7. Supply chains that our customers trust

We need to manage our supply chain actively and effectively, so our stakeholders and customers can be confident our suppliers behave ethically, and work towards upholding robust environmental and social standards. With a supply chain that involves thousands of firms and around $50 billion in spend every year, this is both a challenge and an enormous and unique opportunity.

Why is this important to us?

Companies as large as ours are expected to take responsibility for their supply chains, and not just their own behaviour. At the same time, even an average-sized business will now have a supply chain that stretches across many jurisdictions, and in our case across the whole world. The complexities involved require commitment and collaboration.

The commercial imperative

What kind of challenges do we face?

We must demand the same high standards of social, environmental and ethical performance from our suppliers as we do from ourselves. We risk losing customers if our competitors can offer more robust proof of the sustainability of their own supply chain. We could also face a reputational risk if, for example, suppliers are not managing their environmental or social standards well.

What do we need to do?

We need to understand our value chain even better so that we can manage the risks, and seize the opportunities. We will do this by developing our work to identify suppliers and products that could pose a risk, undertaking ‘deep dives’ into specific areas, and collaborating with others to share learning and further drive up supply chain standards across the industry.

What is the potential to create value?

We believe that a responsible supply chain is almost always a more efficient, more competitive, and more resilient one. By continuing to take a responsible approach, we will be better placed to minimise risk and seize new opportunities, especially with customers in sectors which are starting to expect greater transparency in the supply chain, like automotive, construction and packaging. We can also keep our own costs down in the long term by helping our suppliers improve quality, cut energy use, and save water. We can even help them grow their business, by helping them to develop alternatives to their existing product ranges.

Our stakeholders’ expectations

Pressure on companies to ensure their supply chains are responsibly managed is increasing, both from governments and other stakeholders. For example, tenders for many public sector contracts require bidders to demonstrate the sustainability of their products. Likewise, consumers are increasingly aware of the social and environmental issues associated with companies’ sourcing decisions, and businesses that make irresponsible or unsustainable decisions can expect to attract negative media attention. As a result, the manufacturers and designers who buy our steel want to know more about the standards that apply in our supply chain. We are also seeing a proliferation of certification schemes, voluntary standards and product labelling in our markets. Just as timber, fish and jewellery have become subject to international sustainability standards, the steel and mining industries are now under the spotlight, and we are seeing a growing momentum towards global standards.

The outcome we need

We are confident that our suppliers live up to our own high standards because we know we manage our supply chain responsibly, and are trusted to do so by our customers and stakeholders.

Achieving our new outcome

Building on our existing work on responsible sourcing, we are reviewing our approach to procurement as part of our new sustainable development framework. This will help us to work towards ensuring we have supply chains that we and our stakeholders can trust. It will involve looking at long-term social and environmental trends, at the expectations of the manufacturers who are our customers, and assessing not only the risks but the opportunities to be had by collaborating with others. We will also deepen our existing approach to global suppliers to better understand the risks in our supply chain.

Our approach to date

In 2015 we spent some $47 billion on our supply chain. Raw materials, industrial equipment and operating products are purchased at a central level through a single purchasing channel.

Our code for responsible sourcing

Our code for responsible sourcing sets out the same high standards for our suppliers as we expect of our own operations. It was established in 2010, in consultation with customers, suppliers, peer companies, and NGOs, and observes international best practice. It covers health and safety, human rights, labour standards, business ethics and environmental management, and has evolved to incorporate new developments, such as global standards on conflict minerals. 

The code is the starting point for our approach to assessing our supply chain. Since 2010 we have shared it across our supply chain and our suppliers are asked to acknowledge it or commit to equivalent standards. When we register a new supplier, we require them to agree to the terms of the code. We have developed a training programme for our buyers – we have over 1,200 across the world. We undertake a quarterly supply chain risk review covering issues such as fraud, corruption and environmental risks, and where we identify a risk, we follow this up by engaging with the relevant suppliers. Some recent examples are highlighted below. We are now exploring the value of including additional and third-party checks. We also invite all our global suppliers to complete an annual questionnaire: any which do not meet our standards will be evaluated on an ongoing basis until they are able to comply and, if necessary, we will propose an action plan to them to help them monitor their progress towards meeting our standards.

Conflict minerals

There is continued concern that some conflicts around the world are being financed by the trade in minerals such as tin, tantalum, tungsten and gold. From a portfolio of more than 2,000 steel products, only a very limited number contain tin and tungsten, which are necessary for the functionality or production of certain products. We don’t directly purchase these minerals, or have any direct relationship with any mines or smelters that process these minerals. Nonetheless, we were involved in drawing up the 2011 OECD guidance aimed at ensuring companies carry out adequate due diligence on their supply chains on this issue. Our own due diligence procedure together with the results of our latest due diligence survey is detailed here

The legal framework covering this issue is the US Dodd-Frank Act, which requires companies to either make a disclosure each year to the US Securities Exchange Commission certifying that no such minerals used in a company’s products have been sourced from the Democratic Republic of Congo or adjoining countries, or to file a report if any such minerals have been used in a their products. We comply with this legislation, and our most recent submission can be viewed here.

REACH and GHS regulations

European legislation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) covers the manufacture, import and use of certain chemical substances in Europe, and the Globally Harmonized System (GHS) covers the same issues worldwide. These regulations are designed to protect human health and the environment, and require suppliers and producers throughout the supply chain to report on their use of these substances. We have actively engaged in the development of the REACH and GHS processes, and comply in full with their requirements. There is more detail on this here.

What's new?

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