Supplier indicators

In addition to our own sustainability activities, we also engage our suppliers and their suppliers toward better sustainability practices. To that end, we are active in various supply chain initiatives around the world.

Philips has a direct business relationship with approximately 10,000 product and component suppliers and 30,000 service providers. Given the size and complexity of our supply chain we need to focus our efforts. Therefore, we developed an approach based on the supplier’s sustainability risk profile related to spend, country of production, business risk and type of supplier relationship. The risk profile is used to select suppliers for inclusion in our sustainability audit program, conflict minerals, and IDH Electronics program.

Philips Supplier Sustainability Declaration

The Philips Supplier Sustainability Declaration is based on the EICC Code of Conduct and in line with our General Business Principles, we added requirements on Freedom of Association and Collective Bargaining. The topics covered include labor and human rights, worker health and safety, environmental impact, ethics, and management systems. We monitor supplier compliance to the Declaration through a system of regular audits.

We rolled-out the Declaration via the purchasing contracts signed with suppliers, and via all trainings and audits.

The Declaration requires suppliers to cascade the EICC Code down to their next tier suppliers. Suppliers must regard the Code as a total supply chain initiative and at a minimum, also require its next tier suppliers to acknowledge and implement the Code. This roll-out to deeper levels in the supply chain is reviewed during the on-site audits, where it is assessed how requirements have been communicated to the next tier suppliers and whether there is an effective process in place to ensure that the next tier suppliers implement the Code.

Risk suppliers with who we have a direct business relationship are included in the supplier sustainability audit program, and most of these are tier 1 suppliers. However, sometimes Philips also selects and prescribes the tier 2 suppliers, in which case these tier 2 suppliers will also be included in the audit program.

Supplier Sustainability Audit Program

We monitor supplier compliance with the Declaration through a system of regular audits. During these audits, an independent external party visits the supplier’s site for several man-days to hold interviews with workers and management, do a factory tour, and review documentation. Based on their risk profile, 576 risk suppliers are included in the supplier audit and development program; the majority of these are in China. During the audits, compliance with all sections of the Declaration is reviewed. In the event of non-compliance (NC) we require suppliers to make a corrective action plan, and we monitor its implementation until all major NCs are resolved. Full-scope audits are conducted in a 3-year cycle; to date we have audited 99% of all identified risk suppliers.

Philips Group
Audit cycle
2014
3-year cycle
Initial audit
(full scope)
Corrective action implementation
Resolution audit
(limited scope)
Continued
conformance audit
(full scope)
Supplier training and capacity building
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Identifying improvement areas

2014 Audits

In 2014 we audited 203 of our current risk suppliers, including 129 continued conformance audits with suppliers that we already audited in 2011. This includes 7 suppliers from discontinued operations. Risk suppliers from recently acquired companies are also included, and this year we audited 11 suppliers from the acquisitions of Povos and Preethi. As in previous years, the majority of the audits were done in China. Also in Brazil, India and Mexico audits were done, as well as a small number of audits in Indonesia, Russia and Ukraine. With these audits we directly or indirectly impacted almost 160,000 workers employed at the production sites that were audited.

On top of the audits with current risk suppliers, we also audited 35 potential suppliers during the supplier selection process. These potential suppliers need to close any zero-tolerance issues before they can start delivering to Philips. Below we report on the findings at existing suppliers only; findings at potential suppliers are not included in this report since these suppliers are not (yet) part of Philips’ supply base.

To track improvements Philips measures the ‘compliance rate’ for the identified risk suppliers, being the percentage of risk suppliers audited within the last 3 years and don’t have - or have resolved all - major NCs. During 2014 we achieved a compliance rate of 86% (2013: 77%).

Philips Group
Number of initial and continual conformance audits
2014
18Brazil52104China159India33Mexico3Initial5Continued conformanceOthers

Audit findings

Below table shows the results of the full scope audits done during 2014. When the audit reveals areas of non-compliance we request suppliers to implement corrective actions and our sustainability experts and independent third-party auditors monitor the implementation during resolution audits. The results of the resolution audits are not included in the table below.

