Supplier management
The Zumtobel Group brands supply top quality products. This is only possible if the entire value chain is designed for sustainability. Consequently, for a long time now the Group has been committed to long-term partnerships with its key suppliers. This enables suppliers to make constant progress as they provide the Group's companies with the best materials and most innovative intermediate products.
Countries of origin: both segments source their supplies as locally as possible
The key commodity groups for the Lighting and Components Segments are sourced in different countries.
The Components Segment purchases mainly electronic components, steel and copper wire. The main country of origin for the electronics components is China, the country to which the most competitive suppliers have relocated in the course of globalisation. Steel, by contrast, is sourced in Central Europe for the European production plants and in Singapore for Australia. All four magnetic ballast plants obtain their copper wire locally.
The key commodity groups for the Purchasing departments in the Lighting Segment are electronic components (such as ballasts), metals (such as aluminium and steel) and plastic granules. To enable them to meet volatile customer demand as flexibly and rapidly as possible, the European luminaire plants obtain these materials as locally as possible (Buy Local strategy). This means that the main countries of origin for the Lighting Segment, accounting for 87.8% of the purchasing volume are Germany, Austria, France, the UK, Italy and Sweden, plus China. The proportion of goods sourced in Asia in the 2008/09 financial year was 5.1%. However, a restructuring process is currently underway to shift that proportion of sourcing for the European plants back to Europe. By the end of April 2010, 80% had been relocated to Europe. The aim now is to complete this process by the end of the 2010/11 financial year. This means that the majority of materials and intermediate products are sourced from countries that represent a low risk in terms of compliance with environmental and social standards.
The Components Segment purchases mainly electronic components, steel and copper wire. The main country of origin for the electronics components is China, the country to which the most competitive suppliers have relocated in the course of globalisation. Steel, by contrast, is sourced in Central Europe for the European production plants and in Singapore for Australia. All four magnetic ballast plants obtain their copper wire locally.
The key commodity groups for the Purchasing departments in the Lighting Segment are electronic components (such as ballasts), metals (such as aluminium and steel) and plastic granules. To enable them to meet volatile customer demand as flexibly and rapidly as possible, the European luminaire plants obtain these materials as locally as possible (Buy Local strategy). This means that the main countries of origin for the Lighting Segment, accounting for 87.8% of the purchasing volume are Germany, Austria, France, the UK, Italy and Sweden, plus China. The proportion of goods sourced in Asia in the 2008/09 financial year was 5.1%. However, a restructuring process is currently underway to shift that proportion of sourcing for the European plants back to Europe. By the end of April 2010, 80% had been relocated to Europe. The aim now is to complete this process by the end of the 2010/11 financial year. This means that the majority of materials and intermediate products are sourced from countries that represent a low risk in terms of compliance with environmental and social standards.
Zero tolerance for corruption; strict compliance with ILO Core Labour Standards
No corruption is tolerated in the business activities of the Zumtobel Group and its segments. Accordingly, in September 2004 the Zumtobel Group became the first Austrian signatory to the guidelines of the Partnering Against Corruption Initiative (PACI) of the World Economic Forum in Davos.
The provisions of the PACI guideline are reflected in the Zumtobel Group's Code of Conduct. The Code lays down the behaviour expected of all Group employees as well as of external third parties such as suppliers in critical areas of business life. Along with combating corruption, the recognition of the Core Labour Standards of the ILO forms an essential component of the Code. These standards demand freedom of association and recognition of the right to collective bargaining, and prohibit both child labour and forced labour. The Zumtobel Group is not aware of any cases in which its suppliers have failed to comply with the ILO Core Labour Standards.
If a business partner should fail to comply with these provisions or other environmental or social standards laid down by the Lighting and Components Segments, the party concerned will be requested to desist from such behaviour. If this does not happen within a reasonable period, management will take appropriate steps, which could mean recourse to law or terminating collaboration.
As an internationally active company, the Zumtobel Group invariably respects the applicable national law when operating or manufacturing outside Austria.
