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Supplier Assessment and Improvement Plans

In today’s interconnected world, more is expected from all parties in the extended supply chain. This means that IBM works closely with suppliers to encourage the development of best practices and foster the spirit of continuous improvement.

Global Supply Social and Environmental Management System

In 2010, IBM Global Supply introduced its Social & Environmental Management System (S&EMS) to its worldwide supply chain. The requirements therein can be summarized as follows:

  • Define, deploy and sustain a management system that addresses corporate responsibility, including social and environmental stewardship
  • Measure performance and establish voluntary, quantifiable environmental goals
  • Publicly disclose results associated with these voluntary environmental goals and other environmental aspects of their management systems
  • First-tier suppliers to cascade these requirements to their own suppliers

In 2011, we embarked on the next step to implement an assessment process to determine if suppliers were meeting these requirements. Baselines were established for what is considered an acceptable level of performance, and suppliers presented evidence of their compliance to S&EMS requirements. To date, the majority of IBM’s Production Procurement (hardware) suppliers and its Services and General Procurement suppliers have demonstrated they have a management system in place to address their company’s social and environmental responsibilities.

In November, we hosted a Supply Chain Sustainability Summit, bringing together a representative group of suppliers, thought leaders in supply chain management from industry and academia and other invited guests from the industry and related non-profits. The objective of the event was to increase awareness of the growing importance of corporate social and environmental programs. IBM and the attendees shared insights from their own experiences, including the challenges they faced and the benefits they realized (and expected) from taking a systematic approach to managing their interactions with their employees, society and the environment.

Supply Chain Social Responsibility (SCSR)

Our focus on Supply Chain Social Responsibility (SCSR) has been evident over the past eight years. In each successive year, we have assessed a larger portion of our supply chain in the developing world, and we believe that has helped produce improvements in working conditions for thousands of people working in the supply chain in the electronics sector. In 2011, we conducted 222 full audits and 240 re-audits for a total of 462 assessments of suppliers in 21 countries, the largest single year activity to-date. And we launched assessments for the first time in Turkey, Russia, Nigeria, Kenya and Indonesia.

2011 IBM SCSR Completed Audits by Country

(462 Audits Conducted)

SCSR Completed Audits by Country

2011 activity lifted IBM’s total to over 1,100 initial audits of suppliers in an eight year span, with cumulative results illustrated in the chart below. These assessments measured supplier compliance to the Electronic Industry Citizenship Coalition (EICC) or the IBM Codes of Conduct. IBM is the largest user of the EICC’s Validated Audit Process (VAP), directing all hardware supplier assessments through this collaboratively-developed approach, which provides a common process for sharing results and eliminating costly duplicate assessments.

Supplier Initial Audit Results—Global Cumulative (2004–2011)

% Non Compliant to IBM/EICC Code (base = 1,100+ suppliers)

Supplier Initial Audit Results—Global Cumulative

For comparative purposes, the performance of suppliers assessed for the first time in 2011 is depicted in the chart below. There are two primary observations from this data. First, compliance has improved in the areas of Working Hours and Respect and Dignity. These improvements are the result of greater awareness of social responsibility across the global supply chain driven by supplier education, the spread of the EICC Code of Conduct, and the efforts of firms to improve working conditions at all levels in the extended supply chain. However, even with these improvements, initial audits still demonstrate that assessments are needed to identify and resolve issues. In particular, this data also contains the results of assessments conducted in countries where audit activity has only recently begun. It should also be noted, the major noncompliance in the Child Labor provision was associated with the lack of policies and practices to fully check pre-employment age documentation. In no instances were underage workers found in these audits.

Supplier Initial Audit Results (2011)

% Non Compliant to IBM/EICC Code (base = 200 suppliers)

IBM’s supplier assessment approach requires audited suppliers to create and submit a Supplier Improvement Plan (SIP) for all noncompliance discovered. The SIP links audit findings to root causes with improvements vetted through a re-audit following the completion of all improvement actions. During 2011, 473 SIPs (covering hardware and services suppliers) were reviewed and accepted (from suppliers audited during the previous 12 months) all within 90 days of the initial audit.

The effectiveness of our Audit-SIP-Re-audit approach can be seen by comparing the “before and after” results of suppliers experiencing a complete cycle, as illustrated by the chart below. Re-audits conducted on 240 Production and Services & General Procurement suppliers can be compared with their initial audits (conducted in the 2009–2011 time frame). For ease of reading and comparison, only major noncompliance results are depicted in the chart.

Comparison of 240 assessments measuring initial supplier compliance versus re-audits compliance

(major noncompliance levels illustrated)

With regard to a number of code provisions, major noncompliance was completely resolved: Record Keeping, Protection of the Environment, Respect and Dignity, Communications, Ethical Dealings, Forced Labor, Nondiscrimination, Child Labor and Freedom of Association. In all other areas substantial reductions in noncompliance were also realized, including a 50 percent improvement in Working Hour compliance. However, Working Hours still remained as the largest area of noncompliance, and while this is unsatisfactory, it is consistent with our knowledge of the challenges associated with full resolution of this aspect of code compliance. Overall, 75 percent of re-audited suppliers had no major noncompliance after completion of one cycle—a significant achievement. IBM Global Supply is working on contingencies with its suppliers that have remaining noncompliance. The IBM Global Supply leadership team reviews and tracks supplier results on an ongoing basis. Supplier assessment results are compiled and reviewed on a monthly basis by line executives and on a quarterly basis by IBM’s Chief Procurement Officer.

2011 Center of Excellence for Product Environmental Compliance

IBM has a global Center of Excellence (CoE) for Product Environmental Compliance, with end-to-end responsibility for meeting product-related government environmental requirements. The CoE’s mission includes the development of strategy, processes, deployment plans, research and development of alternate materials and technologies, and education and training materials. The CoE also is active in several industry and regulatory bodies around the world. Year over year the number of environmental regulations continues to increase not only in number but also in complexity. The types of regulations addressed include prohibited substances, product take back programs and product energy usage.

1100 initial audit assessments measuring supplier compliance from 2004 through 2011.