their product safety standards and certifications, packaging and transportation
- We conduct site visits to supplier facilities to check that EHS regulations are being followed (e.g. use of personal protective equipment) and that appropriate environmental controls (e.g. for dust collection, noise reduction and adequate lighting) are in place. Workers are interviewed to determine their age and how they are treated by their employer. We also inspect waste management records
- At the product qualification stage, checks are made to ensure that products meet safety standards
Potential suppliers may be asked to improve their performance if our audit identifies any gaps. We aim to work with suppliers to promote the principle of continuous improvement as part of our supplier review process.
Given that major construction and leasehold improvement projects can have a long-lasting environmental impact, we aim to optimize building energy efficiency and waste reduction early in the design phase. As well as considering energy efficiency and waste management features, our real estate team collaborates with our HR and Operational Integrity teams to ensure that building designs include employee health and wellbeing considerations.
Please see How We Manage Energy and Climate Change for examples of environmentally responsible purchasing, including Green IT, Green Buildings and Green Cars.
In May 2016, SGS acquired a stake in Transparency-One, a leading technology and global on-boarding supplier services company based in Boston, USA. Transparency-One provides a platform for supply chain visibility and risk management, helping companies to interconnect and share product and facility data that, in combination with SGS existing services, will ensure safe supply chains and protection for customers.
(See our case study on how SGS in partnership with Transparency-One is working with food companies to combat modern slavery in global supply chains.)
During 2016, we worked with freight forwarders to reduce the cost of delivery through consolidated shipments. Linked to this, we are implementing Oracle Transportation Management (OTM) technology to help streamline our transportation planning. We will pilot this tool in 10 countries during 2017. While the primary driver for this initiative is economic, we anticipate that this project will also help to achieve savings in CO2 emissions arising from freight transport.
With over 2,000 offices and laboratories globally, SGS holds an extensive inventory of fixed assets. There are several reasons why we deploy equipment: the relocation, refurbishment or closure of our labs; the changing nature of our lab work (which may require additional or specialist equipment to meet demands); and new technologies that offer combined functionality resulting in older equipment being surplus to requirements.
EquipNet is a serviced web-based platform that enables our procurement managers, as well as our suppliers and customers, to deploy fixed assets across the SGS network and externally. Using this tool, premium, late-model equipment can be sourced for a 25% to 75% discount on the price of new equipment, while saving lead times typically associated with purchasing new equipment, and minimizing waste through re-use. Since its implementation in SGS in 2015, EquipNet has had around 840 users and an inventory of more than 400 pieces of equipment. During 2016, 318 pieces of equipment were redeployed in the business and 40 sold externally.
In South Africa, SGS promotes entrepreneurship and enterprise development in local, regional, provincial and national levels by enabling Black Economic Empowerment (BEE) companies to access commercial contracts. We support BEE suppliers in any sector, but we focus our developmental efforts on enterprises providing lab consumables, labor brokerage, consulting and other services. Our preferential procurement process aims to enhance long-term economic sustainability and viability while adhering to acceptable business practices and industry standards such as quality, timely delivery and controls. Special internal arrangements are made with respect to payment of BEE companies, with payments typically weekly and not later than 15 days after date of invoice or delivery.
(See our Case Study on how we are working with Baitsanape Lab Supplies in South Africa)
Building on our pilot supplier innovation project in 2014, we continued to expand the SGS Supplier Innovation Club in 2016. The Club aims to engage our strategic global and regional suppliers in collaborating on projects that deliver mutual benefits in efficiencies, sustainability and increased revenue. During 2016, we held tailored innovation days and webinars with selected suppliers in Germany, the UK and the USA. Topics discussed during these events included:
- Development of new web-based services for launch in 2017
- Enhanced water treatment testing services
- Environmental air monitoring services
- Pesticide and food testing services
- Environmental simulation for automotive testing services
The program has now been integrated within our Global Innovation initiative. To date, we have completed seven innovation days at supplier R&D centers, have five ongoing revenue projects and a pipeline of innovative ideas. Further innovation days with suppliers are planned during 2017 in Asia, North America and Europe. By 2020, we aim to have 50 Supplier Innovation Club members, creating a pipeline of supplier-led innovation projects aimed at generating incremental revenue.
(Please see our Case Studies section for a profile on one SGS supplier who is involved in the innovation project.)