Annual Report 2016

14. Suppliers (SU)

14.1 Description of the organization's supply chain

Corporate Purchasing is res­ponsible for the procurement in all production plants worldwide (except the USA) and manages the procurement organisation through a team of lead buyers who are strategically res­ponsible for various material groups. It became even more visible and important when the purchasing specialists of the former Sanitec were integrated.

Geberit’s production processes entail a high inhouse production depth, i.e. it largely purchases raw materials and semi-finished products with a high share of raw materials. In so doing, material costs represent a relatively low share of Geberit net sales.

The raw materials and semi-finished products primarily come from suppliers in Western Europe (80.5% of procurement value). The share of the procurement volume from Asia amounts to 9.1%, that from Eastern Europe 8.1%, that from America 2.0% and that from Africa 0.3%. Owing to the upstream purchasing in the supply chain and high level of in-house production as well as the very high share of Western European suppliers, the general risk profile of the supply chain is relatively low. The active pursuit of a dual source strategy – i.e. the procurement of a resource from two providers – serves additionally to reduce dependencies.

Geberit procured raw materials (27.0%), semi-finished products (45.2%) and finished products (27.8%) with a procurement value of CHF 789.3 million (previous year CHF 755.0 million) from some 2,250 suppliers across the world in 2016.

14.2 Management Approach – supplier assessment using sustainability criteria

Geberit’s business partners and suppliers are obligated to maintain comprehensive standards. The basis for the cooperation is the Code of Conduct for Suppliers that was amended in 2016 and translated into a further 13 languages. This Code is aligned with the principles of the UN Global Compact and is binding for every new supplier. The Code comprises specific guidelines on quality and meeting environmental, labour law and social requirements and sets out compliance with human rights. Upon request by Geberit, the supplier must prepare corresponding records in order to demonstrate compliance with the standards of the Code and make these available at any time. Should the supplier fail to comply with the regulations set out in this Code, then corrective measures are taken wherever possible. Failure to comply on the part of the supplier is regarded as a serious obstacle to the continuation of the business relationship. If the supplier does not correct this non-compliance, Geberit can terminate the cooperation.

When evaluating suppliers, Geberit strives to achieve the greatest possible degree of transparency. All new and existing partners are thus assessed by means of standardised processes and according to the same criteria: company as a whole, quality, sustainability, price, procurement chain, delivery reliability, production and technology. As a rule, the selection of suppliers is required to include a quality audit covering clarification on environmental and occupational safety issues. Where an audit reveals inconsistencies in these criteria, an additional, in-depth audit is conducted.

Supplier management has integrated a risk management approach that is based on the division of suppliers into risk classes – depending on the production location (country) and type of production process. Owing to the high share of procurement from Western Europe, the risk in Geberit’s supply chain is relatively low. In the reporting year, 42 existing suppliers were identified in the highest risk category. This corresponds to around 7% of the procurement value of Geberit (without former Sanitec). 38 of these 42 suppliers have already been audited. Within this risk class, the focus is placed on independent suppliers such as those which are not part of a larger company with recognised sustainability management. The systematic planning and performance of audits is conducted for these suppliers, generally every three years. Likewise, material groups that have been added due to the acquisition of Sanitec are gradually being subjected to systematic auditing and included in risk management. To ensure neutrality and the expertise required for the audits, Geberit also works with an external partner. This procedure has been carried out for years and has proven effective, and makes an important contribution towards enhancing credibility in supplier management. Any shortcomings exposed by audits give rise to sanctions. As a rule, a deadline is imposed for remedying the situation.

From 2017, an Integrity Line will now be available to suppliers for anonymously reporting irregularities in the procurement process.

14.3 Percentage of new suppliers that were screened using sustainability criteria

All new suppliers undertake to comply with the Code of Conduct for suppliers and hence also to international standards governing environmental protection, labour practices and human rights.

14.4 Sustainability-related impacts in the supply chain

As of the end of 2016, a total of 1,084 suppliers have signed the Code of Conduct for Suppliers (previous year 868). This equates to over 90% of the total procurement value. Among the top 200 suppliers, the consolidated share of companies that have signed has already reached 95.5% (previous year 93.1%).

In 2016, five third-party audits were carried out at suppliers in China, Poland and India. The results showed that the majority of occupational safety and environmental standards are complied with. Appropriate corrective measures are agreed in cases of non-compliance.

Only in a few justified exceptional cases are there plans to impose complete regulations on the second tier and third tier in the supply chain by getting them to sign a Code of Conduct, as this would result in a disproportionately high level of additional administration with little added benefit. Geberit pursues a pragmatic yet effective approach: When auditing suppliers in the highest risk category, an analysis of the most important suppliers is included in the risk analysis and the audit investigations on site. At the end of the day, Geberit’s goal is modern supplier management, where the relationship with the supplier is actively managed and sustainability risks in the supply chain are jointly analysed.