Supply chain management
SCA’s ambition is to promote sustainable and responsible business practices in its supply chain by choosing and rewarding partners who share the same values as SCA and comply with SCA’s Code of Conduct and Global Supplier Standard. SCA wants to ensure safe and high-quality goods and services for its customers and consumers delivered with respect for people and nature.
New supply-chain target
To strengthen SCA’s commitment to responsible and sustainable sourcing, a new supply-chain target was launched in 2016. While the former target was limited to global and strategic suppliers, the new target aims to cover all suppliers of raw materials, services and non-production material on a global, regional and local level. It also includes a stricter risk assessment procedure.
The new target is defined as: “We will evaluate all of our supply streams from a total risk perspective. By 2020, we aim to source 100% of our procurement spend from suppliers committed to the criteria specified in our Global Supplier Standard.”
Based on risk assessment, the focus areas for 2016 and 2017 have been identified as suppliers located in Eastern Europe and Latin America, and in particular suppliers of recycled fibers, cotton and logistic services.
In 2016, 16 of 19 global hygiene sourcing teams received social ethical training. More about the new supply-chain target and training is available in chapter The Code shows the way.
SCA’s supplier base
In its previous target, SCA focused on global, regional and strategically important suppliers, which accounted for about 70% of its purchasing costs. The risk analysis mainly looked at the country of purchase.
In its new target, SCA will include all purchases, even in other categories, such as local sourcing, services and logistics. The risk analysis includes more risk parameters and has a stronger link to current sourcing work. As a consequence, about 28,000 suppliers of goods and services, accounting for more than 80% of SCA’s procurement spend, will gradually be included in SCA’s risk analysis and supplier assessment compared with 600 to 700 in the previous target.
All suppliers are required to sign the Global Supplier Standard, to report on working conditions, health and safety and business ethics through Sedex, and, depending on the outcome of the risk review, potentially be subject to an ethical audit.
Results 2016
At year-end, 46% of the hygiene operations’ procurement spend was sourced from suppliers committed to the criteria specified in SCA’s Global Supplier Standard. Of forest products’ 23 (29, 30) largest suppliers, 87% (86, 83) had signed the Global Supplier Standard.
Supply chain management tools
SCA measures its progress in terms of securing social and ethical compliance throughout its supply chain using four KPIs:
- Global Supplier Standard: All suppliers to the hygiene and forest products operations undertake to comply with SCA’s policies by signing the Group’s Global Supplier Standard (GSS).
- Risk assessment: To secure a continuous and proactive approach to identifying and managing any critical social/ethical issue in the supply chain, an enhanced approach to risk assessment has been implemented.
- Sedex database: Selected suppliers are required to register in Sedex for risk assessment.
- Ethical audits: Suppliers who receive a high-risk rating in SCA’s risk assessment might be subject to social audits.
Global Supplier Standard
SCA has applied a Global Supplier Standard (GSS) for many years. The hygiene and forest products operations have previously applied individual versions of the GSS. In 2016, the two versions were consolidated into a single version valid for the entire SCA business and, in addition, the GSS was updated to reinforce sustainability criteria and to secure global coverage. The standard includes requirements governing quality, product safety, the environment, energy and chemicals. The GSS also includes a section entitled “Responsible business operations”. This section includes SCA’s expectations of its suppliers with regard to human rights, business practices, employee relations and health and safety.
As a consequence of the extended supplier scope, SCA’s Global Supplier Standard was translated into 10 languages in 2016 and compliance-demand documents have been designed to be applicable for certain suppliers, such as service providers.
Approximately 83% of the hygiene operations’ supplier base is located in Europe, 17% in the Americas and 0.6% in Asia/Middle East. Many of the global, strategic suppliers’ production facilities located in Asia and Latin America belong to large multinational corporations based in Europe and the US, a conscious choice by SCA to reduce ethical risks within our supply chain.
Of the wood raw materials purchased by SCA, 88% is from Sweden (of which half from the company’s own forests), 9% from central Europe and 3% from the Baltic countries and Finland. SCA strives to further integrate procurement practices with the requirements of the SCA Global Supplier Standard.
Reporting in Sedex
Sedex is an online database that enables suppliers to share information with their customers on their trading practices (health and safety, labor standards, the environment and business ethics) in order to promote ethical and responsible practices in the supply chains. SCA requires selected suppliers to perform a self-evaluation in Sedex and share their status. The answers are used for risk assessments (see below).
Improved processes for supplier risks
During the year, SCA developed its supplier risk assessment to include sustainability criteria. From a focus on political, financial and legal risks, the scope has been broadened to provide a more nuanced risk assessment. The aim was not to create new structures but rather to incorporate sustainability criteria, such as respect for human rights and working conditions, into existing processes. Sustainability issues are taken into consideration both when evaluating potential suppliers and in the continuous risk assessment of suppliers and purchased materials, products and services. One source of input is the supplier data registered in Sedex, but other risk-related input is also considered.
Ethical supplier audits
Global and regional suppliers of raw materials and merchandise represent about 50% of the hygiene operations’ procurement spend, of which 21% (12) are located in high-risk countries according to the Maplecroft Human Rights Index. These suppliers are in scope for ethical audits with a focus on health and safety, human rights, employee relations and corruption. An ethical audit of a supplier can also be triggered by other indicators, such as a low rating in Sedex, a low health and safety score in SCA’s supplier qualification audit or the outcome from SCA’s risk assessments. The goal is to audit all high-risk suppliers, based on SCA’s risk assessment procedure. SCA has engaged a Swiss-based external partner, SGS, to perform the audits. The method used to evaluate suppliers is the same as SCA uses to monitor its own production units and is based on the SA8000 standard. SCA also accepts independent audits or audits performed on behalf of other clients if the topics covered match the SCA audit protocol and information about corrective and preventive action (CAPA) closing is shared. At the end of 2016, about 150 ethical supplier audits had been conducted since 2013.