Philips Group
Summary of 2014 audit findings per region Suppliers without any major non-compliances per category (in % of suppliers audited in 2014)
“>90%” means that >90% of the audits done in 2014 showed compliance for a certain category
 
China
Asia excl. China
LATAM
EMEA
Total
No. of audits
156
29
15
3
203
Initial audits
52
15
4
3
74
Continued conformance audits
104
14
11
-
129
Average number of non-compliances per audit
9
22
11
1
11
Workers employed at sites audited
145,453
6,356
5,510
455
157,774
Labor
 
 
 
 
 
Freely Chosen Employment1)
75-90%
10-25%
>90%
100%
75-90%
Child labor prohibition /young worker management2)
75-90%
100%
100%
100%
75-90%
Working hours
25-50%
25-50%
100%
100%
50-75%
Wages and Benefits
50-75%
25-50%
100%
100%
50-75%
Humane Treatment
100%
>90%
>90%
100%
>90%
Non-discrimination
>90%
100%
100%
100%
>90%
Freedom of association
100%
>90%
100%
100%
>90%
Health & Safety
 
 
 
 
 
Occupational Safety
50-75%
25-50%
50-75%
100%
50-75%
Emergency Preparedness
50-75%
10-25%
25-50%
100%
50-75%
Occupational Injury and Illness
50-75%
25-50%
50-75%
50-75%
50-75%
Industrial Hygiene
50-75%
75-90%
75-90%
100%
50-75%
Physically demanding work
100%
75-90%
50-75%
100%
>90%
Machine safeguarding
75-90%
75-90%
75-90%
100%
75-90%
Food Sanitation and Housing
50-75%
75-90%
50-75%
100%
50-75%
Environment
 
 
 
 
 
Environmental Permits and Reporting
75-90%
50-75%
>90%
100%
75-90%
Pollution prevention and resource reduction
>90%
50-75%
100%
100%
>90%
Hazardous substances
50-75%
75-90%
50-75%
100%
50-75%
Waste water and solid waste
>90%
100%
50-75%
100%
>90%
Air emissions
>90%
50-75%
50-75%
100%
75-90%
Product content restrictions
100%
100%
100%
100%
100%
Management systems
 
 
 
 
 
Certified management system
25-50%
10-25%
10-25%
50-75%
25-50%
Company commitment
>90%
50-75%
50-75%
100%
75-90%
Management accountability and responsibility
75-90%
25-50%
50-75%
50-75%
50-75%
Legal and customer requirements
75-90%
25-50%
50-75%
100%
75-90%
Risk assessment and risk management
75-90%
25-50%
25-50%
100%
50-75%
Improvement objectives
75-90%
25-50%
50-75%
100%
50-75%
Training
75-90%
25-50%
50-75%
100%
75-90%
Communication
75-90%
25-50%
75-90%
100%
75-90%
Worker feedback and participation
>90%
50-75%
50-75%
100%
75-90%
Audits and assessments
50-75%
25-50%
25-50%
100%
50-75%
Corrective action process
75-90%
25-50%
50-75%
100%
75-90%
Documentation and records
75-90%
25-50%
>90%
100%
75-90%
Supplier responsibility
75-90%
25-50%
25-50%
100%
50-75%
Ethics
 
 
 
 
 
Business Integrity
75-90%
10-25%
50-75%
100%
50-75%
No improper advantage
>90%
50-75%
75-90%
100%
75-90%
Disclosure of information
100%
100%
100%
100%
100%
Protection of Intellectual Property
>90%
50-75%
100%
100%
>90%
Fair business, advertising and competition
>90%
75-90%
100%
100%
>90%
Protection of identity
>90%
50-75%
75-90%
100%
75-90%
Responsible sourcing of minerals
>90%
100%
100%
100%
>90%
Privacy
100%
100%
100%
100%
100%
Non-retaliation
>90%
75-90%
100%
100%
>90%
General
 
 
 
 
 
