Supply Chain Responsibility
Supply chain responsibility
Supply chain responsibility involves a complex system of intertwined social, environmental, and economic issues spread across a global system. Through the EMC® Supply Chain Social & Environmental Responsibility (SER) program, we work with hundreds of suppliers in more than 20 countries to monitor, report, and engage for continuous improvement.
Our strategy is focused on four core pillars:
- Monitoring through an industry-standard approach
- Conducting multi-pronged risk assessments to prioritize suppliers
- Engaging with suppliers to improve and to drive change through the supply chain
- Creating incentives for improvement by integrating social and environmental responsibility into our business processes
By shaping and following industry standards and protocols, we are able to leverage the work being done across the industry. We additionally invest in the areas we think will have the greatest strategic impact. In 2012, we developed a new “spot check” program to enhance our monitoring; created new incentives through the launch of a supplier award, and increased business integration; improved supplier communication and training; and delivered new training on social and environmental responsibility for EMC’s procurement team. In 2013, our emphasis will be on improving supplier performance through best practice sharing; strengthening sub-tier supplier SER management; requiring reporting, and recommending use of the GRI standard by suppliers comprising 80 percent of our spend; and increasing integration with core business processes. We will also continue to invest in collaboration—across internal business functions, with our suppliers, and with industry peers and others across industries—as it is critical to achieving our intended goals.
Code of Conduct
We expect suppliers to conduct their business according to the standards set out in our Supplier Code of Conduct. As of 2012, our code is exactly the same as the Electronic Industry Citizenship Coalition (EICC) Code of Conduct which sets standards for labor, ethics, environment, health & safety, and management systems. Language around key areas of concern such as human trafficking, conflict minerals, and sub-tier supplier management was strengthened in the most recent revision process. All direct materials suppliers are required to acknowledge the code, and compliance with the code is part of our standard contract language for all EMC vendors.
MONITORING AND REPORTING
In monitoring and collecting reporting from our suppliers, EMC follows the frameworks and questionnaires from the Electronic Industry Citizenship Coalition (EICC). We do this to ensure consistency with the industry, to ease the burden on our suppliers, and to support a standardized approach. In addition, we employ an internally developed risk assessment tool and spot checks to complement these industry frameworks.
There are varying degrees of risk within our supply base. Our risk assessment evaluates all supplier sites that make product materials for EMC, including Tier 1 suppliers and those Tier 2 suppliers with whom we work directly. This process results in a risk ranking for each supplier site using the following inputs:
- Geography. Based on location, supplier sites are evaluated on human rights, ethics, and environmental risks. Scores are weighted according to indicators of governance and accountability for that geographic region.
- Human rights and ethics risks includes metrics such as corruption, human development, and human trafficking
- Environmental risks includes metrics such as water stress, environmental health, and climate risk
- Commodity. Some types of suppliers present a higher risk due to their position in the supply chain or processes involved in manufacturing their products. Printed circuit board manufacturing, for example, poses higher EHS risks than plastic injection molding. Component suppliers that make strategic parts for EMC may present greater risk too, since they are critical suppliers and further upstream in the value chain where there are often less developed systems for social and environmental responsibility.
- Company-specific information. We also review information about each individual supplier, including first-hand insights from our supply chain management team; risks highlighted through media or in NGO reports; results from Self-Assessment Questionnaires (see the following); and past audit reports and corrective action plans.
Direct materials suppliers comprising 80 percent of EMC’s spend, as well as additional strategic first and second tier suppliers, are required to complete Self-Assessment Questionnaires. EMC uses the EICC’s Self-Assessment Questionnaire to conduct supplier risk analysis while also supporting standardization and reducing survey fatigue. The questionnaire covers the presence of policies and procedures needed to support compliance with the EICC Code of Conduct, as well as asking about risk factors and associated controls.
In 2012, the EICC launched EICC-ON, an online platform for completing and sharing information confidentially among EICC members and suppliers. EMC quickly introduced our suppliers to the platform and completed a full refresh of our SAQ data. According to the EICC’s scoring algorithm, all of the facility SAQs submitted by EMC’s suppliers have been categorized as low or medium risk.
Third-party audits help us validate information provided in SAQs and monitor supplier performance more closely. Our primary focus for audits is sites identified as high-risk through our risk assessment process and we met our 2012 goal of auditing 20 percent of high-risk sites. We also audit sites of key strategic suppliers—even if they pose lower risk—due to their important role in EMC’s business.
