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IBM Supply Chain

A holistic approach

Managing a supply chain with more than 28,000 suppliers in close to 90 countries is both a business and social imperative. And it is not without its challenges. Engaging this many suppliers in social and environmental responsibility requires considerable resources. But IBM has embedded social and environmental checkpoints into every aspect of our procurement process and has for many years.

 

In 2009, IBM continued to deploy its robust supplier assessment activity with special focus on countries in which we have grown our purchasing during the year. We have conducted 600 initial audits during the timeframe of 2004 through year-end 2009, measuring supplier compliance to both the Electronic Industry Citizenship Coalition (EICC) and IBM Codes of Conduct. For those suppliers found lacking, improvement plans were developed and implemented, and suppliers are re-audited to gauge effectiveness.

In addition, IBM continues to expand the definition and scope of a responsible supply chain. This year we completed a major initiative to create a consolidated Global Supply Social and Environmental Management System. We have also engaged closely with our industry peers through the EICC in an effort to understand and map the use of minerals in the electronics supply chain that are coming from regions of the world with social responsibility challenges.

 
Supplier Spending

$32.8 Billion Total in 2009

2009 by Category, Dollars in Billions: Logistics Procurement 3% $.9, Production Procurement 28% $9.3, Services and General Procurement 69% $22.6 | 2009 by Supplier Location, Dollars in Billions: North America 39% $12.8, Asia Pacific 29% $9.4, Europe, Middle East, Africa 25% $8.1, Latin America 7% $2.5
 

Key Performance Indicator

Supplier Initial Audit Results

2004–2009
Since 2004 we have conducted more than 600 supplier audits against IBM’s Supplier Conduct Principles in more than 15 growth market countries. Audits were conducted by third-party firms with local personnel.

The graph reflects cumulative findings of assessments, including suppliers of both manufactured products, software and services in Argentina, Brazil, China, Czech Republic, Hungary, India, Malaysia, Mexico, the Philippines, Poland, Romania, Slovakia, Taiwan, Thailand and Vietnam.

Additional corporate responsibility performance metrics are available on our Performance Data Summary page.

Compliant to IBM Code Noncompliant (Minor) Noncompliant (Major)
Health & Safety 25% 37% 38%
Working Hours 46% 21% 33%
Wages & Benefits 55% 13% 32%
Respect & Dignity 69% 27% 4%
Communications 72% 28% 0%
Record Keeping 79% 13% 8%
Nondiscrimination 88% 10% 2%
Child Labor & Regulations 88% 11% 1%
Environmental 90% 7% 3%
Forced Labor & Regulations 93% 4% 3%
Freedom of Association 98% 1% 1%
Ethical Dealings 100% 0% 0%
 

Supplier Improvement Plans

Upon completion of a social responsibility audit, IBM requires its audited suppliers to create and submit for review a Supplier Improvement Plan (SIP). The SIP is intended to address audit noncompliance—to the respective provisions of the code of conduct—with priority given to major noncompliance. The SIP receipt is driven through the procurement organization and is reviewed by IBM’s Supply Chain Social Responsibility (SCSR) team. In this manner, the SCSR team is able to work with the supplier and offer guidance regarding the proposed improvements and their likely impact toward code compliance. The supplier is then re-audited to measure improvements and compliance.

In 2009, 46 suppliers were engaged in re-audits following submission of SIPs. Overall, these suppliers demonstrated a 60-percent reduction in the number of major and minor noncompliant findings. More importantly, nearly 50 percent of the re-audited suppliers had no major noncompliance after completing one audit/SIP/re-audit cycle. Suppliers with continued nonconformance are reviewed by the procurement organization to determine what appropriate actions are required. These statistics illustrate the value and commitment of pursuing this work with our suppliers. These efforts, which require substantial commitments of time and resources from both customer and supplier, ultimately benefit the many employees engaged in the extended supply chain.

 

Industry Collaboration

Throughout 2009, IBM deepened its involvement with the Electronic Industry Citizenship Coalition (EICC). This industry group consists of more than 40 international companies in the electronics, software, and communications sectors. Founded in 2004, the EICC is chartered with collaboratively working to improve social responsibility throughout the supply chain, from raw materials to components to manufacturing to brands. IBM has held the Chair position on the EICC Board of Directors for the last two years.

The EICC continues to expand its membership as well as its role in defining collaborative solutions within the sector. The following are among the group’s accomplishments in 2009:

  • –  Expanded the Board of Directors and launched the Asia Network
  • –  Completed a thorough review of the coalition supply chain code of conduct
  • –  Developed and implemented an energy and greenhouse gas emissions reporting system for supply chains
  • –  Engaged stakeholders in topic-specific sessions
  • –  Continued an in-depth study on the mining and sourcing of tin, tantalum, and cobalt
  • –  Developed e-learning modules for supply chain management at both member companies and their suppliers
  • –  Launched the Validated Audit Process

Additional details are available in the EICC’s 2009 annual report at eicc.info.

