Supply chain management.
Telekom works with suppliers in more than 80 countries. Our relationships with suppliers are based on trust and dialog combined with monitoring and providing concrete support for the implementation of sustainability standards. We have a variety of instruments, methods and measures in place to help us improve the sustainability of our supply chain. Our basic aim is to recognize the cause of any problems and to work closely together with our suppliers to resolve them.
Depending on the development stage of the supplier relationship, we use different tools to make this relationship more sustainable. For example, we have been taking the sustainability of the products and services we order from suppliers into consideration in all of our invitations to bid since June 2013. This aspect is weighted at 10 percent along with other decisive criteria such as price and quality.
We also use a four-level approach to minimize risks and encourage our suppliers to improve their practices. The funnel chart illustrates this process. We initially ask potential suppliers with an order volume of more than 100,000 Euro 16 sustainability aspects (level 1). These 16 aspects relate to human rights and corruption as well as environmental protection and occupational health and safety.
4 level approach of risk minimization and supplier development
As the business relationship proceeds, we ask strategically relevant suppliers to enter extensive information about their practices into the E-TASC information system. Experts evaluate these statements on the basis of additional background information and targeted research. We take things a step further in our relationships to suppliers that exhibit a higher CR risk and in selected cases conduct on-site social audits (level 2). Not only do we focus on our direct suppliers, we also address sub-suppliers as far as possible.
We also boost the effectiveness of our audits by collaborating with currently nine other companies in the Joint Audit Cooperation (JAC). Thanks to the increasing number of JAC members, we are able to conduct a higher number of audits on joint suppliers.
We use this information and the audit results to classify and evaluate our suppliers based on CR criteria (level 3). We are planning to set up a systematic process for this approach in 2014. We also work to resolve acute issues in close collaboration with selected suppliers. We use best practices, benchmarks and shared business opportunities to encourage permanent improvement in sustainability performance. Our development program for suppliers which is currently being setup will help us in our efforts (level 4).
In cases of significant disregard of our requirements, we initiate an escalation process to effect fast resolution in accordance with the Deutsche Telekom sustainability standards. The outcome is recorded throughout the Group.
Even though we have already achieved much on the way to sustainable procurement, there is still quite a bit to be done. The agenda for 2013 included rolling out a supplier development program. The aim of the program is to help strategic and critical suppliers install business practices that comply with social and ecological principles and are economically efficient. We have not yet been able to launch the planned pilot project because we were unable to find a suitable partner in 2013. However, we are planning to roll out the project in 2014 to continue improving the sustainability of our procurement practices.
Telekom works together with its suppliers to permanently reduce greenhouse gas emissions along its supply chain. We have held several workshops with top suppliers for this purpose since 2011. At these workshops, we discuss ways to measure Scope 3 emissions along the supply chain to help us develop suitable solutions. We conducted a workshop on this topic with manufacturer Ericsson in summer 2013. During the reporting period, we also focused on evaluating the workshops conducted over the past two years.
Results showed that these did not fulfill all of our expectations. We have decided to stop pursuing our original approach of using individual supplier questionnaires to measure Scope 3 emissions in the Telekom added-value chain. Instead, we will be relying on our suppliers’ CDP reports for this.
A total of 40 social audits were conducted on direct and indirect suppliers of Deutsche Telekom in 2013 through the auditing program set up and managed at Group level. As in previous years, we focused our audit activities particularly on suppliers in Asia. However, we also conducted social audits in Latin America and Eastern Europe.
Detailed information on the 2013 audit results is available here.
Deutsche Telekom and systems technology manufacturer Huawei held a joint corporate responsibility workshop in the Chinese city of Shenzhen on September 27, 2014. We decided to conduct the workshop because, despite intensive efforts on the part of Telekom, we continued to see severe violations of our sustainability requirements along the supply chain. These particularly involved compliance with legally specified working hours, fair pay and occupational health and safety. There was a lack of transparency, particularly on the part of Huawei’s direct sub-suppliers. Our plan was to change this with Huawei’s help. Huawei holds a key position in Telekom’s supply chain as well as those of other leading ICT companies and has considerable influence on the Chinese market.
