SUPPLY CHAIN SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
EMC’s Supply Chain Social & Environmental Responsibility (SER) program is about mitigating risk, identifying and building opportunity, and increasing the resiliency of our supply chain. We seek to achieve these objectives by collaborating with our suppliers and industry peers to create and use common standards and tools. This includes continually refining our approach based on what we learn.
Our strategy centers around three main pillars: 1) set expectations, using the industry-standard Electronic Industry Citizenship Coalition (EICC) Code of Conduct; 2) monitor and assess supplier performance to that standard, using a combination of industry-standard tools and our own tools and requirements; and 3) continually engage with our suppliers and with the industry to improve.
In 2014, EMC fully implemented key initiatives we had begun in 2013. These included business integration, spot checks, training, and public sustainability reporting by suppliers. As we look forward to 2015, our strategic priorities and pillars will remain the same, with increased focus on targeted capacity building and assessing impacts.
Monitoring and Assessment
- Completed 31 spot checks in 6 countries, exceeding our 2014 goal by more than 50 percent
- Saw a 62 percent reduction in the number of audit findings from initial audits to closure or full re-audits
- Received environmental reporting from suppliers representing 98 percent of spend
Engaging to Improve
- Developed a tool, built on EMC’s Archer Governance Risk and Compliance platform, to more effectively track supplier performance, communicate required actions, and connect suppliers to targeted resources and information
- Increased education and incentives for suppliers to publish sustainability reports to the Global Reporting Initiative (GRI) guidelines
- Launched the SMaRT Library, an online training resource that targets SER topics of high priority in EMC’s supply chain, including working hours, human trafficking, and labor management systems
- Instituted new methods of data analytics and hypothesis testing to correlate risk factors and more effectively target education and outreach to suppliers in 2015 and beyond
MONITORING AND ASSESSMENT
EMC joined the EICC in 2008. Since then, we have collaborated with the organization on its common standards, tools, and questionnaires, which we use to monitor our own suppliers. In 2014, this collaboration included continued leadership in the EICC, particularly through EMC’s position as lead of the Environmental Sustainability Workgroup. EMC was also elected to the EICC Board of Directors for the 2015-2017 term.
Collaborating to Set Standards and Monitor Suppliers
In accordance with our commitment to shared standards, we use the following suite of EICC tools as the core of our supply chain responsibility monitoring and assessment activity:
- EMC Supplier (EICC) Code of Conduct: Covering labor, ethics, environment, health and safety, and management systems, the EICC Code sets the standard for our expectations for ourselves as well as our suppliers. Code of Conduct acknowledgements are collected from all managed direct materials suppliers, and compliance to the Code is part of our standard contract language for all vendors.
- EICC Self-Assessment Questionnaire (SAQ): This risk assessment tool evaluates the presence of policies and procedures needed to support compliance with the Code of Conduct, as well as risk factors and associated controls. EMC collects SAQs from all strategic Tier 1 and Tier 2 suppliers.
- EICC Environmental Reporting: This shared EICC questionnaire collects information about suppliers’ carbon, water, and waste volumes, goals, and initiatives, and is aligned with CDP and GRI. In 2014, 98 percent of EMC’s Tier 1 and Tier 2 suppliers by spend completed environmental reporting.
- EICC Audits: Audits evaluate conditions and practices in supplier manufacturing facilities. EMC uses EICC- Validated Audit Program (VAP) audits wherever possible. The result of this rigorous audit can be shared by a supplier with multiple companies, thereby reducing the overall volume of audits. VAPs are conducted by third-party auditors and are valid for two years. In the rare cases where EMC does not use a VAP audit, we still follow EICC standard audit protocol and use certified third-party auditors.
Reporting associated with these EICC tools is conducted through EICC-ON, the EICC’s online platform for easily and confidentially sharing data between suppliers and customers.
We complement these industry-standard tools with internally-developed assessments and requirements, including the following:
- Risk Assessment Process: EMC’s internally-developed risk analysis determines which sites we consider to be high risk, and are therefore to be prioritized for audits and spot checks over the course of the year (see graphic "Evaluating Supplier Site Risk").
- Spot Checks: These assessments of key social and environmental indicators at supplier sites are conducted by in-region EMC supply chain technical and commercial staff. Spot checks identify and remedy small problems before they become significant issues. They also give us a more frequent view to on-the-ground conditions, complementing the formal auditing process. EMC staff completed 31 spot checks in 6 countries in 2014.
- Institute of Public & Environmental Affairs database: EMC regularly checks the database of pollution violations maintained by the Institute of Public & Environmental Affairs in China. Any concerns identified through these channels are corrected promptly using direct supplier discussion and Corrective Action Plans (CAPs), where relevant.