The Group evaluates potential suppliers prior to contracting and continues to review suppliers at regular intervals. All new suppliers must sign the GSS and preferably also register in Sedex prior to any business activities. SCA also conducts chain of custody audits of fiber suppliers, see chapter Fiber sourcing.
Some of SCA’s customers with high ethical standards require SCA’s suppliers (their sub-suppliers) to register in Sedex or conduct on-site ethical audits. SCA supports these customers in their ambitions.
Ethical audit results 2016
During the year, SCA evaluated the outcome from 17 ethical supplier audits, of which 13 were carried out by SGS on SCA’s behalf in India, Saudi Arabia, Brazil, Russia and Mexico. In addition, four ethical audits performed by another customer of the supplier were approved by SCA.
Suppliers and SCA receive feedback in connection with the audits. Depending on the outcome of the audit, an improvement plan may be established involving SGS and the supplier. In most cases, the findings involve minor health and safety issues.
If critical findings are identified, SCA is informed within 24 hours. To date, findings triggering this kind of reaction have consisted of rare cases of excessive overtime, overtime not being paid at a premium, no evidence of fire drills being conducted in the last 12 months or insufficient or non-existing procedures for verifying workers’ age upon recruitment. Two agreements with global suppliers were terminated on the grounds of sustainability-related non-compliance in 2016.
Control of cotton providers
Some of SCA’s hygiene products contain cotton fibers. The volumes are exceedingly small but since cotton agriculture is associated with social and environmental risks, SCA pays particular attention to cotton farming. If there is an intent to use cotton fibers in any product, the fibers must be sourced in a responsible manner to reduce the environmental and social impact.
SCA is shifting its sourcing from potential high-risk areas to suppliers with greater transparency and lower risks. This is because SCA’s purchasing levels do not provide the company with sufficient influence further down the supply chain. At the end of 2016, SCA had shifted approximately 80% of its volumes to areas with a lower risk level, i.e. Turkey.
To further promote improvements in the cotton industry, SCA has decided that any cotton sourced must be part of a recognized certification scheme. BCI (Better Cotton Initiative), Fair Trade and GOTS (Global Organic Textile Standard) are certification schemes recognized by SCA, with BCI as the preferred option. At the end of 2016, SCA decided to become a member of BCI, a non-profit organization stewarding the global standards for better cotton. The transition to certified volumes will take place in stages.
Conflict minerals
There has been a significantly increased focus on conflict minerals in recent years due to the introduction of the US Dodd-Frank Act and the EU regulation on conflict minerals. SCA markets a very limited range of products that are likely to contain conflict minerals, mainly electronic dispensers for the AfH tissue business and some articles within the Tena Identifi range. SCA is in close contact with the suppliers and has shared its expectations of them. If SCA deems that a supplier’s due diligence does not fulfill the regulatory requirements, a corrective action plan is established or the supplier is phased out. SCA has also adopted a position paper on conflict minerals and both supplier qualification and product innovation processes have been updated to include conflict minerals in the normal risk assessment.
Recovered fiber risk assessment
SCA is aware of the risks related to occupational health, forced labor, child labor and human rights in general that may occur in connection with recovered fiber sourcing in potential high-risk regions. A report from the risk strategy consultant Maplecroft identified Latin America as a high-risk area and SCA has initially chosen to focus on risk management in its Mexican operations since these are conducted by a wholly-owned company with substantial sales.
In 2015, SCA developed a voluntary Supplier Recognition Program that was rolled out in Mexico in 2016. The program includes a supplier commitment to SCA’s Global Supplier Standard, health and safety requirements, hygiene requirements and recovered fiber criteria. For example, SCA does not approve fiber materials from landfill. Nine suppliers have joined the program, corresponding to 63% of volumes. The program is appreciated by suppliers, thus not only mitigating risk but also increasing supplier loyalty and securing supplies.
Control of forest contractors
SCA’s forest operations almost exclusively use contractors for harvesting and silviculture. Contractors hired by SCA undertake to comply with applicable laws and regulations, including collective agreements and SCA’s Supplier Standard. In recent years, SCA has significantly strengthened the requirements imposed on contractors. Among other stipulations, the following are included in agreements with contractors:
- The contractor must be a member of an employers’ organization or have a local collective agreement in place with the GS union (the Swedish union of forestry, wood and graphical workers).
- The contractor must adhere to the rules under the forest worker agreement relating to work environment, working hours and pay.
- The contractor must comply with the guidelines relating to employees’ rights as stipulated in the FSC® (Forest Stewardship Council) and PEFC™ (Programme of the Endorsement of Forest Certification) forest standards.
- The contractor must practice a systematic health and safety program and must have carried out at least one follow-up during the past year.
SCA has also further developed and simplified its assessment methods for health and safety and employment terms.
Monitoring in 2016
SCA follows up compliance with the above standards together with its contractors. In addition, field spot checks are performed by both the GS union and SCA.
In summer 2016, SCA carried out extensive controls of its silviculture contractors with regard to working conditions, work permits, salaries, and so forth. Visits were made to 25 teams with a total of 120 employees. 70% of the employees were from another EU/EES country than Sweden, and 1% came from countries outside the EU/EES. All work conditions were compliant with SCA’s requirements, as well as applicable laws. In one case, a contractor has used employees through a subsidiary in Lithuania that did not have Swedish collective agreements. The case is subject to proceedings between the contractor and the GS trade union. SCA has demanded corrective actions.