Supplier Sustainability Index

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 We developed an in-house supplier sustainability index project, the Supplier Sustainability Data Monitoring and Development Project.

 

A dedicated in-house team in the Purchasing and Product Sourcing Departments works on this project in collaboration with the sustainability teams. We have also partnered with an independent, accredited audit firm to help us carry out this project. The partner provides us the supplier data monitoring software platform and works in close collaboration with the purchasing team to reach out to the suppliers and act as an advisor for the questions raised by the suppliers. The aim is to understand our suppliers’ ESG-related risks and opportunities by collecting and analyzing their data. Our main intention is to enable Scope 3 reduction in the value chain.

 

By 2025: Collect, monitor, and publicly disclose compiled data of supplier's* Scope 1–2 GHG emissions, energy, water, and waste and encourage them to set their own targets

* Approximately 400 suppliers, comprising 90% of our purchasing volume.

 

This program has been initiated with the direct material and product suppliers. In 2022, we will begin working on building the same infrastructure with our logistics suppliers. Therefore, unless otherwise stated, all targets, KPIs indicated in this section belong to the direct material suppliers and OEM suppliers. The first step consists of sending suppliers a survey with a list of both qualitative and quantitative questions about the environmental, social, governance issues. For both sets of questions, we expect suppliers to provide supporting documentation as evidence. Suppliers that do not fill out the supporting documentations or the data requirements do not get any points. We assess the suppliers based on the data provided to understand their level of maturity in terms of ESG integration into their business based on our internal assessment. As a second step, we hire third-party auditors to conduct ethics audits to the suppliers to monitor their social and governance performance. The results of these audits and our own assessment are combined to scale the performance of the suppliers as high, medium, or low risk (acceptable, good and excellent).

 

Table 2. Supplier Sustainability Index Points and Risk Level 

 

When determining the companies for the assessment of the reporting year’s Supplier Sustainability Index which consists of survey assessment and business audits, the suppliers that corresponds to 90% of purchasing volume in the previous reporting year are taken into consideration.

If working with the supplier provides some certain aspects such as competitive edge, business success and/or business continuity, the supplier is considered as a critical supplier. Therefore, determining the critical suppliers is based on the three criteria which are in high purchasing volume, critical components, and non-substitutable suppliers.

Once a supplier is determined as a critical in the annual critical supplier determination process, the supplier is audited at least once in every three years. The suppliers, which are out of the scopes mentioned above, are subjected to solely on the business ethics audits depending on certain sectors. In addition to the determination of the current suppliers to be evaluated, we require all newly commissioned suppliers to conduct self-evaluation audits on quality, the environment, and business ethics.

 

Sustainability index assessment questions sent to the supplier include three dimensions:

  1. Economical Dimension

  2. Environmental Dimension

  3. Social Dimension

 

Table 2. Assessment Questions Sub-Headings

Economical
Dimension

 Risk analysis

 Internal rules/policies

 Reporting of violations

 Customer satisfaction

 Supplier sustainability risks

 Sub-supplier performance measurement criteria

Environmental
Dimension

 Environmental reporting

 Environmental policy/management system/scope

 Compliance with Environment/Arçelik legislation

 Measurement (Greenhouse gas, energy, waste, chemical, fuel, water)

 Environmental voluntary activities

Social
Dimension

 Social reporting

 Compliance with Universal Declaration of Human Rights

 Corporate Business Ethics Policy

 Arçelik Responsible Procurement Policy Compliance

 Human Capital Performance Indicators

 Conflict Minerals Management

 

During the audits conducted by the independent audit firm, suppliers are audited under the following headings:

  • Child labor

  • Discrimination

  • Forced labor

  • Environment

  • Freedom to Association

  • Occupational Health and Safety

  • Management Systems

  • Regular Employment

  • Wages & Benefits

  • Working Hours

 

Supplier Sustainability Action Plans

The workflow and action plans for suppliers according to sustainability index point and risk level are explained below:

Figure 2. Supplier Sustainability Index Assessment Methodology

 

Suppliers with “High Risk”:

An action plan is requested from the supplier for closing the nonconformities determined in the survey questions and a business ethics audit is planned for the supplier.

The suppliers whose audit result is not found to be suitable are not worked with.

The supplier whose audit result is found to be suitable, an action plan is requested from the supplier for closing the nonconformities determined in the survey questions. The action plan must be prepared with the aim to reach at least “Acceptable” risk level.  If the supplier fails to reach this level within the maximum of 12 months of the plans’s launch., Arçelik reserves the right to cancel the contract. Action plan is approved by the third-party independent audit firm. Nonconformities are closed by the supplier within the scope of the approved action plan and are reported to Arçelik. If Arçelik considers the actions taken suitable, the supplier score is revised by the third-party independent audit firm.

Suppliers with “Middle Risk”:

By sending a notification mail, the suppliers are requested to prepare an action plan on the activities to be carried out in order to reach at least “Acceptable” risk level.

If the plan given is not deemed suitable by the Sustainable Supply Chain Working Group, a business ethics audit is conducted to the supplier.

The supplier whose audit result is found to be suitable, an action plan is requested from the supplier for closing the nonconformities determined in the survey questions. The action plan must be prepared with the aim to reach “Acceptable” risk level. If the supplier fails to reach this level within the maximum of 12 months of the plan’s launch. Arçelik reserves the right to cancel the contract. Action plan is approved by the third-party independent audit firm. Nonconformities are closed by the supplier within the scope of the approved action plan and are reported to Arçelik. If Arçelik considers the actions taken suitable, the supplier score is revised by the third-party independent audit firm.

Suppliers with “Acceptable Risk”:

By sending a notification mail, the suppliers are requested to prepare an action plan on the activities to be carried out in order to reach at least “Good” risk level.

The action plan must be prepared with the aim to reach “Good” risk level at minimum within the maximum of 12 months of the plan’s launch. Action plan is approved by the third-party independent audit firm. Nonconformities are closed by the supplier within the scope of the approved action plan and are reported to Arçelik. If Arçelik considers the actions taken suitable, the supplier score is revised by the third-party independent audit firm.

Suppliers with “Good”:

By sending a notification mail, the suppliers are requested to prepare an action plan on the activities to be carried out in order to reach at least “Excellent” risk level.

The action plan must be prepared with the aim to reach “Excellent” risk level at within the maximum of 12 months of the plan’s launch. Action plan is approved by the third-party independent audit firm. Nonconformities are closed by the supplier within the scope of the approved action plan and are reported to Arçelik. If Arçelik considers the actions taken suitable, the supplier score is revised by the third-party independent audit firm.

Suppliers with “Excellent”:

By sending a notification mail, the suppliers are requested to prepare an action plan on the activities to be carried out for the nonconformities detected in the audit result and survey responses.

The action plan must be prepared within the maximum of 12 months of the plan’s launch. Action plan is approved by the third-party independent audit firm. Nonconformities are closed by the supplier within the scope of the approved action plan and are reported to Arçelik. If Arçelik considers the actions taken suitable, the supplier score is revised by the third-party independent audit firm.