- Public Sustainability Reporting: EMC’s strategic direct materials suppliers are required to publish a sustainability report using the GRI guidelines. As of the end of 2014, 80 percent of our top 80 percent of suppliers by spend published public sustainability reports, all but one of which followed the GRI guidelines. See "Engaging to Improve" for more on this topic.
Spot checks are conducted by in-region EMC supply chain technical and commercial staff who visit supplier sites to assess a set of key social and environmental indicators. The staff conducting these visits receive regular training to build their knowledge of the specialized issues they evaluate. In 2014, this included two full-day, Chinese-language classes held in Shanghai and Shenzhen, reaching 22 staff.
In 2014, the spot check program grew significantly from the 2013 pilot. Exceeding our goal of spot checking 20 sites globally, EMC staff completed 31 spot checks in 6 countries. These spot checks identified more than 50 issues requiring corrective action, and in one case identified safety concerns severe enough to prioritize the site for immediate remediation and a full audit. The issues identified in a spot check are addressed with the same expectations of corrective action closure as findings from the more comprehensive EICC-VAP audits.
Metrics and Results
We view audits as a mechanism for performing due diligence, getting baselines of supplier site performance, and evaluating the effectiveness and longevity of improvements over time. They can also raise awareness of different expectations and management systems that were previously unknown to the company or site. Growth in the EICC’s VAP audits, combined with a more refined risk prioritization by EMC, increased our overall audit numbers as well as our coverage of high risk sites in 2014.
A CAP follows every audit that produced findings. EMC works directly with our suppliers to understand underlying causes, review plans, and evaluate evidence demonstrating completion of all corrective actions. A supplier may also undergo a closure or follow-up audit after CAP completion to validate the results of their actions. Taken in aggregate, our suppliers show a 62 percent reduction in the number of findings from initial audits to closure audits or full re-audits. This progress speaks to the key goal of audits: not simply to assess, but also to identify and follow through on areas of improvement.
Examining the detailed results of our suppliers’ 2014 audits highlights the difficulties of solving industry-wide challenges. Working hours and emergency preparedness continued to be the most prevalent systems-level (major) non-conformances outside of overall management systems findings. We also saw findings regarding freely chosen employment. Although we did not see any instances of forced labor, we did see a need for suppliers to improve the management systems they use to monitor their own suppliers and vendors, particularly in the high-risk area of labor agents.
Supply Chain SER Detailed Supplier Audit Findings 2014
|EICC Code||% of Non-conformance||Major||Minor|
|Child Labor Avoidance||4.1%||4.1%|
|Freedom of Association||2.0%||0.7%|
|Freely Chosen Employment||12.2%||11.5%|
|Wages & Benefits||8.8%||8.1%|
|Disclosure of Information||2.4%||2.4%|
|Fair Business, Advertising, & Competition||16.7%||7.1%|
|Protection of Identity||2.4%||7.1%|
|No Improper Advantage||0.0%||16.7%|
|Responsible Sourcing of Materials||2.4%||4.8%|
|Environmental Permits & Reporting||16.7%||4.8%|
|Pollution Prevention & Resource Reduction||7.1%||2.4%|
|Product Content Restriction||4.8%||2.4%|
|Wastewater & Solid Waste||4.8%||9.5%|
|Health & Safety||30.1%||36.8%||16.2%|
|Food, Sanitation, & Housing||8.5%||4.3%|
|Occupational Injury & Illness||7.8%||6.4%|
|Physically Demanding Work||3.5%||1.4%|
Although the number of major findings has not changed significantly year over year, there was some movement in the most frequent types of minor findings. For example, we saw a reduction in minor findings associated with fair payment of wages.
In addition to looking at year-over-year trends, EMC also looks at all of our data in aggregate, analyzing across different factors to identify patterns and prioritize training, incentives, and any policy changes related to supplier performance management. For more information, see "Engaging to Improve".
Human trafficking received increasing attention in 2014 from national governments, nonprofit organizations, and corporations. It is a challenge that is much bigger than any single company, or even any single industry. However, as described in our Statement Against Slavery and Human Trafficking, EMC has taken multiple actions over the last few years to monitor for risks of human trafficking in our supply chain, remedy any gaps identified, and educate our employees and suppliers about this important issue. We will continue to focus on this important area in 2015.
In 2014, our activities included:
- Management systems: Through audits and on-site visits, EMC identified gaps and outdated practices in suppliers’ management systems and worked with those suppliers to implement corrective actions. For example, one supplier completely revised their policies and procedures, which had formerly allowed the holding of passports with worker permission, a practice which has been identified as a risk for human trafficking. In another case, a supplier that had formerly not monitored its labor agents leveraged industry-standard best practices to put in place a robust program to communicate with, train, and monitor its vendors for any incidents of human trafficking.
