Our Group function Procurement is responsible for integrating corporate responsibility (CR) with our sourcing and supplier management processes. An office within Group Procurement coordinates all corresponding measures, such as revising our guidelines and processes, or joining the Together for Sustainability  chemical industry initiative. Through reporting lines and the company's intranet, our Procurement employees in all countries receive information on the guidelines and measures used to ensure compliance with our supply chain standards.

Procurement guidelines

Our fundamental expectations for suppliers and service providers include their compliance with fundamental environmental and social standards that are derived primarily from the International Labour Organization  Core Labor Standards and the UN Global Compact . To this end, we have been supporting the Compliance Initiative of the German Federal Association for Materials Management, Purchasing and Logistics (BME ) since 2009 and have additionally signed the BME Code of Conduct .  This document contains essential rules for combating corruption, violations of antitrust law, and child labor, and features principles on promoting human rights, environmental protection, human health, and fair working conditions.

Through our "Group Procurement Policy", updated in 2013, we ensure that our procurement processes adhere to CR standards. These processes cover everything from selecting to assessing and monitoring our vendors and service providers. This policy reflects numerous internal and external guidelines, such as the Merck KGaA, Darmstadt, Germany Code of Conduct , the Human Rights Charter , our Corporate EHS policy , ISO 14001, and the BME Code of Conduct.

To complement our procurement policy, we drafted the "Responsible Sourcing Principles " and integrated them Group-wide into our general terms and conditions in 2013. These principles define what we require of our suppliers with regard to corporate responsibility, obligating them to apply our corporate responsibility standards to their upstream value chain.

Supplier monitoring

A key element of our supplier management process is ensuring that our suppliers implement CR standards, as well as monitoring their compliance. For this reason, we introduced an IT system in 2013 that utilized a structured questionnaire to collect self-reported information from suppliers. After deciding to join the Together for Sustainability (TfS) initiative, we discontinued this system because the initiative's EcoVadis^®  platform provides extensive supplier assessments.

The TfS initiative, founded in 2011 by companies in the chemical industry, aims to systematically assess and improve sustainability sourcing practices, including ecological and social aspects. Suppliers are assessed either on self-reported and publicly accessible information, or on information obtained during audits. The evaluation results are utilized by member companies, who abide by all restrictions stipulated by competition law. Beyond evaluations of the suppliers we have selected under our risk-based approach, we thus also have access to evaluations and audit results for other vendors who work for us.

In the course of 2015, we will be switching our supplier CR assessments and CR audits to the TfS method and integrating the TfS database into our supplier management system. We are planning to start conducting assessments and audits according to this new procedure in 2015.

Sustainability audits

In addition to collecting self-reported supplier information, we also conduct CR audits on select vendors based on the potential risk they pose. These audits are based on the corresponding company standard. Suppliers are assigned a risk category based on the risk levels in their country, the product category, and the share of their sales that come from Merck KGaA, Darmstadt, Germany. In general, we assign vendors from non-OECD  countries to a higher risk category. Regardless of their OECD status, suppliers are also audited if there are indications that they have failed to comply with our requirements.

All deviations from the "Responsible Sourcing Principles" or from national statutory requirements identified in the course of an audit are classified as either critical, major or minor. The audit results as well as any corrective action required are communicated to the vendors via an audit report. When an audit reveals defects in a supplier's processes and conduct, we require them to provide us with a corrective action plan that describes the course of action needed to address the issues. When it comes to defects that are classified as critical or major, we check whether the appropriate corrective action has been taken. For critical defects in particular, we consider the option of terminating business relations if the problems are not sufficiently rectified. The audit team additionally determines how often follow-up audits need to be conducted.

In response to the results of our risk assessment, a total of 49 CR audits were conducted in 2013 and 2014, either by us or by a service provider. We found critical defects at 16 suppliers, and major defects at 40 suppliers. For 26 of the vendors with critical or major defects, the issues had to do with their ecological impacts, in particular stemming from waste and hazardous material storage at their facilities. In addition to this, we also identified 40 suppliers who exhibited flawed work practices, primarily in terms of occupational health and safety. Neither our audits nor the self-reported supplier information revealed significant risks regarding violations of the right to assemble or engage in collective bargaining, nor with regard to child labor, forced labor or compulsory labor.

In 2013 and 2014, our CR audits focused particularly on our mica suppliers in India, 14 of whom were audited within this period. We terminated our business relations with two of our vendors because they failed to carry out the required corrective action in a satisfactory manner.

We aim to cultivate long-term working relationships with our direct suppliers. To this end, we conduct workshops in order to help them comply with our standards as well as to develop and grow. We held one vendor workshop in China in 2013 and one in 2014. In addition to focusing on quality assurance, the training also covered our CR and EHS standards. Merck KGaA, Darmstadt, Germany is furthermore involved in the local and regional supplier workshops organized by Together for Sustainability (TfS). One such workshop was held in China in 2014, and TfS is planning to host an event in Brazil in 2015.

Reporting violations within the supply chain

Via our central SpeakUp Line, our employees can report compliance violations as well as violations of CR standards that occur within our supply chain. In the 2013-2014 period, we received no such reports. We do not have a formal procedure for handling reports from outside of the company, nor do we currently have plans to establish one.