Guide to Supplier Social Responsibility
The foundation of our supplier relationship program is our TE Connectivity Guide to Supplier Social Responsibility (SSR). This Guide outlines TE’s SSR objectives such as rejecting corruption and unfair business practices; promoting environmental sustainability and a healthy work environment; improving working conditions by prohibiting forced, harsh, or inhumane treatment and discrimination of supplier employees; and encouraging diversity through programs that enable socially and economically disadvantaged groups to become part of our supply chain.
TE’s Supplier Sustainability Journey
TE sustainability efforts continue to mature since we made considerable updates to our SSR guidelines in FY 2011. At that time, we significantly updated the SSR guidelines to better align with our corporate responsibility program and our commitment to the UN Global Compact. In particular, we shifted toward an SSR approach that requires suppliers to acknowledge alignment with TE principles. We also expanded our expectations for labor based on escalating global concerns, and we added new information on our efforts to address conflict minerals.
To support the rollout of the new guidelines, we reinvigorated our SSR program internally, including establishing metrics to measure our performance, updating our supplier validation processes, and selecting an external auditing firm to support our auditing objectives. We also provided a series of global communications on corporate responsibility, goals and objectives for SSR, and plans to reach our supply base, among other activities.
TE’s Supplier Code of Conduct: Alignment with our Customer’s Objectives
The TE Connectivity Guide to Supplier Social Responsibility was created to reinforce principles of ethics and sustainability important to both TE and our customers. Accordingly, our Guide is aligned with several industry based codes of conduct, including but not limited to the Electronics Industry Citizenship Coalition (EICC) Code of Conduct. TE’s code however, is more stringent in several important areas, for example, requiring collective bargaining practices and prohibiting any form of involuntary labor.
In 2012, TE has continued driving improvements that are making a difference. Over the last year, our supplier responsibility program included the following key activities:
Supplier Alignment to TE’s Sustainability Efforts – TE’s Global Procurement team extended our sustainability policies and expectations to over 1,190 suppliers, an increase of over 110% from FY11.
Supplier Screenings – TE’s Global Procurement team performed 200 supplier screenings, an increase of 61% over FY11.
Sustainability Auditing – TE’s Global Procurement used our third-party service provider to conduct 31 initial onsite audits, a 62% increase over FY11. We also used a third-party service provider to conduct 12 full re-audits of suppliers initially audited in FY11.
Sustainability Maturation – Global Procurement took solid steps toward maturing our efforts by expanding our annual supplier risk process to include consideration of sustainability issues and establishing localization as a key lever in our procurement efforts.
Conflict Minerals: TE instituted measures to ensure suppliers of products containing conflict minerals are sourced from conflict free regions.
The following information provides an overview of our efforts in sustainability. Also included is an overview of our 2012 audit results and the findings.
Supplier Alignment with TE's Social Responsibility Policies
Ensuring our suppliers have the same sustainability values as TE is a key goal. Our alignment efforts encompass suppliers new to TE, as well as, legacy suppliers who have provided TE with goods and services over time.
When a new supplier joins TE, we systematically provide them with TE’s Supplier Social Responsibility Guide, TEC-1015, in an effort to communicate our sustainability goals. Additionally, the suppliers demonstrate their awareness of our sustainability goals by acknowledging our goals during the supplier set-up process and affirming alignment with our guide.
For our legacy suppliers, we are systematically seeking their acknowledgement of alignment with our social responsibility policies. Every year, we reach out to a select group of legacy suppliers requesting that they acknowledge their alignment via an online assessment to ensure they understand TE’s position on sustainability.
In 2012, we expanded our reach to include suppliers providing indirect material and services. Since 2011, we have communicated TE’s sustainability policies and expectations to 1,756 suppliers, who represent 64 percent of TE’s total spend. Suppliers representing 56 percent of TE spend acknowledged alignment with TE’s policies. We are working with the remaining 8 percent (110 suppliers) to address their questions, concerns, and/or consider their internal programs in an effort at gaining consensus with our sustainability goals.
In the upcoming years, we will continue to extend our sustainability policies and expectations further into our supply base for both direct and indirect goods and services.
Validation of sustainability enables us to understand our supply base. This knowledge enables us to better align our supply base choices and supplier development efforts with our sustainability goals. TE’s validation processes include our newly launched supplier risk assessment, supplier screenings, and onsite sustainability audits.
In late fiscal year 2012, TE established a more comprehensive supplier risk assessment that now includes consideration of sustainability. Annually, suppliers representing over 45 percent of TE direct material spend will be assessed for risk. This robust process will enable Global Procurement to retain a pulse on a significant portion of our supply base as represented by spend and classification.
