The Challenges of Managing Unilever’s Global Supply Base

“Building a Sustainable Business Process”

Workshop EIPM 13th-14th march 2008

Petar Sobic – Unilever Global Supplier Assurance Director

Unilever - You may not know us, but you know our brands...

The reputation of our brands are hard to build but easy to loose……….

Increasingly our attention is turning to our suppliers throughout the value chain by the deployment of Responsible Sourcing

The Corporate Brand: “Doing Well by Doing Good”

?Unilever’s Code of Business Principles?Process of Positive Assurance?Vitality driven Brands

?Business Partner Code Assurance?Sustainability Initiatives - Water, Agriculture etc.?Crop Round Tables (RTSPO etc.)

?Unilever’s Community Programmes?~ € 90 mio. spend in 2007

Responsible Sourcing : The Challenge to Procurement

?How to embed Responsible Sourcing practices into the ‘daily work of buyers’ ?

?What processes can be used to manage this in a proportionate manner ?– > 10,000 suppliers of ingredients & packaging– Comprising > 100 countries

?What tools and practices can be leveraged to optimise its efficiency ?

Responsible Sourcing in Unilever

• The Programme Scope

• The Process• Using Risk Assessment

• Focus on Continuous Improvements

• The future• Alignment with Peers and Customers

? There shall be compliance with all applicable laws and regulations of the country where operations are undertaken.

? There shall be respect for human rights, and no employee shall suffer harassment, physical or mental punishment, or other form of abuse.

? Wages and working hours will, as a minimum, comply with all applicable wage and hour laws, and rules and regulations, including minimum wage, overtime and maximum hours in the country concerned.

? There shall be no use of forced or compulsory labour, and employees shall be free to leave employment after reasonable notice.

? There shall be no use of child labour, and specifically there wi ll be compliance with relevant ILO standards.

? There shall be respect for the right of employees to freedom of association*.

? Safe and healthy working conditions will be provided for all employees.

? Operations will be carried out with care for the environment and will include compliance with all relevant legislation in the country concerned.

? All products and services will be delivered to meet the quality and safety criteria specified in relevant contract elements, and will be safe for their intended use.

? There shall be no improper advantage sought, including the payment of bribes, to secure delivery of goods or services to Unilever companies.

The Unilever Business Partner Code (BPC)

1. There shall be compliance with all applicable laws and regulations of the country where operations are undertaken.

2. There shall be no improper advantage sought, including the payment of bribes, to secure delivery of goods or services to Unilever companies

3. There shall be respect for human rights, and no employee shall suffer harassment, physical or mental punishment, or other form of abuse.

4. Wages and working hours will, as a minimum, comply with all applicable wage and hour laws, and rules and regulations, including minimum wage, overtime and maximum hours in the country concerned.

5. There shall be no use of forced or compulsory labour, and employees shall be free to leave employment after reasonable notice.

6. There shall be no use of child labour, and specifically there will be compliance with relevant ILO standards.

7. There shall be respect for the right of employees to freedom of association.

8. Safe and healthy working conditions will be provided for all employees.

9. Operations will be carried out with care for the environment and will include compliance with all relevant legislation in the country concerned.

10. All products and services will be delivered to meet the quality and safety criteria specified in relevant contract elements, and will be safe for their intended use.

1. BUSINESS INTEGRITY

2. LABOUR STANDARDS

4. ENVIRONMENTAL MANAGEMENT

(Managed by QA Function – not in scope)

3. HEALTH & SAFETY

Programme Scope:

4 key Pillars of Responsible Sourcing

Programme

Programme Scope:Deploying New Capabilities for Supplier Assurance

QUALITY

& CONSUMER

SAFETY

HEALTH

&

SAFETY

LABOUR

STANDARDS

&

HUMAN RIGHTS

New

ENVIRONMENT

MANAGEMENT

LEGAL

COMPLIANCE

&

BUSINESS

INTEGRITY

TECHNICAL

CAPABILITY

Existing

ONE UNILEVER

PROCESS & STANDARDS

4 KEY PILLARS

Responsible Sourcing in Unilever

• The Programme Scope

• The Process• Using Risk Assessment to Set Priorities

• Focus on Continuous Improvements

• The future • Alignment with Peers and Customers

The Process:Risk Assessment: Setting Priorities

Capability

(Level of Supplier+ve assurance)

Country (internationally recognised risk factors)

High

Low

Materiality Factorse.g.•Finished Goods Mnfg.•Strategic materials•Industry practices

3rd party Analysis of Country Based “CSR Concerns”

Source: Maplecroft

The Process :Focus on of Continuous Improvements

Plan (Screening)

Check (Audit)

Act (Corrective

Actions)

Do (Assess)

“PDCA”

