Improving sustainability in the supply chain
Depending on the risk rating and development status of the supplier relationship, we use different tools to make our supply chain more sustainable. When selecting a new supplier, the topic of sustainability is included in our decision-making process with a weighting of ten percent. This creates strong incentives for suppliers to make their business more sustainable and to offer more sustainable products and services.
As a rule, we use a three-step approach to minimize risks and encourage our suppliers to improve their practices. The funnel chart illustrates the process:
Leading up to the supplier evaluation, we classify our categories as critical or non-critical based on risk and opportunity. We have formed 14 Corporate Social Responsibility (CSR) risk criteria and four CSR opportunity criteria on the basis of expert interviews. The criteria incorporate a wide range of sustainability aspects and risks, including risks for forced or child labor, or environmental pollution, as well as opportunities such as potential to reduce energy consumption.
In the first step, all suppliers (critical and non-critical categories) are asked to accept our Supplier Code of Conduct. It places strict ethical, social, ecological, and human rights requirements on our suppliers. In addition, a risk assessment by an external audit firm is carried out as part of the supplier onboarding process. A comprehensive external investigation is performed to determine if one of our supplier companies presents increased risks with regard to certain sustainability criteria.
In the second step, dedicated sustainability assessments and reviews are conducted – for instance, by EcoVadis, through social audits and mobile surveys – for selected suppliers that are active in critical categories. The decision on which tool to use is made on an individual basis and depends, among other things, on the sustainability performance and risk classification of the suppliers.
In 2018 we conducted 117 on-site audits – 29 of these were on our direct and 88 were on our indirect suppliers. We let the supplier know the approximate time of the audit in advance (“semi-announced audit”). This is necessary to make sure that relevant contacts in key functions are present for the audit. In addition, we also had 18 mobile surveys conducted in 2018. These give employees from our suppliers the opportunity to provide anonymous information on the social and ecological standards at their companies. Mobile surveys are primarily used to gain an initial impression of the local working conditions in order to then initiate further measures as needed, such as dedicated on-site reviews (social audits).
In doing so, we focus not only on Deutsche Telekom’s direct suppliers but also on downstream suppliers as much as possible. We also boost the effectiveness of our audits by collaborating with 16 other companies in the Joint Audit Cooperation (JAC). Due to the growing number of JAC members, the intersection of audited suppliers is also increasing, with multiple audits for individual suppliers being prevented.
We employ the “quality over quantity” principle when auditing suppliers. We therefore focus on especially high-risk suppliers. We aim to audit these suppliers at least every two to three years. As in previous years, we concentrated our auditing activities on suppliers in Asia, in particular in China and neighboring countries such as India, Malaysia, South Korea, and Thailand, as well as in Brazil, Mexico, and Eastern Europe. Audited suppliers included manufacturers in the areas of IT hardware, software and services as well as networks and devices.
We do not require our suppliers to obtain external environmental or social certificates. If no certificates are available for the “Environment” and “Social Accountability” fields, such as ISO 14001 and SA8000, we nevertheless expect comparable management systems to be used. Our auditing experience shows, however, that the majority of our relevant manufacturing suppliers have an external certificate or comparable management systems. Verification of important social and ecological aspects as well as fundamental human rights during our audits is in line with internationally recognized guidelines and standards: these include the ILO Labour Standards, the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises.
Supplier sustainability reviews 2018 (excl. T-Mobile US)
|Number of reviews||Number of findings||Number of completed findings||Number of critical findings|
|Social audits||117 (88 indirect suppliers)||768||594||242|
|Mobile surveys*||18 (indirect suppliers)||-||-||-|
|EcoVadis (2014-2018)||485 (direct suppliers)||-||-||-|
|CDPsupply chain**||158 (direct suppliers)||-||-||-|
|Supplier pre-qualification***||1,888 (direct suppliers)||-||-||-|
* Mobile surveys with selected suppliers as a supplementary, innovative review method
In the third step we use our development program for suppliers in close cooperation with selected suppliers to optimize their sustainability performance. This program takes a long-term and sustained approach to improvement.
In addition, we regularly conduct workshops on relevant sustainability topics with selected suppliers. These include:
- Emissions management
- Avoiding hazardous substances and using alternative materials in products
- Extending the life span
- Reducing electrical scrap and launching collection programs
- Designing for greater sustainability and innovation
In 2018, for instance, we conducted three workshops with key smartphone suppliers. We sounded out possibilities for working together on sustainable designs for smartphones. We will continue to pursue this path in 2019 and press ahead with this topic together with our partners. In addition, we are refining our technical specifications with regard to greater product sustainability in order to send appropriate signals to the ICT industry. We are not simply making demands but rather becoming actively involved in the discussion within our supply chain in order to encourage more sustainable equipment design. In 2018, for instance, we started a dialogue with the chemical industry with the aim of initiating the development of more sustainable materials for devices such as routers and media receivers.
