Supplier Assessment and Improvement Plans
In the globally connected world, much is expected from all parties in the extended supply chain. Companies with a brand presence are held to high expectations for their supply chain stewardship, which can reach many levels and cross numerous continents. As a result, IBM works diligently with its suppliers to promote best practices and encourage continuous improvement in order to meet these heightened expectations.
Global Supply Social and Environmental Management System
In 2010, IBM Global Supply introduced its Social and Environmental Management System (S&EMS) to its worldwide supply chain. The objectives of S&EMS are to:
- 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
- Encourage first-tier suppliers to cascade these requirements to their own suppliers
In 2012, we followed up the introduction of S&EMS with a systematic review examining the evidence submitted by suppliers in order to satisfy the intent of each objective. In some cases, updated information or clarification was requested. To supplement this initiative we implemented a new checklist for our procurement teams to use during new supplier on-boarding to determine a supplier's compliance to our Supply Chain Social Responsibility and S&EMS programs. If a new supplier is not compliant at the time of on-boarding, they are given 12 months to become so. During this time members of our procurement organization periodically assess the suppliers’ progress and offer guidance to assist them in reaching their objectives.
IBM’s S&EMS received significant recognition during 2012, including ISO 14001 certification as well as the International Institute for Advanced Purchasing & Supply’s Asian Award and Chambers Ireland’s President’s Award for Excellence in Marketplace.
Supply Chain Social Responsibility
IBM’s dedication to Supply Chain Social Responsibility (SCSR) has been clearly demonstrated over the past eight years. Year by year we have assessed a growing portion of our supply chain in the developing world, and we believe this has generated improvements in conditions for thousands of people working in the electronics sector supply chain. In 2012, we chartered 257 full audits and 120 re-audits for a total of 377 assessments of suppliers in 29 countries, our largest number of countries with audit activity in a single year. And we launched assessments for the first time in Bulgaria, Colombia, Costa Rica, Dubai, Peru and Slovenia, bringing our roster of countries with initial audits to 31.
In 2012, the total number of IBM’s initial supplier audits in an eight-year span reached 1,350, with cumulative results illustrated in the chart below. These assessments measured supplier compliance to the Electronic Industry Citizenship Coalition (EICC) or the IBM Code of Conduct. IBM is the largest user of the EICC’s Validated Audit Process, directing all hardware supplier assessments through this collaboratively developed approach that provides a common process for sharing results and eliminating costly duplicate assessments.
Of the 257 full audits IBM conducted in 2012, 171 were on suppliers assessed for the first time. The audit performance of these suppliers is depicted in the chart below. This data shows that initial audit compliance has improved significantly in the areas of Health and Safety, Working Hours, Wages and Benefits, Communications, Environmental, Respect and Dignity, Nondiscrimination and Record Keeping.
IBM’s efforts in communicating code compliance begin at the initial stages of supplier engagement and are part of regular business reviews at the functional and executive levels. Audit results demonstrate third-party assessments are a necessary resource to identify and help resolve issues. In some provisions (Management Systems (L&E and EHS), Child Labor, Ethical Dealings and Forced Labor), 2012 initial audits showed a higher degree of noncompliance than our historical data. This was the result of auditing to the current version of the EICC Code, which in early 2012 added additional compliance criteria in these important areas. The major noncompliance in the Child Labor provision was associated with noncompliance to policies and practices to fully investigate pre-employment age documentation. In no instances were underage workers found in these audits during 2012.
IBM’s supplier assessment practice requires audited suppliers to create and submit a Supplier Improvement Plan (SIP) for all incidents of noncompliance discovered. The SIP links audit findings to root causes and improvements are tested by a re-audit. During 2012, 311 SIPs were reviewed and accepted within 90 days of the full audit by suppliers that had been audited within the prior 12-month time frame.
The effectiveness of our audit-SIP-re-audit strategy is illustrated by comparing the “before and after” results of suppliers experiencing a complete cycle, as shown by the chart below. Re-audits conducted on 118 Production and Services and General Procurement suppliers are compared with their full audits (conducted in the 2009-2011 timeframe). For ease of reading and comparison, only major noncompliance results are depicted in the chart.
With regard to a number of code provisions, the re-audits indicated major noncompliance was completely addressed in: Ethical Dealings, Management Systems (EHS), Child Labor and Respect and Dignity. In all other areas, substantial reductions in noncompliance were achieved, including a 90 percent improvement in Health and Safety compliance, a 70 percent improvement in Wages and Benefits compliance and a 70 percent improvement in Working Hours compliance. Working Hours remained the largest area of noncompliance, and while this is unsatisfactory, it is consistent with our knowledge of the challenges associated with full resolution on a global basis, especially in developing markets. Overall, 74 percent of re-audited suppliers resolved all major noncompliance issues after completion of one cycle—a significant achievement and in line with our trend data. IBM Global Supply is working on contingencies with its suppliers remaining noncompliant. Our leadership team reviews and tracks supplier assessment results on an ongoing basis. These are compiled and reviewed on a monthly basis with executives and on a quarterly basis with IBM’s Chief Procurement Officer.
2012 Center of Excellence for Product Environmental Compliance
IBM’s global Center of Excellence (CoE) for Product Environmental Compliance has 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 an active member in industry and regulatory bodies around the world. Year over year, environmental regulations continue to increase in number and complexity. The types of regulations we address include prohibited substances, product take-back programs, product energy usage, batteries and most recently nanotechnology regulations. In 2012, IBM successfully transitioned thousands of part numbers that were affected by the conclusion of the European Union’s RoHS Directive—designed to restrict the use of hazardous substances in electrical and electronic equipment—exemptions 7c3 and 11b. As of January 1, 2013, IBM products shipped into the EU are fully compliant and lead-free.
initial audit assessments measuring supplier compliance from 2004 through 2012