- Training: A new online training module on human trafficking was launched for both internal employee and supplier education.
- Supplier forum: EMC hosted a peer discussion and Q&A with a number of suppliers at different levels of maturity in their human trafficking management. This included completion of the online training module, followed by participation in an open conversation in which they exchanged knowledge, ideas, and challenges.
Environmental Risk and Performance
Our 2014 data show a supply base that has embraced water and waste reporting alongside the traditional carbon emissions disclosures. The percentage of suppliers complying with our requests or proactively providing us environmental data has increased by an average of 15 percent over each of the last two years. This reflects a growing familiarity with, infrastructure for, and emphasis on environmental tracking and reporting across the industry. Over the last two years, we have achieved greater than 95 percent conformance with our requests for strategic suppliers to provide environmental impact data through EICC-ON, reflecting trends toward transparency across the industry as well as the increased ease of sharing through shared industry tools like EICC-ON.
Greenhouse Gas (GHG) Spotlight
In addition to clear upward trends in tracking and reporting, we saw a demonstrated improvement in GHG management across our global supply base in 2014. Even among the many companies with mature carbon reporting systems, not every supplier sets goals and improvement targets around GHG reductions. The year-over-year trend, however, shows clear improvement in this regard: in 2014, 11 percent more suppliers reported having structured goals to guide their GHG management activities, bringing the total to 80 percent of reporting suppliers.
The greenhouse gas emissions associated with EMC’s direct material suppliers was 215,000 metric tons CO2e in 2014. This reflects Scope 1 and Scope 2 GHG emissions data reported by direct Tier 1 suppliers comprising 98 percent of our annual spend. Using economic allocation, we use their data to calculate our share of their GHG emissions. This involves determining the ratio of our spend to each company’s revenue and applying that ratio to their reported emissions. This methodology follows the WRI GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard and is currently the best available option given the level of data tracked and reported. Because this allocation approach requires access to supplier revenues, a small number of private companies are excluded from the analysis. The total reported metric tons of CO2e is weighted to provide an estimated figure for 100 percent of our direct materials supplier emissions.
Water is becoming increasingly critical to stakeholders globally. The graph below shows improvement over the last four years in EMC’s suppliers’ reporting on this issue, including how many suppliers track and report on water use, how many have actionable goals in place to reduce it, and how many engage in responsible management of their wastewater outputs. Since 2011, we have seen a 62 percent increase in the number of suppliers reporting on this data, a 25 percent increase in the number of suppliers who have goals to reduce their water use, and a 42 percent increase in the number of suppliers who treat their production wastewater according to best management practices.
2014 was the second year that we collected standard waste management data from our suppliers as part of the Environmental Reporting module in EICC-ON. We see reporting trends in waste that mirror the wider movement in environmental reporting disclosures, in that more suppliers reported to EMC on their waste outputs in 2014 than in 2013. A total of 93 percent of suppliers who reported environmental impact data to us included their waste data as a part of that reporting, reflecting a 5 percent increase over 2013.
We further analyzed our suppliers’ waste data at an aggregate level by breaking it out between hazardous and non-hazardous categories, as we did in 2013. In 2014, this comparison revealed a 10 percent increase in suppliers either recycling or reusing their non-hazardous waste, bringing the aggregate percentage to 92 percent and indicating a strong and improving emphasis on the environmentally responsible disposal of material.
ENGAGING TO IMPROVE
Collaboration and continuous improvement are core to EMC’s Supply Chain SER program. Initiatives in these areas enable us to support our suppliers, our internal staff, and multi-stakeholder initiatives, while simultaneously providing incentives for strong performance and opportunities to learn.
In 2014, we continued the supplier education, training, and incentives established in previous years. Our quarterly newsletter, SER Link, announces new resources and training opportunities, and spotlights case studies of suppliers who have made important advances in SER. Our annual Blue Sky Supplier Sustainability Award recognizes suppliers with strong commitment and innovative approaches to sustainability. We also continued one-on-one mentoring for suppliers that are early in the development of their sustainability programs, and training for new EMC staff who are learning how SER fits into EMC’s business culture. For more formal training, we encouraged suppliers to attend the EICC’s training on the Code of Conduct, Worker-Management Communication, and Health & Safety, and to make use of the EICC Learning Academy’s online training modules.
In 2014, we also launched, or further developed, initiatives to help our suppliers understand SER issues, why they are important to EMC’s and our suppliers’ success, and what they can do to address those issues.
A supplier’s social and environmental responsibility is part of its overall business performance. EMC has scored our strategic suppliers on their sustainability performance since 2009. This information feeds into our overall Supplier Scorecard, which also includes other business metrics such as quality, cost, and availability, and provides a key input into sourcing decisions.