EICC Code
100%
25-50%
100%
100%
>90%
1)
Freely Chosen Employment: these cases are related to workers not receiving a contract in their mother language
2)
Child labor avoidance /young worker management: No cases of child labor were found. The non-compliances identified are related to missing procedures to adequately prevent child labor.
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Most frequent areas of non-compliance in 2014

  • Certified Management System (ISO9001, ISO14001, and OHSAS18001)
  • Emergency Preparedness
  • Working Hours

Positive trends compared to last year

  • Working Hours (10% less NCs)
  • EICC Code: understanding and commitment of Code and requirements (5% less NCs)
  • Wages and Benefits (5% less NCs)

Negative trends compared to last year

We see an increase of 5% in the NCs for the following areas:

  • Protection of Identity
  • Food, Sanitation and Housing
  • Occupational Injury and Illness

Management systems

There may be areas where our audits reveal compliance in actual practice, but the related underlying management systems to safeguard continued compliance may not be sufficient. Therefore, also management systems are reviewed during the audits. Although the 2014 audits show improvements compared to previous years, we see this as a continued weak area at suppliers where further capacity building is necessary. Related to management systems the most frequently observed NCs are:

  • Certified management system (missing certificate for one or more of these systems: ISO9001, ISO14001, and OHSAS18001)
  • Audits and assessments (no regular self-assessments and follow-up done by supplier)
  • Supplier responsibility (EICC Code requirements have not been communicated to the next tier suppliers)
Philips Group
Audit progress and targets
2014 Goals
Progress
75% of corrective actions implemented within 90 days (for major NCs found in 2014 audits)
Average NC closure time was around 6 months, mainly due to longer resolution times for working hour issues. Before closing working hours NCs Philips requires at least 3 months’ time records
2015 Goals
 
Improve H&S performance of suppliers with 10%
 

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Implementing corrective actions

On average we see 11 major NCs per supplier audit (2013: 12) and work with each supplier to resolve these NCs within 90 days where possible. Goal is to improve the conditions in the supplier factories. Therefore, we focus on training, supplier development and implementation of corrective action plans with those suppliers. In exceptional cases where the supplier is unwilling to improve, we will decide to end the business relationship, which we did for 3 suppliers in 2014.

If Philips notices that there is a delay in the realization of the corrective action plan by the supplier, Philips uses a stratified approach for consequence management. Depending on the root-cause why the supplier is not taking sufficient corrective actions, Philips can decide to: send a formal warning to the supplier; allocate no new projects; allocate no new orders; or stop doing business.

Collaboration Philips, IPE and suppliers

Next to the supplier sustainability audits that we perform at our suppliers, we also look at insights from external stakeholders to help monitor the performance of our suppliers. For example, we work with the Institute of Public & Environmental Affairs (IPE) who publishes a map of Chinese factories linked to water and air pollution. When we know that one of the mentioned factories is a Philips supplier, we will inform that company to implement corrective actions and will ask IPE to perform a third-party assessment to verify adequate resolution of the issues. By working this way, in we effectively resolved a case of water pollution at a supplier in Guangdong province, China.

Supplier training and capacity building

Based on many years of experience with the audit program, we know that a combination of audits, capacity building, consequence management and structural attention from management is crucial to realize structural and lasting changes at supplier production sites.

We provide classroom training sessions for suppliers, Philips sustainability experts regularly visit suppliers to provide on-site consultancy and training, and we invite suppliers to participate in trainings provided by the EICC. Since 2012 we extended our capacity building initiatives which are offered to help suppliers improve their practices, and we have organized 24 training sessions on the EICC Code of Conduct which were attended by more than 500 Chinese suppliers. We continued our training programs for Philips buyers and quality managers, supporting them to further integrate sustainability in their daily work with suppliers.