The provisions of the PACI guideline are reflected in the Zumtobel Group's Code of Conduct. The Code lays down the behaviour expected of all Group employees as well as of external third parties such as suppliers in critical areas of business life. Along with combating corruption, the recognition of the Core Labour Standards of the ILO forms an essential component of the Code. These standards demand freedom of association and recognition of the right to collective bargaining, and prohibit both child labour and forced labour. The Zumtobel Group is not aware of any cases in which its suppliers have failed to comply with the ILO Core Labour Standards.
If a business partner should fail to comply with these provisions or other environmental or social standards laid down by the Lighting and Components Segments, the party concerned will be requested to desist from such behaviour. If this does not happen within a reasonable period, management will take appropriate steps, which could mean recourse to law or terminating collaboration.
As an internationally active company, the Zumtobel Group invariably respects the applicable national law when operating or manufacturing outside Austria.
Long-term supplier management founded on trust
Both Segments organise their purchasing activities in line with the Lead Buyer system. By bundling requirements for specific commodity groups, specialised but decentrally located purchasers (lead buyers) can strengthen their negotiating position with respect to suppliers who are often also global players. This method has the added benefit of ensuring a coordinated strategic approach within the commodity groups. The Purchasing functions at the plants then call up their requirements at the terms negotiated by the lead buyer.
Both the Components Segment and the Lighting Segment attach great importance to building trusting long-term relationships with their suppliers. This is particularly striking in the Components Segment, where business relations with 60% of the total of around 300 suppliers have been in place for over ten years. Another 34% date back between five and ten years and the remaining six percent have been created during the past five years. The segment's structured supplier management system, based on regular inspections and training measures, has played its part here. All of these efforts are founded on the very demanding expectations that the Components Segment has of its suppliers, who are expected to contribute their knowledge and innovative capabilities to the business partnership. This means that they need to command the appropriate level of creative potential to meet the technical requirements and add value of their own.
Both the Components Segment and the Lighting Segment attach great importance to building trusting long-term relationships with their suppliers. This is particularly striking in the Components Segment, where business relations with 60% of the total of around 300 suppliers have been in place for over ten years. Another 34% date back between five and ten years and the remaining six percent have been created during the past five years. The segment's structured supplier management system, based on regular inspections and training measures, has played its part here. All of these efforts are founded on the very demanding expectations that the Components Segment has of its suppliers, who are expected to contribute their knowledge and innovative capabilities to the business partnership. This means that they need to command the appropriate level of creative potential to meet the technical requirements and add value of their own.
Systematic quality monitoring and supplier audits
With a view to supplier management, the Components Segment has defined global processes for the approval of new suppliers, for regular supplier assessments, for audits and for training measures, which means that every step is duly documented. This effectively prevents any irregularities.
Before a new supplier is approved, two people from different functions conduct a three-stage qualification process. In stage two, for example, the supplier must provide written confirmation that a verifiable environmental management system is in place (although not necessarily compliant with ISO 14001) and that the Code of Conduct, of which they have received a copy, will be observed. This means that compliance with the ILO Core Labour Standards also forms part of the prerequisites for any business relationship. Components Segment suppliers who account for 86% of the segment's purchasing volume have confirmed that they will observe the Code of Conduct. The remainder were able to prove that they had their own appropriate standards in place. In future the Components Segment will be increasingly insisting on documentary proof that the ILO Core Labour Standards are adequately observed and will make this part of its standard supply agreements.
Supplier assessments are conducted every six months. These assess product quality, schedule effectiveness and service. At the same time, compliance with the Code of Conduct and the ongoing existence of an effective environmental management system are also checked. In addition, based on the findings of the supplier assessments, in November 2008 the four best suppliers were presented with an Excellent Supplier Award. Presentation of these annual awards was then shelved for one year on account of the economic crisis, but the next awards ceremony is now scheduled for the autumn of 2010. The Excellent Supplier Award also serves to build trust and strengthen long-term ties with outstanding suppliers.
The criteria for the supplier audit are based on those of the supplier assessment. An audit is performed if the assessment reveals critical values for a particular supplier or if a new supplier is up for approval. As suppliers are considered partners, they should not feel threatened by the audit process. The aim is rather to reveal scope for improvement and derive the appropriate measures. Here too, one criterion is the existence of an effective environmental management system. Ten auditors, all trained in-house, conduct the audits. In future they will be aiming to take greater account of the ILO Core Labour Standards.