 

Supply Chain Minerals

Identifying and mitigating the use of so-called conflict minerals throughout the electronic supply chain is an ongoing work effort. As ores move through the supply chain, smelting and blending masks the identification of the original source of the materials—thus creating a significant challenge to the ability of end users to understand (with full clarity) where the materials originate.

In order to help address this issue, the EICC, in conjunction with the Global e-Sustainability Initiative (GeSI) Supply Chain Work Group, funded two significant pieces of work (both available online at eicc.info).

  • –  In 2008 a comprehensive third-party study identified the metals with the greatest use in electronics (and their related social responsibility issues).
  • –  In 2009, EICC and GeSI jointly funded a project to develop a supply chain traceability model for tin, tantalum, and cobalt. The model is intended to identify the parties involved in the supply chain, document the physical flows of these materials, and ultimately lead to specific improvements to enhance the spread of social responsibility through the supply chain toward the point of origination. Additionally, this work has included dialogue with NGOs, academics, supply chain consultants, and government representatives.
 

Global Supply Social and Environmental Management System

In 2009 we consolidated our existing social and environmental requirements involving supply chain management into a single comprehensive Global Supply Social and Environmental Management System (GS S&EMS). The new system better enables consistent execution of the requirements and programs by Global Supply employees worldwide.

This integrated management system enables us to more efficiently and effectively manage—and continue to enhance—our programs and performance in these areas to promote IBM’s ongoing leadership as a premier provider of goods and services that meet high standards. The implementation of this new system includes training and awareness programs, internal and external communications efforts, new procedures to maintain operation control, and ongoing monitoring of performance against goals. The GS S&EMS also requires suppliers to have their own social and environmental management system and for them to cascade these requirements throughout their supply chain. The requirement is for suppliers to:

  • –  Define, deploy and sustain a management system that addresses corporate responsibility
  • –  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

Our objective is to help suppliers build their capability to manage their responsibilities effectively, systematically and sustainably over the long term. We expect that each supplier will deploy its management system, goals, and performance reporting in a way that reflects its particular intersections with corporate responsibility and the environment. View this announcement.

Paper- and Wood-Based Packaging

Over the timeframe of 2004 to 2009, working in conjunction with our suppliers, we grew usage of sustainably sourced materials from 40 percent to over 95 percent of our global demand. This initiative grew from external engagement with environmental NGOs that brought our attention to issues surrounding nonsustainable logging of old-growth and virgin forests, and ideas to address increased use of sustainably sourced wood-based commodities.

 

Supply Chain Diversity

IBM has long been considered an industry leader in supply chain diversity. With a global supply chain diversity program that has been in place since 1968, IBM has consistently encouraged and embraced businesses owned by diverse groups, both inside and outside the United States. Because diverse suppliers are typically smaller and more nimble, they add significant value. They also provide a diverse mix in our supplier base, which promotes economic and cultural stability in local communities. In 2009, we transacted $2.1 billion in First Tier spending with diverse businesses worldwide.

But IBM doesn’t just contribute to the advancement of diverse businesses by contracting with them. The company is a founding member of the National Minority Supplier Development Council, the Women’s Business Enterprise National Council, and the National Gay and Lesbian Chamber of Commerce. IBM also participates in international organizations focused on supplier diversity, such as the Australian Indigenous Minority Supplier Council, the Canadian Aboriginal and Minority Supplier Council, the Minority Supplier Development United Kingdom, Minority Supplier Development China, WEConnect Canada, WEConnect Europe and the International Gay and Lesbian Chamber of Commerce.

In addition, the company actively engages with its diverse suppliers with the goal of promoting mutual success. To help do this, the company initiated a Mentor Program in 2003 to facilitate the development of diverse suppliers.

Last year, a Hispanic-owned electricity provider called Liberty Power entered the Mentor Program, and has benefited greatly. Based in Ft. Lauderdale, Florida, Liberty Power is one of only three national retail electric providers licensed in 15 or more states and is the only minority-owned, independent energy retailer with a national presence. It worked to earn IBM’s business and we have been working with the company ever since.

“IBM sent us a very clear message when we first started our conversations with them,” says David Hernandez, who co-founded the company in 2001 and is currently CEO. “They told us, ‘You must win on the merits, but we will give you an opportunity to participate in all our procurement opportunities.’ At first we were not successful winning the bids, but at each procurement opportunity, IBM invested the time and its resources to give us critical and supportive feedback, that enabled us to eventually win their business.”

Key Performance Indicator

Supplier Diversity

2009 Total U.S. Spending Dollars in Billions, Projected: $12.6, Actual $10.9
2009 Diverse U.S. Spending (First Tier) Dollars in Billions, Projected: $1.5, Actual $1.3
2009 Diverse Non-U.S. Spending (First Tier) Dollars in Millions, Projected: $790, Actual $806

Additional corporate responsibility performance metrics are available on our Performance Data Summary page.

“We take the mentoring relationship very seriously. Not only have I as well as my COO visited IBM in New York, but we’ve also had numerous team members, at all levels of our company, interacting and working closely with many on the IBM team. The message they are sending us is very clear: ‘Your success is our success.’”
David Hernandez CEO, Liberty Power
Ft. Lauderdale, Florida
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