To address emerging issues we also provide in-depth capacity building programs to our suppliers on specific topics. These are the highlights from 2014:

  • China Health and Safety Program - In August 2014 we kicked-off a program to improve supplier’s health and safety management. It addresses the underlying fundamentals to structurally improve health and safety for workers, e.g. by establishing the necessary management commitment and cultivating a ‘safety first’ culture. Together with 7 pilot suppliers we developed scorecards to measure progress at their production sites. The program now reaches 7,000 workers and will be scaled up in the coming years.
  • Dust Explosion and Prevention - Our safety scans identified 30 suppliers with an unacceptable high safety risk related to dust explosion. We worked on raising awareness with these suppliers, provided training and coaching, and carried out targeted follow-up inspections to ensure suppliers put in place proper controls.
  • Fire Safety - On Philips request, 20 large warehouse suppliers started with monthly self-assessments to improve the fire safety conditions at their storage facilities.
  • Supplier Sustainability Communication Platform - To intensify the transfer of sustainability knowledge and best practices sharing between suppliers, we rolled out an Internet-based information sharing platform. It connects environmental and Health & Safety officers, human resource managers and general managers from 500 suppliers.
Philips Group
Supplier training and capacity building
2014 Goals
Progress
Roll-out best practices and learnings from IDH electronics program to Chinese suppliers included in audit program
During the supplier classroom trainings we included insights from the IDH program. We paid special attention to the relation between worker satisfaction and worker turnover rates, and how factory management can improve these by establishing a communication bridge with workers
Start dedicated 3-year program to improve Health & Safety conditions in supplier factories. Start roll-out to 20% of the Chinese suppliers in 2014
57 out of 410 Chinese suppliers now in the program (14%)
2015 Goals
 
Train 150 suppliers during at least 8 two-day sustainability training sessions to address top sustainability issues from 2014 audits
 
Implement corrective actions to close all major NCs identified at supplier sites during 2014. Provide tailor made and on-site capacity building for 90% of the related suppliers in China
 

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IDH Electronics program

Since 2011 Philips has been an active initiator and participant in the IDH Electronics Program, a multi-stakeholder initiative sponsored by the Dutch government to accelerate sustainable trade by building partnerships between leading multinationals, civil society organizations, governments, and other stakeholders.

The IDH Electronics Program aims to support the development of sustainable and innovative workforce management practices for over 75 suppliers. Unlike other CSR programs that have been implemented previously in the industry, this program steers away from traditional auditing methods and seeks to make a significant impact by building and up-scaling the skills of both workers and management. By promoting worker-management dialogue and helping to develop employees’ skills and careers, the program strives to reduce employee turnover and wastage, improve energy efficiency and improve the overall performance of supplier factories. The goal is to jointly improve working conditions for more than 500,000 employees in the electronics sector.

Participating suppliers are given an ‘Entry Point Assessment’ to identify issues that affect factory management and employees, such as worker-management communication, occupational health and safety, production, performance management and environmental issues. This is then used to develop a tailor-made action plan with each supplier, based on improved dialogue between management and employees. Suppliers receive support over a period of up to 24 months, and the cost of the program is shared between the supplier, Philips, and IDH.

In 2013, the program was extended from the Pearl River Delta Area to include the Yangtze River Delta area. Next to Philips, also Apple, Nokia, Dell and Hewlett-Packard and their suppliers are participating in the program. As of year-end 2014, 54 suppliers participate including 21 Philips suppliers.

Philips Group
IDH Electronics Program
2014 Goals
Progress
Increase number of participating suppliers to 20
21 Philips suppliers are now participating
All participating suppliers identify their top 3 improvement actions and develop their work plans
Completed for all 21 suppliers
70% of all identified top 3 improvement actions implemented by end 2014
90% implemented by year-end 2014
2015 Goals
 
3 out of 4 top improvement actions identified for each IDH supplier implemented by end 2015 
 

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Example: IDH case study

N is a Philips supplier participating in the IDH Electronics program since 2013. During their Entry Point Assessment, it quickly became clear that N’s workers and management prioritized two topics: low worker satisfaction and high worker turnover rates. With the help of IDH, the management and workers jointly developed an action plan around three main themes:

  • Worker-management dialogue - A worker representative team was elected to help bring messages from the factory floor to top management, including improvement recommendations and worker concerns
  • Worker well-being - Workers designed and implemented a canteen improvement program
  • Working environment - Implementing the 5S methodology to organize the work space for efficiency and effectiveness, including professional working skills training

During the implementation of above actions in 2014, worker satisfaction increased and N’s management team became increasingly enthusiastic to continue the program in 2015 as worker turnover rates started to decrease and production efficiency improved.

