Supply chain management

Choosing responsible business partners is becoming increasingly important and SCA works together with its suppliers to make mutually beneficial improvements with respect to social and environmental performance.

SCA’s supplier base

SCA has about 67,000 suppliers of goods and services, of which about 50,000 account for a spend of below SEK 100,000. Of these, we have identified a supplier base consisting of global, regional and other strategically important suppliers. The supplier base consists primarily of raw material and merchandise suppliers, as well as suppliers of strategic services, such as marketing, IT and travel. Based on spend and/or potential risk, suppliers are required to sign the Global Supplier Standard, register in Sedex and, in some cases, be subject to a CSR audit.

All in all, the identified supplier base account for two-thirds of the Group’s total purchasing costs. The remainder includes mainly local suppliers of non-production material and local services.

Results 2015

At year-end, 84% (75) of the hygiene operations’ approximately 630 global suppliers had signed the SCA Global Supplier Standard (GSS). Of forest products’ 25 (29) largest suppliers, 86% (83) had signed the Global Supplier Standard.

Since the SCA supply chain target was adopted in 2010, SCA has substantially expanded the scope of its Global Supplier Standard program. In addition to the approximately 350 suppliers that were originally within the scope of the compliance program, an additional 280 suppliers have been successively added, an increase of 80%. SCA is currently reviewing its supply chain ambitions and targets to continue its work to ensure a responsible supply chain.

Supply chain management tools

Regarding supplier requirements and follow-up, SCA works with and assigns priority to three distinct steps:

1. Global Supplier Standard: All global suppliers to the hygiene and forest products operations undertake to comply with SCA’s policies by signing the Group’s Global Supplier Standard (GSS).

2. Sedex database: SCA’s strategically important suppliers, from which substantial purchases are made and/or which are located in high-risk countries, are registered in Sedex.

3. Audits: Suppliers located in high-risk countries are CSR audited and all major suppliers undergo quality audits, which also includes verifying workplace health and safety. CSR audits can also be triggered by other factors, such as a low rating in Sedex, a low health and safety score in a quality audit or any other credible external source of information.

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 January 2016, the two versions were consolidated into one 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 responsible business operations, quality, product safety, the environment, energy and chemicals. The GSS is complemented by a supplier code of conduct named “Responsible Business Operations”. It includes SCA’s expectations on suppliers with regard to human rights, business practices, employee relations and health and safety.

Approximately 57% of the hygiene operations’ global suppliers are located in Europe, 29% in the Americas and 14% in Asia/Middle East. Many of the 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

SCA’s strategically important suppliers, from which substantial purchases are made and/or which are located in high-risk countries, are registered in Sedex. This is where the Group takes into account geopolitical, social, ethical and sustainability-related risks.

At the end of 2015, 85% of the approximately 470 global suppliers to the hygiene operations that were relevant for Sedex registration had reported their details in the database. In the forest products operations, 27 out of 43 suppliers were identified as relevant.

Supplier audits

Suppliers located in high-risk countries correspond to 12% of SCA’s procurement spend and they undergo CSR audits with a focus on health and safety, human rights, employee relations and corruption. SCA uses Sedex and Maplecroft’s risk classification to identify these suppliers. The goal is for all suppliers located in high-risk areas to be audited. To achieve this goal, SCA has engaged a Swiss-based external partner, SGS, to perform audits. The method used to evaluate suppliers is the same as that used to monitor SCA’s own units. At the end of 2015, 130 CSR audits had been conducted.

The Group evaluates potential suppliers prior to contracting and continues to review suppliers at regular intervals. Social and environmental aspects account for more than 20% of SCA’s quality assurance prior to new partnerships and all new suppliers must sign the GSS and register in Sedex prior to any business activities. SCA also conducts quality audits and chain of custody audits of fiber suppliers.

Some of SCA’s customers with high ethical standards require SCA’s suppliers (their sub suppliers) to register in Sedex or conduct CSR on-site audits. SCA supports these customers in their ambitions.

CSR audit results 2015

During the year, SGS carried out about 30 CSR supplier audits on SCA’s behalf in China, Mexico, India, Brazil, Malaysia, Thailand, Saudi Arabia and Vietnam. SCA’s global purchasing function also considers sustainability performance when evaluating suppliers.

Suppliers receive feedback in connection with the audits and then SCA’s purchasers determine whether to continue the collaboration. SCA and SGS work together with suppliers to resolve any non-compliance issues. In most cases, these are minor health and safety issues. Within three weeks of the audit, SGS shares the audit report and corrective action plan with the supplier and SCA. If critical findings have been identified during the audit, SCA is informed within 24 hours. To date, findings triggering this kind of reaction have consisted of rare cases of excessive overtime, work for more than six days in a row, no fire drills being completed in the last 12 months or insufficient or non-existing procedures for verifying workers age upon recruitment. To further promote sustainability performance at suppliers’ units, SCA asks suppliers how the Group can provide support, since SCA’s actions could affect the ability of suppliers to comply with expectations and requirements.

No agreements with global suppliers were terminated on the grounds of sustainability-related non-compliance in 2015.

Control of cotton providers

Some of SCA’s hygiene products contain by-products from the cotton industry. The volumes are exceedingly small but since cotton agriculture is associated with social risks, SCA pays particular attention to cotton farming.

SCA is shifting its sourcing from potential high-risk countries to areas 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 2015, SCA had shifted approximately 70% of its volumes to areas with a lower risk level, i.e. Turkey.

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. As a consequence, the company commissioned a report from the risk strategy consultant Maplecroft with the mandate to identify parts of SCA’s value chain with potentially higher risk. The report identified Latin America as a high-risk area and SCA chose to initially focus risk management on its Mexican operations since it is a wholly-owned company with substantial sales.

Recycled fiber accounts for a small part of the recycling industry in Mexico and SCA is a small player. Nevertheless, the Group has a responsibility to improve the existing conditions through our influence. In 2015, we visited suppliers throughout the value chain and, in some cases, identified inadequate working conditions, particularly related to health and safety, among those who collect and sort waste. We have begun working with existing suppliers through a supplier program (see chapter Code of Conduct) and have a dialog with the paper industry to identify common standards and with authorities to increase the focus on working conditions for waste collectors.

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 2015

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 2015, SCA carried out extensive controls of its silviculture contractors with regards to working conditions, work permits, salaries, and so forth. Visits were made to 36 teams with a total of 157 employees. 80% of the employees were from another EU/EES country than Sweden, and 14% came from countries outside the EU/EES. All conditions were compliant with SCA’s requirements, as well as applicable laws and collective agreements. In one team, employees had questions regarding salary levels. The misunderstanding was due to lack of information, which was resolved after contact with the contractor.