Commitment to improvement

Working with suppliers worldwide

During 2008, IBM continued to implement its Supply Chain Social Responsibility (SCSR) initiative across its global network of suppliers. By the end of 2008, we had completed a cumulative total of 553 initial audits; including expansion into three additional growth market countries (36 initial audits): Argentina, Malaysia and Vietnam. In 2008, we conducted 136 initial and re-audits, exceeding our target of 100.

As described, our SCSR deployment is with firms IBM holds a direct commercial relationship with, called first-tier suppliers. In order to further the coverage of our initiative, in 2009 we are working to engage first-tier suppliers to enable them to expand SCSR activity into the second-tier of the IBM supply chain.

IBM’s SCSR initiative includes working with suppliers to develop improvement plans that are based on the findings of our audits. IBM works collaboratively with its suppliers on these improvement plans to offer commentary based on our extensive knowledge of best practices witnessed in the performance of over 500 assessments. Often there is a period of exchange until we reach agreement on an appropriate improvement plan. The timeframe for improvements can range from a matter of days (for easily rectified noncompliance such as missing exit signs or distribution of IBM’s code of conduct to workers) to several months or longer (for more complex non-compliances such as the establishment of proper management systems). In 2008, we reviewed 169 of these supplier improvement plans with suppliers that were audited in 2007 and 2008.

To test the effectiveness of these improvement plans, IBM performs re-audits on a planned frequency after plan establishment. The results of our re-audits generally show improvements by the supplier. On the other hand, we have also seen that improvements have not always been sustained in areas such as working hours, and health and safety.

Often the root cause for unsustained improvements can be attributed to the suppliers’ lack of strong management systems in growth market locations. This is a conclusion that has become clearer to firms participating in the industry group, The Electronic Industry Citizenship Coalition (EICC). The EICC, of which IBM is a key member, is working means to help suppliers who continue to need improvement with health and safety and working hour compliance. The EICC is also working to deploy Web-based education for its members and suppliers and is encouraging suppliers to take advantage of third-party educational resources in the local countries.

In the fourth quarter of 2008, IBM took a significant step by moving the SCSR initiative forward into exploratory work for new regions that IBM is considering for future sourcing. One such example is Sub-Saharan Africa (SSA). By including SCSR in the SSA analysis, we introduced potential suppliers to IBM’s supplier code of conduct.

As part of this effort, we conducted audits in SSA countries with certain potential future suppliers. The results of the audits are being shared with these suppliers in order to provide them with clarity about areas in which they need to improve. This marks the first region in which we have enacted this activity in the pre-sourcing stage. It gives Procurement visibility to the challenges relating to social responsibility—input that will be incorporated into the sourcing decision process as IBM looks to develop a supply chain in this growth region.

Learn more about IBM’s commitment to working with environmentally responsible suppliers within the Environment Supply Chain section of our Web site.

Energy and Climate Programs in the Supply Chain

In 2008, we undertook two specific initiatives relative to climate change:

As a member of the Electronics Industry Citizenship Coalition, IBM is participating in the development of a Web-based application that companies in the electronics sector can use, along with their suppliers, to estimate their operational greenhouse gas emissions (GHG) as a forerunner to creating reduction programs.
As a participant in the Carbon Disclosure Project’s Supply Chain Project, IBM invited 114 of its major suppliers to respond to the Carbon Disclosure Project’s Questionnaire. These 114 suppliers represent 80% of IBM’s expenditures with production related suppliers and 30% of spend with services and general procurement suppliers.

Of the 114 suppliers to whom we sent the request, 72 suppliers responded to the CDP Questionnaire. This 63% response rate is relatively high compared to that received by other participating companies in CDP Supply Chain Project. IBM participated in this endeavor because we want to work with our critical suppliers to gain an understanding of their operational impacts and assess where these suppliers are with regard to having a GHG emissions inventory and reduction plans. Survey responses showed that about one-third of production suppliers had reduction plans, and about one-half of non-production suppliers had plans. This is an encouraging sign, but these numbers highlight the infancy of this initiative in the supply chain. In 2009, IBM is again participating in this CDP Supply Chain Project and further collaborating with our core suppliers—both those who did and did not respond—in order to encourage their work to understand and reduce their GHG emissions from their operations.