Spot checks provide more insight into conditions at supplier sites without substantially adding to audit fatigue. In 2012, we formalized an SER “Spot Check” program. Beginning in 2013, in-region EMC supply chain management staff will perform checks of supplier sites to identify any red flags and facilitate corrective actions as necessary. The objectives are to identify and remedy smaller issues before they become large ones; enable quick, proactive action when risks are identified; and monitor more regularly and outside of the formal full audit process. We will launch a small-scale pilot program before expanding to include more sites.
In addition to expanding our monitoring capability, we hope this program will encourage collaborative, proactive solutions in the future.
EMC uses the EICC audit protocol and, with rare exceptions, conducts those audits through the EICC Validated Audit Program (VAP). This program was instituted in 2010 as a common tool and approach to encourage sharing audit results and to help reduce the volume of audits conducted. VAP audits are conducted by certified third-party vendors and are valid for two years. In the rare cases where we do not use a VAP audit, we still follow EICC standard audit protocol and use certified third-party auditors.
In 2011 and 2012, we audited sites in most of the countries in which our suppliers manufacture EMC product:
These audits represent two forms of assessment: a full audit, asking all of the questions on the protocol; and a follow-up audit, which assesses the findings from a previous audit. We typically use follow-up audits when there is concern regarding closure of a supplier’s Corrective Action Plan. Suppliers who facilitate their own EICC audits (using third-party auditors) also sometimes choose to employ follow-up audits as a way to validate completion of their corrective actions. A site that has been audited and receives another full audit after two years is counted as having undergone a full re-audit. These are becoming increasingly common as more sites are audited using the VAP.
Figure: Number of supplier SER audits, 2009-20121
Findings and Corrective Action
Audits may reveal findings in one or more of four categories: priority, major, minor, and risk of nonconformance. Any findings must be addressed through a Corrective Action Plan (CAP). EMC works directly with each supplier to understand underlying causes, follow through on CAPs, and review and ultimately accept evidence demonstrating completion of all corrective actions. In sites that have been audited twice, we can see the impact of the CAP. On average, the number of findings identified during the second audit decreases 67 percent compared to the first audit.
While recognizing that audits have limitations as a means to create change, we are encouraged to see some suppliers systematically investing in broad-scale change in response to audit findings. For example, one supplier responded to findings regarding management systems by instituting new policies and procedures that dramatically improved performance across its global operations, even at sites that had not been audited. In another instance, isolated audit results in multiple sites identified gaps in a supplier’s labor and ethics management systems. Rather than addressing the issue solely at the audited sites, the supplier brought it to the attention of the corporate team to improve internal awareness throughout the company and help prevent related issues in the future.
Findings revealed through our audits are aligned with those seen throughout the industry. While there are some data anomalies due to a large number of findings from individual audits, the findings appear fairly consistent overall. We are actively developing new strategies for 2013 to help address common challenges, including greater integration of SER into our business decision making and targeted training initiatives.
Detailed results of 2012 audit findings (shown in this chart) indicate specific areas that are of greater concern. Common nonconformances at the systems level (major) include working hours, emergency preparedness, and sub-tier management (a sub-category of the “Code of Conduct”). Common categories of minor findings include hazardous substances, fair business, and child labor avoidance.
In addition, there is significant industry concern about common challenges including student workers in China, the use of labor agents in Southeast Asia, migrant and temporary labor in general, and workplace safety. We understand the risks these issues pose to our supply chain, and our audits have indicated some gaps in management systems around these issues. We have put CAPs in place to address those gaps and are actively working to identify areas in which to invest more deeply. To better identify the most appropriate priorities, we are conducting more detailed analyses of audit data, the correlation of the data to business metrics, and the challenges facing our suppliers.