Site screening

Site Self

Assessments

Risk Assess

Prioritise

SiteAudits`

Gap AnalysisCorrective

Actions

H

HM

Concept Detail

But …bespoke approaches are not sustainable Supplier Inertia• Requests for supplier information becoming a burden• Suppliers are ‘bombarded’ for similar requests & audits from

many customers

Demand on internal resources• Internal resources always ‘at a premium’• 3rd party service providers (should) have the expertise

Supplier Information and Data management is key• Integrated within existing SM/IT tool platforms• Capable of global aggregation

Aligning with Industry Peers and Customers is the way forward

Responsible Sourcing in Unilever

• The Programme Scope

• The Process • Using Risk Assessment

• Focus on Continuous Improvements

• The future• Alignment with Peers and Customers

The Future: Alignment with Industry Peers

• “FMCG PROGRESS”– Programme for Responsible Sourcing– A Global initiative with our FMCG peers

• Common Evaluation methods– 4 Key Pillars– SAQs & Audits

• Supported by AIM (Europe) & GMA (North America)– Formalised now as “AIM-PROGRESS”

• Deployment of the SEDEX data exchange platform– Established, UK-founded, global system– Externally credible – Currently the largest platform for FMCGs and their Suppliers

The Sedex Data Exchange Platform

CommonApproach

&System

SupplyingCompanies

BuyingCompanies

Operating Principles

?Generic Process (PDCA etc.)

– 4 Key Pillars are included

?Supplier owns their data

? Buyer only ‘see’ their Suppliers

?Independent Prioritisation

– Buyer invites their Suppliers register

?Common SAQ completed by Supplier

?Independent Risk Assessments

– Buyer decides on need to Audit

?Common Audit standard using 3rd Parties

?Independent CAPs Policy

LabourStandards H&S Environmental

managementBusiness Integrity

Supplier Operations & Facilities

Common Database

Common Evaluation Methods

External Stakeholder Communication & Reporting

Individual Sedex Members’ Supplier Codes, Policies and Supply Decisions

Supplier Operations & FacilitiesSupplier Operations & Facilities

In s

cop

eO

ut o

f sc

op

e

Sedex Governance & Structure• Not for profit organisation owned and run by members• Founded in 2001 by group of key retailers and manufacturers to drive convergence in ethical trade audits and practices, and to cut down on audit fatigue

Sedex Membership

Three classes of membership:

A members – who view data ( e.g. Retailers)

B members – who maintain data ( e.g. Suppliers)

AB members – who do both ( e.g. Unilever)

More than 200 retailers, brands, manufacturers, agents and importers

A and AB Membership includes…

UK: 3275

B Members by Geography132 Countries

Asia & Australasia 42%

Europe 38%

Africa & ME 14%

S. & C. America 5%

North America 1%

Note: Coverage in the Americas will build now that Unilever, PepsiCo, Kraft, Nestlé etc. have joined

India: 1130South

Africa: 958Sri Lanka:

441

China: 4169Turkey: 568France: 310Chile: 411

B Members by Sector

~20,000 B member sites already registered

9,000 Foods suppliers already there!

Bacardi-Martini ? Barilla ? Beiersdorf ? Bongrain ?Cadbury Schweppes ? Campbell Europe ? Coca-Cola ?Colgate-Palmolive ? Diageo ? Energizer ? Ferrero ?Freudenberg/VILEDA ? Georgia Pacific ? GlaxoSmithKline ? Groupe Danone ? Heineken ? Heinz ? Henkel ?Johnson & Johnson ? Kraft Foods? Kellogg ? Kimberly-Clark ? Leaf ? Lego ? Lindt & Sprüngli ? LVMH ? Mars? McCain Foods ? McCormick ? Nestlé? OetkerInternational ? L’Oréal ? Osram ? Pepsi-Cola ? Pernod Ricard ? Philips Lighting ? Procter & Gamble ? Reckitt-Benckiser ? Royal Friesland Foods ? Royal Numico ?Sara Lee / DE ? SCA Hygiene Products ? SC Johnson ?Unilever ?Wrigley

AIM - Membership

Current PROGRESS members in Red type

The Future: Alignment with Customers

• Global Social Compliance Programme (GSCP)

– Championed by major retailers

· Carrefour, Metro, Migros, Tesco & Walmart

– ‘Reference Code’ for Labour Standards is Developed

• Co-operation between Brand Manufacturers &

Retailers Championed by our CEOs

– FMCG & Retailer CEO Forum in Chicago - 09/07

• Unilever plus several peers have been invited to join

GSCP Task Force

In Summary

?Corporate Responsibility is not a new conceptto Unilever:

Responsible Sourcing is a key element & programme

?Globalisation calls for:Increased accountability, consistency and transparency,

?It is kernel to Business Sustainability:Will be embedded into routine business processes

?Alignment with Industry Peers and CustomersWill develop efficiency & consistency to drive sustainable improvement

Unilever - At a Glance

• Every day 150 million people choose our brands to feed their families and to clean their homes.

• Our products are sold in 150 countries.

• We employ ~ 179,000 people

• Annual sales of ~ € 40 bn