More information on the Supplier Sustainability Involvement Program, the Philips Supplier Sustainability Declaration and audit approach can be found at www.philips.com/suppliers

Addressing issues deeper in the supply chain

Conflict free minerals

Responsible sourcing of minerals is an important part of our supplier sustainability commitment and we implement measures in our chain to ensure that our products are not directly or indirectly funding atrocities in the DRC. Philips works towards the following goals:

  • Stop trade in conflict minerals that benefit armed groups in the DRC or an adjoining country
  • Enable legitimate minerals from the region to enter global supply chains, thereby supporting the Congolese economy and the local communities that depend on these exports.

What are conflict minerals?

Tin, tantalum, tungsten, and gold are used in many different products such as cars, planes, chemicals, jewelry, packaging, and electronics equipment. They come from mines around the world, including mines in the DRC which are estimated to provide 18% of global tantalum production and 2-4% of tin, tungsten, and gold. In the Eastern parts of the DRC a decade-long civil war is continuing. Illegal armed groups control mines and transit routes and use mining profits to fund their violent operations.

The Conflict Free Tin Initiative

Although the DRC has a rich supply of minerals, its economy has collapsed due to decades of ongoing conflict. In an effort to prevent minerals from financing war, many companies worldwide have shied away from purchasing minerals from the DRC, creating a de facto embargo in a region where mining is often the only source of income for local communities. We decided to take the more difficult road, supporting the verifiably conflict-free sourcing from the DRC.

To promote cooperation and economic growth in the DRC region outside the control of the rebels, we launched the Conflict-Free Tin Initiative in 2012 in collaboration with the Dutch Government and other industry partners. This initiative introduced a tightly controlled conflict-free supply chain of tin from a mine in the DRC all the way down to an end-product. The initiative expanded to other mines in the DRC this year and received additional funding from the Dutch Ministry to continue for the next few years. In 2014 we took the decision to include this tin in the regular supply of solder, meaning it is now contained in many different Philips products sold globally.

Conflict-free minerals policy and Supply chain due diligence

Philips has committed not to purchase raw materials, subassemblies, or supplies which we know contain conflict minerals.

Philips does not directly source minerals from mines in the DRC or elsewhere, and the supply chain for these metals consists of many tiers, including mines, traders, exporters, smelters, refiners, alloy producers and component manufacturers, before reaching Philips’ direct suppliers.

Cooperation amongst these different tiers in the supply chain, as well as amongst different industries that use these metals, is crucial in effectively breaking the link between mining and conflict financing in the DRC. Therefore Philips continued its active contribution to the Conflict Free Sourcing Initiative which brings together the electronics, automotive and other industries to jointly improve conditions in the extractives industry (www.conflictfreesourcing.org). We also continued our engagement with relevant other stakeholders including the European Parliament and local as well as international NGOs.

Philips Group
Supplier sustainability
2014
Step 1
Philips conflict minerals policy and strategy
Step 2
Raise awareness and train suppliers
Step 3
Suppliers adopt conflict-free policy
Step 4
Suppliers investigate own supply chain
Step 5
Report back to Philips on progress and
disclose smelter names
Step 6
Compile and publish Philips smelter list
Step 7
Assess and mitigate sourcing risks
Step 8
Report publicly about process and results
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In 2014 we continued our work with 392 priority suppliers – including 13 from discontinued operations - to raise awareness and conduct supply chain investigations into the metal’s country of origin. These suppliers were selected based on largest purchasing spend and metal usage. The Philips conflict minerals support center helps suppliers in undertaking this sometimes daunting task to investigate their long and complex supply chains. We work with suppliers to clarify our expectations, provide support and training, and share our experience and best practices.

