The trend in outsourcing manufacturing activities continued in 2009. Philips remains focused on improving working conditions and environmental performance in its supply chain.
Recognizing that this is a huge challenge requiring industry-wide effort, we continue to be active in the Electronic Industry Citizenship Coalition (EICC), whose members share the goal to improve conditions in the electronics supply chain. Philips also believes that cooperation with other stakeholders, such as governments and NGOs, is essential. Accordingly we continue to work with our stakeholders.
Updated Supplier Sustainability Declaration
In 2009 we updated the Philips Supplier Sustainability Declaration in accordance with the updated EICC Code of Conduct, while maintaining the Philips appendix with stricter requirements on freedom of association/collective bargaining. This is in keeping with our General Business Principles and is expected by our stakeholders. Where freedom of association/collective bargaining is restricted by law, we look to see if there are other means of open communication between the supplier’s management and workers. Our Supplier Sustainability Declaration is an integral part of our contractual agreement with suppliers.
2009 supplier audits
Philips conducted a record total of 858 supplier sustainability audits to identify and solve issues in 2009. While we have made signiﬁcant improvements among our ﬁrst tier suppliers, there are still challenges to encourage our suppliers to pass on sustainability standards to their suppliers.
The average number of non-compliances per audit in the risk countries (selection based on the Maplecroft Human Rights Risk Indexes) varies between 22 in India down to 3 in Thailand and Indonesia.
We require our suppliers to pay for the third-party audits, believing this is an effective way of embedding our requirements in the supply chain.
Follow-up audits to check corrective actions are conducted by Philips personnel. This approach is well accepted and appreciated by our suppliers as it helped improving their performance. Where no improvements could be achieved, 12 suppliers were phased out.
Strengthening the organization
In 2009 we moved the functional responsibility for the Supplier Sustainability Involvement Program to China to embed the program in the Asian procurement organization. With our personnel working directly with suppliers and buyers, we can address issues more effectively in a local context.
Auditing Philips sites
Mirroring our supplier approach, 12 internal Philips sites in risk countries were audited by a third party using the EICC checklist. All non-conformities have been resolved or are being resolved in accordance with Philips’ strict resolution timelines.
Supply chain carbon footprint
In 2008 we selected six products and assessed CO2 emission of their components throughout the supply chain. The goal of this pilot project was to create awareness in our supply base, identify large sources of emissions per product type and implement abatement measures collaboratively with our suppliers. We continued this exercise in 2009 by analyzing four more products. Additionally, to further improve measurement and increase understanding of supply chain CO2 emissions, we subscribed to the EICC Carbon Reporting System. This online system allows companies in the electronics industry to calculate their greenhouse gas emissions and share the data with other companies in the industry.
‘Conﬂict’ minerals: issues further down the chain
Philips acknowledges the issues concerning working conditions at the base of the supply chain, speciﬁcally in the extractives sector for metals such as tin, tantalum and tungsten. In particular, we are concerned about the situation in the east of the Democratic Republic of the Congo where proceeds from the extractives sector are sometimes used to ﬁnance rebel conﬂicts in the region.
EICC members stated in February 2009 that mineral extraction and transport activities that fuel conﬂict are not acceptable. Philips participates in the EICC Extractives Work Group, which initiated an industry project in April 2009 to develop supply chain transparency, with a particular focus on cobalt, tin, and tantalum. The project will attempt to identify participants in these supply chains and to obtain information from suppliers relating to conformance to the EICC Code of Conduct and similar programs.
Along with several other leading electronics companies, we convened a multi-stakeholder workshop in San Francisco in October 2009 to engage other sectors and interested stakeholders. We also have had meetings with the Dutch government to see what role government and other institutions can play in resolving the issue of conﬂict minerals.