Within the framework of the JAC Academy, we trained five of our key suppliers in 2018. This included not only designing and implementing internal audits in accordance with our JAC standards and rules, but also developing a deeper understanding of relevant sustainability topics for manufacturing companies (e.g., content of health and safety standards).
In 2018 we also established a comprehensive system of risk monitoring for suppliers in Procurement. This involves an expanded risk analysis for the existing supplier base, with the suppliers initially being classified (segmented) based on the following criteria:
- Procurement volume
- Critical components
- Dependence on suppliers
Appropriate risk monitoring is carried out depending on the segmentation result:
- Basic monitoring:
Financial, CSR and compliance scoring is performed (by an external audit firm) for all suppliers within the scope of a ongoing review process.
- Active risk monitoring:
The highest-risk suppliers are additionally monitored for all other risks occurring on a global scale (e.g., natural disasters, political risks) by means of a proactive risk monitoring system.
In cases of blatant disregard of the requirements set forth in our Supplier Code of Conduct, we initiate an escalation process to effect fast resolution in accordance with our sustainability standards. If employees have concerns along our supplier chain regarding compliance with laws, internal guidelines, and standards of conduct, they can report these anonymously using our whistleblower portal. The portal is publicly accessible for all of our stakeholders – alongside employees of our suppliers it can also be used, for example, by customers or business partners.
Demand and promote: industry-wide development program for suppliers
We collaborate as partners with our suppliers to make sure they are able to meet our high sustainability criteria. Within our multi-award-winning development program for strategically important suppliers, we have worked with the participants over the past few years to develop solutions for issues such as environmental protection, regulations for working hours, or health protection. In 2018, we placed our supplier program under the umbrella of the Global e-Sustainability Initiative (GeSI ) ICT industry association as an industry approach. It is being continued there as the “Sustainable Development Program” (SDP). In this way, we hope to help make the global supply chains for ICT products more sustainable, even beyond our own value chain. In the second half of 2018, we launched the SDP as a pilot project with four suppliers. From 2019, other ICT companies, their suppliers and sub-suppliers will then join the program. One new key feature of the SDP industry approach is an online tool that makes it easier to collect and evaluate sustainability-related data. The tool also makes it easy to measure the success of all SDP activities effectively using various KPIs. As a result, contributions toward individual sustainable development goals (SDGs), for example, can be made visible. Once the SDP participants have successfully completed the development program, they can use it independently and, in turn, help their own suppliers to improve when it comes to sustainability issues. Our aim is to extend the impact of the program to downstream levels of the supply chain.
We expect to see these companies obtain similar results to those achieved by the participants of our previous supplier program Among these suppliers we achieved not only social and ecological improvements but also measurable economic benefits: Better working conditions reduce the days of absence for employees, have a positive impact on their motivation and boost productivity. All of this also improves product quality, which in turn reduces the number of complaints regarding out products. The ecological improvements include the conservation of resources, for example, for energy and water consumption.
The diagram shows the areas in which we audit the suppliers participating in our program. Using the results, we work with them to develop a plan for remedying any issues. Suppliers receive support from Deutsche Telekom experts as well as professional external consultants in applying these measures. All activities and results are documented so that we can gage the effectiveness of the measures employed. These are corrected, if needed.
Award for climate protection along the supply chain
Working on behalf of investors, the non-governmental organization CDPA List. In 2018, Deutsche Telekom featured in this list for the third time in a row.
As part of the CDP’s Supplier Program, companies ask their key suppliers about their emissions and their climate strategy. We use this program in order to survey our suppliers. We invited 250 suppliers in 2018 (compared to 195 in the previous year) to participate in the CDP Supply Chain Program. These suppliers cover 78.11 percent of our procurement volume. A total of 157 suppliers took part in the program (compared to 109 in the previous year). They cover 71.35 percent of the procurement volume (2017: 66.4 percent). That means we have achieved our goal, of covering 70 percent of procurement volume with suppliers who take part in the CDP Supply Chain Program by 2020, two years earlier than planned. At the same time, we have disclosed our own commitment to climate protection to eight suppliers through this program.
Through our commitment to climate transparency in supply chains, we were awarded a place in the Supplier Engagement Leader Board in 2018. Last year, we only achieved a B rating for supplier engagement.
We also intend to continue helping our suppliers to reduce their emissions. In 2019, workshops with suppliers are planned at which their Scope 3 emissions will be determined and potential derived to reduce them.