We requested our suppliers to adopt and implement a conflict-free minerals policy, to investigate their supply chain and to disclose to us which smelters are used in their supply chains to produce the metals. We carefully reviewed the information received from each supplier, and requested follow-up in case of inconsistent or incomplete answers. The main challenges for suppliers were lack of awareness, limited insight and cooperation at suppliers deeper in the supply chain in order to identify smelters, and the adoption and roll out of a conflict-free supply chain policy.

In line with the US Dodd-Frank Act, we published the first Philips conflict minerals report in June 2014, describing our due diligence process and results. We engaged external auditors to perform an independent private sector audit on this report. Amongst thousands of companies that published their first year reports, Philips is one of only 4 companies that chose to do this voluntary audit.

“I’m impressed that Philips went beyond expectations with its first Conflict Minerals Report, and pleased that the company took a number of actions we consider ‘leading practice’. Philips detailed the supply chain due diligence it undertook, published a list of its identified smelters, and was one of only four companies that had its report independently audited.”

Patricia Jurewicz, Director

Responsible Sourcing Network

Progress identification conflict-free smelters

Smelters mix minerals from many sources and refine them into metal used in our industry. The smelter is at a key point in the supply chain to enforce responsible sourcing by implementing due diligence in selecting their mineral sources. The Conflict-Free Smelter Program (CFSP) identifies smelters that can demonstrate through an independent third-party assessment that the minerals they procure are conflict-free. During 2014 impressive progress was made in validating additional conflict-free smelters, from 64 to 121. As sufficient conflict-free smelters for all four metals become available, Philips will direct its supply chain towards these smelters. See www.conflictfreesmelter.org for more details.

Simplified tin supply chain

Mines thousands
Traders hundreds
Smelters tens
Smelter is at key point to enforce responsible sourcing in long and complex supply chains
Refiner /
Alloy producers
hundreds
Sub- and component manufacturers
tens of thousands
Contract manufacturers, assembly
tens of thousands
Philips
end-user company
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After having identified smelters in our supply chain, we published our smelter list . Back in 2012 Philips was the first company to make its smelter list public. We did this to drive awareness and create a call for action for smelters and all users of these metals. We regularly update the Philips smelter list with new information received from our suppliers. We request the identified smelters to participate in the CFSP.

So far, a total of 257 smelters are included in the Philips smelter list. Majority of these smelters are located in Asia, especially China. 45% (116) of the identified smelters in our chain completed the Conflict-Free Smelter audit (2013: 29%). Within the group of smelters that successfully passed their conflict-free smelter audit, 14 smelters were sourcing conflict-free minerals from the DRC region.

Philips Group
Number of identified smelters per metal
2014
5551Gold336Tantalum5320Tin30Not CFS compliant9CSF compliantTungsten
Philips Group
Conflict minerals
2014 - 2015
2014 Goals
Progress
Publish a Philips Conflict Minerals Report validated by external auditors
First Conflict Minerals Report was published and Philips was one of the only 4 companies that had their report audited
Implement augmented expectations for supply chain investigations, including stricter criteria for data collection from priority suppliers
In 2014 we worked with suppliers to implement and roll-out a CM policy, collect more information from their next-tier suppliers and disclose additional smelters
Collect Conflict Minerals Reporting Templates from at least 80% of priority suppliers, applying stricter criteria on data quality and completeness than previous year
98% of the priority suppliers filled out the template questionnaire. 86% were meeting or exceeding the Philips minimum criteria
Conflict Free Tin Initiative: include DRC tin in mainstream solder supply (move from pilot to normal business)
CFTI tin is now part of the regular supply of solder and used in different Philips products
2015 Goals
 
Request direct suppliers to steer their supply chain towards using only smelters verified as conflict-free by third-party auditors
 
Confirm that all active, identified tantalum smelters in our supply chain are verified as conflict-free by third-party auditors
 

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For more details, see www.philips.com/suppliers and the Philips position paper on Conflict Minerals.