|SER Detailed Audit Findings 2012|
|EICC Code||% of Nonconformance||EICC Code||% of Nonconformance|
|Code of Conduct||82%||18%||Environmental Permits and Reporting||8%||6%|
|Compliance with Laws||0%||0%||Pollution Prevention and Resource Reduction||4%||6%|
|Freely Chosen Employment||5%||6%||Wastewater and Solid Waste||4%||4%|
|Child Labor Avoidance||2%||20%||Air Emissions||10%||0%|
|Working Hours||18%||15%||Product Content Restrictions||0%||2%|
|Wages & Benefits||6%||6%||Health and Safety||16%|
|Humane Treatment||0%||7%||Occupational Safety||7%||9%|
|Freedom of Association||2%||11%||Occupational Injury and Illness||5%||5%|
|Business Integrity||20%||5%||Physically Demanding Work||1%||6%|
|No improper Advantage||4%||9%||Machine Safeguarding||0%||4%|
|Disclosure of Information||0%||0%||Food, Sanitation, and Housing||5%||6%|
|Intellectual Property||4%||2%||Management System||6%|
|Fair Business, Advertising, and Competition||11%||16%||Labor & Ethics Management System||20%|
|Protection of Identity||18%||2%||Environmental Health and Safety Management System||10%|
Environmental Risk Management
Environmental issues are closely interconnected with social and economic impacts and are monitored and addressed as part of our self assessment, audit, and corrective action process. The environmental areas addressed include:
- Environmental permits and reporting
- Pollution prevention and resource consumption
- Hazardous substances
- Wastewater and solid waste
- Air emissions
- Product material content
- Environmental management systems
In 2011, we began cross-referencing our Chinese supplier list against the database of pollution violations maintained by the Institute of Public & Environmental Affairs (IPE) in China. At that time, we noted three sites that had previous violations in 2009 and 2010 and contacted them to learn more about the situation. Each site was able to show documentation demonstrating that they had addressed the issue through corrective actions, including implementation of measures to help prevent future violations. They are also making efforts to be removed from the IPE list. As of 2012, the IPE database showed no new violations from supplier sites that provide product to EMC. We will continue to monitor the list and, through our leadership in the EICC’s Environmental Sustainability Workgroup, are involved in efforts to review and strengthen the industry’s transparency and engagement in this area. To learn more, visit Product Material Content.
In addition to monitoring, which focuses on risk management, EMC requires suppliers to submit annual environmental reporting through the EICC’s Carbon & Water Reporting Initiative. The intention of this initiative is to provide incentives for internal monitoring of data and to promote a commitment to continuous improvement. The data we collect provides valuable information on supplier performance and helps guide prioritization of resources, training, and collaboration.
Suppliers’ carbon emissions, goals, and initiatives are an input into our supplier scorecards. In 2013, we plan to add water and waste metrics to these scorecards using data from suppliers’ environmental reporting, SAQs, and audits. The EICC is also working to expand the Carbon & Water Reporting Initiative in 2013 to include waste data and will rebrand the initiative to reflect this broader scope.
In 2012, we requested carbon reporting from direct Tier 1 and strategic Tier 2 suppliers. 82 percent of these suppliers responded, including 98 percent of our direct materials suppliers by spend, up from 95 percent in 2011. Nearly two-thirds of those suppliers also reported their water use and management. Water reporting tends to lag carbon reporting due to immaturity of supplier tracking and reporting mechanisms, as well as differences among suppliers in the use of water in their operations. Scope 1 and 2 carbon emissions reported by suppliers are incorporated into our Scope 3 emissions and financially allocated according to the World Resources Institute’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard. To learn more, visit Energy & Climate Change Strategy.
In addition to our work with our own suppliers, we are leading efforts via the EICC to advance environmental management in the industry more broadly. In 2013, the Environmental Sustainability Workgroup is piloting a new Supplier Carbon Performance initiative. The Workgroup will also continue to grow its collaborative efforts with the IPE in China to address issues of water and air pollution.
EMC is committed to the responsible sourcing of minerals. Beyond the regulatory requirement to trace and report on the source of the tantalum, tin, tungsten, and gold (3TG) in our products, we support human rights at all levels of our supply chain and believe addressing the challenge of conflict minerals is a key component of ethical sourcing. To learn more, visit Human Rights.
The addition of Responsible Minerals Sourcing to the EICC Code of Conduct in 2012 set the industry-wide expectation for suppliers to establish policies and exercise due diligence on the source and chain of custody of the 3TG in their products. To help advance the industry approach, we participated in teams developing the EICC-GeSI Due Diligence Template and supplier training. A standard format to report information on 3TG reduces the complexity and reporting burden for suppliers and will improve the quality of information that is reported to us. Complete and accurate information from our suppliers not only enables us to complete our required reporting; it also helps us better understand the risks and opportunities in our supply chain and to develop a strategy to ensure responsible mineral sourcing.
In 2012, we conducted a second pilot survey of suppliers to prepare for a more comprehensive survey in 2013. That survey showed that there is still a wide range of conflict minerals maturity in our supply chain, with a few suppliers working to identify smelters in their supply chains and other suppliers not yet having started that process. In 2013, we will offer training to help suppliers better understand the broader issue of conflict minerals and the specific reporting requirements.