In 2014, we continued embedding SER monitoring into the responsibilities of our commodity teams as a way to reinforce its importance. To facilitate this process, we launched a new tool built on EMC’s Archer Governance Risk and Compliance platform to automate and centralize scoping, task management, and risk and performance data across all of our supply chain sustainability programs. This helped our commodity teams to better track open items, compare the sustainability performance of their suppliers, and access training and resources. It also raised the visibility of relative status and performance to senior leadership by providing them with direct, real-time access to that information. At the same time, we launched a supplier portal, for the first time providing suppliers the ability to directly access tasks, status, and training resources.
Public Sustainability Reporting
We believe that public sustainability reporting advances transparency and accountability in our supply chain. In 2013, we formalized our requirement for EMC’s strategic direct materials suppliers to publish a sustainability report using the GRI guidelines. In 2014, reporting status was highlighted through its integration into the Supplier Scorecard, through personalized report cards distributed to executives at the supplier companies, and at Quarterly and Executive Business Reviews. All of these initiatives include suppliers who are in both the first and the second tiers of EMC’s supply chain.
To help prepare and incent suppliers who were not already reporting publicly, we held a webinar series to share the experiences of companies at different stages of maturity in their reporting and to provide an open Q&A forum. The sessions were well attended and well-received. We have since turned the knowledge shared into case studies and a Q&A resource guide posted in our SMaRT Library.
The combination of increased visibility, education, and scoring has already brought important gains in the transparency demonstrated by our suppliers. Looking at 2014 reporting data as compared to 2012, the progress is very visible. We are pleased to see this forward movement, and will continue to emphasize and support the importance of public transparency with suppliers who do not yet publish sustainability reports.
EMC’s suppliers have a wide range of expertise and challenges, as well as varied operations, worker demographics, and locations. In 2013, we began analyzing past audit and SAQ data to identify the most common areas of need across our supply base. We also spoke with multiple supplier contacts in different geographies and commodities to better understand which resources would provide the most value. Additional input came from a gap survey conducted in 2013, concerns raised in the media and NGO reports, and conversations with peers in the industry.
In 2014, we used that knowledge to launch an online resource library for suppliers, dubbed the SMaRT Library (Sustainability Management and Resource Training Library). The resource contains short training modules on different topics and at different levels, including best practices, case studies, and hundreds of references to already-existing resources available through public sources. It launched in the early part of the year with four training modules addressing topics we saw as particularly high priorities: human trafficking, working hours (two modules), and labor management systems.
Over the course of the year, we translated the entire library into Chinese, added new content to the external resources listed, linked users to the EICC Learning Academy for additional training modules, instituted tracking to build a baseline for usage statistics and impact assessment, and began pushing modules to individual suppliers as we saw applicability through their audit or spot check results and from their questions. We also hosted a discussion on one of the modules to begin building a new level of peer interaction and learning, using the modules as the entry point. The modules have also proven valuable for internal users from across EMC, who are increasingly leveraging them to enhance their own understanding and skills in managing social and environmental responsibility. Although 2014 was focused more on growth and development than on module adoption, we have already seen good initial uptake, with nearly 40 internal and external users across eight countries globally. We will continue to engage users through the SMaRT Library’s content throughout 2015 and beyond.
In 2015, we will also add at least nine new modules at different levels on additional topics, including emergency preparedness, advanced environmental management and financing, hazardous substance management, ethics management systems, root cause analysis, and correlating key performance indicators (KPIs). We will also increase our focus on developing the methodology and infrastructure to measure, to the extent possible, the impact of the training and other engagement activities we do.
Hypothesis Testing and Targeted Outreach
As part of our efforts to build supply chain resiliency holistically, in 2014 we began to integrate our analyses from across sustainability functions to support targeted hypothesis testing. Our intent is to identify the suppliers and facilities that may demonstrate higher risk, and to target specific discussion, corrective action, and/or capability building where it will be most effective. We began to implement this approach with a focus on water, grouping supplier sites based on a combination of water risk factors, including water availability and quality in-region, process water use, and/or lack of water management controls. This approach integrates data from multiple sources, including global risk data (e.g., water risk data from the World Resources Institute) and data on supplier performance and risk (e.g., Self-Assessment Questionnaires from EICC-ON and business continuity site assessment data). In 2015, we will reach out to those suppliers and sites with the greatest water risk to clarify individual situations and provide education as applicable. We will also engage suppliers on additional topics as we identify them through applying this methodology to other priority areas. As we refine our data analysis and normalization, we will increasingly reach out to specific suppliers that would benefit from targeted guidance or training, tying together even more closely the monitoring and assessment activities we conduct with effective and impactful engagement.