Tin mining in Indonesia

Indonesia produces roughly one-third of the world’s tin supply, of which the vast majority comes from the islands Bangka and Belitung. Philips is alerted by reports about environmental and social issues associated with this tin production. It is reported that the intensity of tin mining, the illegal small-scale miners and the irresponsible way it is carried out cause environmental devastation and safety risks for miners.

Philips does not directly source tin from Indonesia and there are typically 7 or more tiers in the supply chain between a mine and a Philips supplier. Nevertheless, in 2013 we decided to investigate how we can support the move towards more sustainable mining practices in Indonesia.

We teamed up with other frontrunner companies, the tin industry and civil society in the Indonesian Tin Working Group (TWG), coordinated by the Dutch Sustainable Trade Initiative. The group’s goal is to positively contribute to addressing the sustainability challenges of tin mining and smelting in Bangka and Belitung while recognizing the economic benefits of the sector in terms of development and poverty reduction.

In 2014 the TWG entered the next phase which was co-funded by IDH, Philips and other TWG members. By working with local stakeholders we aim to support Indonesian Government, businesses and civil society efforts, to better formalize Indonesian tin production, make it economically beneficial for local communities, and to reduce negative social and environmental impacts.

“Philips was one of the first companies to step up and show their commitment to supply chain responsibility by working on improving conditions at the deepest level of the supply chain, mineral sourcing. They have taken a proactive leadership role in forming and supporting the IDH Indonesian Tin Working Group in cooperation with Milieudefensie / Friends of the Earth.”

Evert Hassink

Friends of the Earth Netherlands

Other sustainability initiatives in our supply chain

Carbon footprint of our supply chain

To understand the climate change impact of our supply chain, Philips has undertaken two initiatives:

  • In 2014, we engaged with Trucost to quantify the carbon emissions in our supply chain. Based on supplier spend data analysis by Trucost and extrapolation, estimated CO2 emissions from purchased goods and services were at approximately 4,200 kilotonnes for the year 2013. This is nearly triple the Philips operational carbon footprint as presented in this report.
  • Using the CDP (formerly Carbon Disclosure Project) we gain insights into supplier’s climate strategy and carbon footprint to jointly work on reducing emissions in the supply chain. To address our supply chain footprint, we work with first-tier manufacturing and transportation-related suppliers.
Sustainability initiatives with our first tier suppliers
Supplier
selection
  • Based on spend and estimated emissions
  • Manufacturing and transportation suppliers
CDP Supply Chain program
  • Climate change strategy and emissions reporting
  • Locate carbon hotspots
CDP Action Exchange program
  • Identify collaboration opportunities
  • Identify savings potential
Supplier
energy scan
  • On-site consultancy
  • Detailed implementation program
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CDP supply chain

In 2014 we extended the CDP Supply Chain program to involve an increased number of suppliers by selecting additional suppliers based on spend and expected footprint reduction potential. As a result, we almost doubled the number of suppliers that reported on their carbon footprint and reduction progress. A total of 128 suppliers participated in the CDP Supply Chain program, covering 25% of our procurement spend.

CDP Action Exchange

Having more insight in supplier’s carbon emissions is a first but important step. The next step is footprint reduction by identifying the most impactful interventions in the supply chain. The CDP Action Exchange program supports this second step by connecting suppliers to globally recognized solution providers in the field of energy efficient technology. Philips is a founding member of the CDP Action Exchange program, driven by a willingness to increase focus on energy efficiency in Philips supply chain and to support Philips suppliers to manage their energy strategically and stay competitive.

This year we invited 76 suppliers with the highest CO2 reduction potential into the CDP Action Exchange program. 24 of these suppliers committed to participate and submitted the necessary information.

Supplier energy scan

As part of the CDP Action Exchange program we piloted a new initiative: the energy scan. This on-site assessment by CDP and the Institute for Industrial Productivity (IIP) looked at energy use, emissions reduction and energy efficiency opportunities and was performed at two supplier facilities in China. The identified savings opportunities are mainly related to optimized energy (re)use and installing more energy efficient technology. The identified energy cost savings potential lies in the range of 3 to 8% with a typical payback period of 1 to 1½ year.