Managers from ten direct and indirect sub-suppliers to Huawei participated in the event. Among the topics discussed at the workshop were Huawei and Telekom’s sustainability requirements, values and principles. High-ranking Telekom representatives used examples to make it very clear how good corporate governance in terms of sustainability can secure a company’s success.
One focal point of the discussion was our requirement for compliance with legal working hours. Over the course of the workshop, participants showed that they were open to the advantages of following a systematic management approach based on the concept of sustainability and were ready to work toward making improvements at their companies. At the same time, they mentioned that many workers often volunteer to work overtime to earn more money. They also said that, although all customers placed importance on compliance with working hour legislation, unsuitable order practices and poor planning on their part frequently increased the need for employees to work overtime. The managers claimed that, based on those reasons, it would not be possible to substantially change the situation all at once. Instead, they felt it was necessary to proceed gradually with formal, voluntary commitments and clear deadlines.
We can encourage suppliers prone to risk to move toward more sustainable business practices with checks, threats of sanctions, financial incentives and by actively supporting change management. This is illustrated in the following example:
In 2012, an international NGO accused one of our suppliers of flouting internationally recognized labor regulations. The audits that we initiated based on the allegation confirmed this finding. In response, we suggested corrective measures jointly with BuyIn [link to CR facts > BuyIn] to the supplier. However, the supplier initially showed reluctance to implement these measures. After a crisis meeting in which we brought up the prospect of terminating the business relationship, and a visit by a high-ranking Telekom delegation, the supplier agreed to implement the measures. Our own task force set up to advise the supplier also made it clear that implementing the measures improves the supplier's reputation and therefore implies increased profits. The following package of measures was agreed:
- Establishment of a pilot unit to provide an early-warning system for risk in new approaches
- Involvement of employees in developing solutions
- Development of technical solutions and training opportunities for employees with the aim of simplifying work processes and increasing productivity
- Establishment of a model factory in which the statutory working hours and minimum wage regulations will be complied with
The success of our intervention and the accompanying measures in 2012 and 2013 is reflected in a number of factors: the churn rate dropped to an exemplary (not only by Asian standards) eight percent. There was also a significant increase in productivity. The number of units produced increased within one year by approximately 500,000 units; product quality increased and the error rate dropped. In addition, the workplace injury rate fell by 43 percent within 12 months. The measures also contributed to reducing costs for attracting and training new employees and the need for management checks.
In 2013 Magyar Telekom made its DELFIN Awards available, for the first time, to any company operating in Hungary, and not just its suppliers. DELFIN is an acronym for “Prize for a Committed, Sustainable and Innovative Generation” in Hungarian and the Awards go to companies that have displayed outstanding commitment to sustainable development. The 2013 Awards were handed over in three different sustainability categories:
- “Implemented Innovation in the Interest of Sustainability”,
- „Supporting equal chances, promoting discrimination-free practices both within and outside the company”, and
- „Sustainability Education and Training”.
For example, Interpower received a DELFIN Award in the first category for an innovation that enabled Magyar Telekom to save almost 2,000 MWh of energy and 1,240 metric tons of CO2 emissions.
In 2013, 97 OTE and 155 Cosmote suppliers were evaluated. They were selected on the basis of the total purchase orders issued in the period 1/10/2011 – 30/9/2012. Cosmote suppliers were requested to fill in a self-assessment sustainability performance questionnaire, which was intended to promote the suppliers’ awareness of social and corporate responsibility and enable them to provide information about their management systems and practices. The questionnaire included questions on the following areas: corporate responsibility / sustainability, labor / ethics, environment, health and safety, quality, and business continuity management.
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