Supplier screenings which include a supplier self-assessment combined with a TE on-site screening provide TE with a screening of a supplier’s sustainability footprint.
TE personnel perform these screenings to identify potential areas of concern that may require further investigation. In 2012, we completed 200 screenings, a 61 percent increase over 2011. Since 2011, we have completed a total of 324 screenings in over 30 countries.
TE conducts full onsite sustainability audits of selected suppliers on issues of social responsibility. Our audit program aligns with our corporate responsibility program as well as industry standards. The main categories for our audits include: labor, wages and hours, health and safety, management systems, and environment.
The sustainability audit, called a workplace condition assessment (WCA), is performed through a third-party firm by professional auditors, and it assesses a supplier’s SSR compliance through a detailed, intensive onsite audit process. We have conducted 31 initial audits and 12 re-audits in FY 12. Our re-audits were conducted with the full criteria of the initial audits and not just the corrective actions of the findings of the first audit.
TE’s validation efforts continue to mature. Since 2011, we have performed validation efforts for 376 supplier facilities representing over 32 percent of direct material spend. These suppliers provide a diverse range of products and services in more than 31 countries.
TE’s supply chain sustainability processes are maturing, so it is critical we take an approach that defines and incentivizes continuous improvement. We believe it is important to work in partnership with our suppliers to find solutions, including the remediation of instances of non-compliance as well as investment in suppliers’ management capabilities.
Remediation can include, among other activities:
· TE and suppliers working together to create a corrective action plan
· Monitoring progress toward an implementation plan
· Termination of relationship when serious compliance issues are not remedied
As of October 31st, 2012, TE performed 52 WCAs (initial audits) and 12 full re-audits. These audits include an assessment in these areas of interest:
· Management Systems
· Health and Safety
· Wages and Hours
The facilities audited showed solid performance against our service provider’s global benchmark in their environmental and labor practices. Our supplier’s performance is trending toward the global benchmark in management systems, and health and safety. Wages and hours is an improvement area.
We believe we can have a positive impact on the environment and local communities in which we do business by buying materials close to the facilities where they will be consumed. Localization shortens transportation distances, which in turn reduces fuel consumption and other transportation costs. It also bolsters the economic development in the local community.
To further our localization efforts, TE elevated awareness on the impact of localization internally by:
· Increasing communications to align efforts and develop comprehension of localization strategies
· Refining tracking metrics to monitor progress
· Establishing strategies to advance our goals
· Building selection of localized suppliers into our new product development process
One of the greater challenges we experience in driving localized spend is the readiness of the supply base in emerging countries to support our business. Enhancing our capability to drive efficient and effective supplier development is critical to our efforts.
TE’s FY13 goal seeks to achieve localized spending between 85 and 95 percent of our total direct material and to maintain that as we grow our production and expand into new regions.
TE recognizes the challenges that lie ahead in establishing reasonable practices to break through existing complexities and barriers to information throughout the conflict minerals supply chain. Working together, TE and its suppliers can help establish traceability of conflict minerals that will promote the eradication of human rights abuses associated with The Democratic Republic of Congo (DRC) regional mining activities, and assurance to our end customers that our products and materials are responsibly sourced.
TE strives to have a conflict free supply chain, and is committed to sourcing products and materials from non-conflict sources. We expect suppliers to have processes in place to effectively trace their materials and products of which conflict minerals are a part, to ensure that these conflict minerals do not originate from mines within the DRC and the surrounding region.
To help further the benefits of Section 1502 of The Dodd Frank Act and promote its intended purpose, TE will work with suppliers with underdeveloped processes, providing information and guidance in an attempt to increase transparency.
Because we view our suppliers as an extension of TE, we believe it is important work together with suppliers in finding quality solutions for their growth in sustainability. Progress starts with communication and education. In support of our validation efforts, TE is exploring avenues to communicate and/or educate our suppliers in areas of concern on sustainability. In FY13, our intent is to provide education aligned with our validation efforts to ensure these programs are mutually supportive to achieving our end goals – a more sustainable supply chain.
In 2012, TE performed outreach with a select group of suppliers at our inaugural Supplier Technology Trade Show in conjunction with TEchCon 2012—TE’s annual Technical Conference and the 2012 TE Global Operations Leadership Meeting.
Over 500 of TE’s Engineering and Operations leaders and nearly 100 supplier representatives attended the one-day event. During the event, TE Global Procurement also hosted a Supplier Social Responsibility (SSR) booth that emphasized to both TE attendees and our suppliers the importance of sustainability to TE.
We intend to explore more outreach opportunities with the goal of expanding awareness and maturity in our supplier’s sustainability practices.