Supplier training measures to remedy quality problems are introduced selectively if a supplier fails to adequately meet the requirements of the zero defect philosophy in line with the Six Sigma methodology. On average the Purchasing function in the Components Segment conducts 25 Lean Six Sigma projects per year. These focus on process improvements and the resultant cost savings. Several such projects have been designed in collaboration with suppliers to help introduce them to the methodology and benefits of Lean Six Sigma. The projects target such aspects as cutting production waste at the supplier's premises; reducing lead times by increasing flexibility; or avoiding unscheduled transport runs. By way of example, one project conducted in the 2008/09 financial year in conjunction with three key suppliers to the main components plant in Dornbirn concerned the reduction of unpacking times and thus the simplified receipt of incoming goods. The time and effort expended in the Incoming Goods department were cut by one third.
In the Lighting Segment, by way of risk management, since the beginning of 2010 all new suppliers of production material and commodities have been subjected to an assessment process that is due to be in place at all Lighting Segment production plants by the autumn of 2010. Along with a self-disclosure document, this also includes an audit when there is a firm intention to do business with the supplier in question. The audit includes checking compliance with legal provisions such as RoHS, REACH and WEEE and certification to ISO 9001 and ISO 14001. Performance of this audit is a prerequisite for the acceptance of the supplier.
Before a new supplier is approved, two people from different functions conduct a three-stage qualification process. In stage two, for example, the supplier must provide written confirmation that a verifiable environmental management system is in place (although not necessarily compliant with ISO 14001) and that the Code of Conduct, of which they have received a copy, will be observed. This means that compliance with the ILO Core Labour Standards also forms part of the prerequisites for any business relationship. Components Segment suppliers who account for 86% of the segment's purchasing volume have confirmed that they will observe the Code of Conduct. The remainder were able to prove that they had their own appropriate standards in place. In future the Components Segment will be increasingly insisting on documentary proof that the ILO Core Labour Standards are adequately observed and will make this part of its standard supply agreements.
Supplier assessments are conducted every six months. These assess product quality, schedule effectiveness and service. At the same time, compliance with the Code of Conduct and the ongoing existence of an effective environmental management system are also checked. In addition, based on the findings of the supplier assessments, in November 2008 the four best suppliers were presented with an Excellent Supplier Award. Presentation of these annual awards was then shelved for one year on account of the economic crisis, but the next awards ceremony is now scheduled for the autumn of 2010. The Excellent Supplier Award also serves to build trust and strengthen long-term ties with outstanding suppliers.
The criteria for the supplier audit are based on those of the supplier assessment. An audit is performed if the assessment reveals critical values for a particular supplier or if a new supplier is up for approval. As suppliers are considered partners, they should not feel threatened by the audit process. The aim is rather to reveal scope for improvement and derive the appropriate measures. Here too, one criterion is the existence of an effective environmental management system. Ten auditors, all trained in-house, conduct the audits. In future they will be aiming to take greater account of the ILO Core Labour Standards.
Supplier training measures to remedy quality problems are introduced selectively if a supplier fails to adequately meet the requirements of the zero defect philosophy in line with the Six Sigma methodology. On average the Purchasing function in the Components Segment conducts 25 Lean Six Sigma projects per year. These focus on process improvements and the resultant cost savings. Several such projects have been designed in collaboration with suppliers to help introduce them to the methodology and benefits of Lean Six Sigma. The projects target such aspects as cutting production waste at the supplier's premises; reducing lead times by increasing flexibility; or avoiding unscheduled transport runs. By way of example, one project conducted in the 2008/09 financial year in conjunction with three key suppliers to the main components plant in Dornbirn concerned the reduction of unpacking times and thus the simplified receipt of incoming goods. The time and effort expended in the Incoming Goods department were cut by one third.
In the Lighting Segment, by way of risk management, since the beginning of 2010 all new suppliers of production material and commodities have been subjected to an assessment process that is due to be in place at all Lighting Segment production plants by the autumn of 2010. Along with a self-disclosure document, this also includes an audit when there is a firm intention to do business with the supplier in question. The audit includes checking compliance with legal provisions such as RoHS, REACH and WEEE and certification to ISO 9001 and ISO 14001. Performance of this audit is a prerequisite for the acceptance of the supplier.