In 2012, we began encouraging suppliers not yet reporting publicly on their sustainability activities and performance to begin doing so using the Global Reporting Initiative (GRI) framework. To support this, we included guidance on how to embark on GRI reporting in our quarterly newsletter. In 2013, we will formalize a requirement for our top suppliers to begin such reporting if they have not done so already. Performance to this requirement will be integrated into our Supplier Scorecard in 2014.
ENGAGING TO IMPROVE
EMC actively engages with suppliers, internal business units, and stakeholders to facilitate improved social and environmental responsibility and to holistically address common challenges.
Communication is a key element of collaboration. In 2012, we implemented or expanded several initiatives designed to help suppliers better understand and track expectations; share and learn from best practices; and access tools and resources. We introduced the quarterly newsletter SER Link, which provides announcements, deadlines, training opportunities, case studies, and resource suggestions. We also continued one-on-one assistance and site visits with suppliers and continued including SER performance in supplier Quarterly Business Reviews (QBRs). These interactions enable mutual problem solving, facilitate senior level engagement, improve understanding of issues, and identify needs and solutions. This approach will guide our increased focus in 2013 on sub-tier supplier management as we work with direct suppliers to monitor and drive responsibility further upstream.
To recognize good work already being done by our suppliers and to encourage continuous improvement, we introduced in 2012 the Blue Sky Supplier Sustainability Award, which will be given annually. The award promotes excellence in supplier sustainability reporting, engagement, and social and environmental responsibility. Two suppliers received the award in 2012 in recognition of exemplary progress in environmental and social responsibility within their own operations and in partnership with EMC.
We also provide suppliers with formal training to support their development of social and environmental management systems. In 2012, we offered training developed and delivered through the EICC. Two multi-day courses were offered in 2012 focusing on two key issue areas: Health & Safety and Worker-Management Communications. Multiple EMC suppliers attended these sessions, which were offered in both English and Chinese at various sites throughout Asia. We also offered suppliers in-depth online training on the Code of Conduct.
In 2013, we plan to complete a training needs assessment of our supply base. Given the range of SER training needs in our supply chain, we hope to better understand where the needs are, where existing courses are already reaching our suppliers, where gaps exist, and how we can fill those gaps. Based on feedback from suppliers and stakeholders, our initial focus will be on sharing best practices and guidance, as well as leveraging new EICC initiatives such as the improvement of energy use performance among suppliers.
Internal Capacity Building
We recognize the valuable incentives created by integrating SER into business decisions and, in 2012, invested much of our training resources with this focus. EMC staff in China, Thailand, and Ireland—bringing commercial and technical perspectives of supplier management—were trained to improve their understanding of SER auditing, take a systems approach to identifying social and environmental responsibility issues, and work through root cause analysis of issues that often arise in electronics manufacturing. The training was designed to provide additional context for supplier management staff as SER becomes increasingly integrated into our overall supplier performance management and business decision-making. Staff in the United States will attend the same training in 2013.
In 2012, we expanded relationships within our industry and with other sectors to help drive SER improvement throughout supply chains. Our efforts focused on continued engagement with the EICC, taking on leadership of the Environmental Sustainability Workgroup and the Impact Assessment Subgroup of the Learning & Capabilities Building Workgroup. We also actively participate in a number of other workgroups, including Extractives (Conflict Minerals), Tools, and other groups within Learning & Capabilities Building. In the summer of 2012, we hosted the EICC’s highly successful summer meeting, contributing to logistics planning and content development as the forum expanded stakeholder engagement activities and broadened the scope of issues discussed. To learn more, visit Governance & Integrity.
In addition, we joined the Stanford Initiative for the Study of Supply Chain Responsibility (SISSCR), which seeks to explore the relationship between business performance and supply chain social and environmental responsibility. The first two phases of research were completed in 2012, with the third phase—focused on quantifying correlations between SER and business performance—continuing into 2013.
To gain additional outside perspective, we hosted a stakeholder forum focused on supply chain issues. Participants from the NGO, academic, and investor communities joined together to discuss the key risks and challenges facing our industry and our company. The discussion validated our approach while also reinforcing that there is more work to do. In 2013, we plan to focus our efforts on creating incentives for supplier performance; improving visibility throughout the supply chain; disclosing more information about our initiatives and results; and advancing the industry. To learn more, visit Stakeholder Engagement.