Going forward we plan to extend the CDP Supply Chain and Action Exchange programs to an increasing number of suppliers and to offer more suppliers energy scans, with the ambition to further reduce our supply chain carbon footprint.

Philips Group
Carbon footprint of our supply chain
2015 Goals
Extend the CDP Supply Chain invitations to cover top 80% spend from manufacturing and transportation suppliers
Based on CDP Supply Chain results, offer CDP Action Exchange to top 100 suppliers with highest CO2 reduction potential

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Circular Procurement

A key driver in the transition towards a circular economy lies within procurement (see EcoVision). Circular procurement is about making the right choices early on, in the procurement process, to enable reuse of materials at the end-of-use stage. In 2014 initial thoughts and ideas were captured to start making the transition to circular procurement. The expected areas of increased value include:

  • Extended and intensified long term business relationships with suppliers and customers 
  • Innovative business models addressing access to services and products instead of ownership
  • Re-use of parts and components

Philips joined the Dutch GreenDeal Circular Procurement in 2014 and it is our objective to actively engage procurement in the realization of a circular economy. 33 organizations are participating in this GreenDeal and it is facilitated by organizations like MVO Nederland, NEVI, and the Dutch Government. Its goal is to accelerate the transition towards a circular economy by implementing circular procurement within purchasing processes, policies and strategy by the end of 2016.

Philips Group
Circular Procurement
2015 Goals
Start 2 circular procurement projects
Train 40% of procurement commodity teams on circular procurement

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Process chemicals

In the production process of our products different chemicals are used which can potentially cause environmental and health hazards when used incorrectly. In 2014 we started a new initiative striving to eliminate the usage of hazardous process chemicals in our supply chain and – when no alternatives are available – to minimize the health risks for workers dealing with these chemicals. Philips initiated a new EICC taskforce on process chemicals in the supply chain, which had its start-up meeting in October 2014 in San Francisco.

Objectives of the taskforce are:

  • Ensure a safe working environment in supplier factories
  • Develop and define one common industry approach to eliminate hazardous process chemicals
  • Define and maintain one list of “process chemicals of concern” that can be used across different industries, including a plan for substitution or elimination
  • Maintain an active multi-stakeholder dialogue with NGOs and authorities, and share best practices and results

We will initially focus our efforts on high-risk production processes, including e.g. component manufacturing, sub-assembly and finished goods assembly. A detailed work plan including milestones will be provided by the EICC task force beginning of 2015.

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CO2-equivalent or carbon dioxide equivalent is a quantity that describes, for a given mixture and amount of greenhouse gas, the amount of CO2 that would have the same global warming potential (GWP), when measured over a specified timescale (generally 100 years).

SF6 (Sulfur hexafluoride) is used in the electrical industry as a gaseous dielectric medium.

A carbon footprint is the total set of greenhouse gas emissions caused by an organization, event, product or person; usually expressed in kilotonnes CO2-equivalent. The Philips operational carbon footprint is calculated on a half-year basis and includes industrial sites (manufacturing and assembly sites), non-industrial sites (offices, warehouses, IT centers and R&D facilities), business travel (lease and rental cars and airplane travel) and logistics (air, sea and road transport).

Philips uses Productivity internally and as mentioned in this Annual Report as a non-financial indicator of efficiency that relates the added value, being income from operations adjusted for certain items such as restructuring and acquisition-related charges etc. plus salaries and wages (including pension costs and other social security and similar charges), depreciation of property, plant and equipment, and amortization of intangibles, to the average number of employees over the past 12 months.

A circular economy aims to decouple economic growth from the use of natural resources and ecosystems by using those resources more effectively. By definition it is a driver for innovation in the areas of material-, component- and product reuse, as well as new business models such as solutions and services. In a Circular Economy, the more effective use of materials enables to create more value, both by cost savings and by developing new markets or growing existing ones.