Supply chain standards

Our company procures many raw materials, packaging materials, technical products, components, and services worldwide. Our overarching goal is to protect the stability of these supply chains and always provide our customers with the best possible products and services at optimal quality. In our fast-paced world, we believe that secure supply chains are the key to our success.

Our approach to making our supply chains more sustainable

One of the goals of our supplier management is compliance with fundamental environmental and social standards, alongside high quality, delivery reliability, and competitive prices. To achieve this, we've introduced relevant strategies, processes and guidelines that we are continuously improving to prevent violations of supply chain standards.

We assign our vendors a risk category, taking into account their country risk, product category and the share of their sales that come from our company. In doing so, we pay particular attention to suppliers from non-OECD countries, as we consider vendors in these countries to be at higher risk of disregarding environmental and social standards.

To further intensify our activities in this area and identify potential sourcing risks early on, our Procurement unit has developed a concept for a comprehensive risk management system that will enable us to consider a wide variety of risk factors that also include sustainability aspects. Such processes will help us avoid errors and respond promptly to new challenges. This risk management process is defined in collaboration with all businesses involved.

How we implement CR standards in the supply chain

Group Procurement is responsible for integrating corporate responsibility (CR) requirements into the relevant stages of our sourcing and supplier management processes. It is a global organization with direct accountability and resources in procurement-relevant local subsidiaries. Our Center of Excellence for Supplier Sustainability coordinates all relevant measures, such as updating our guidelines where necessary, examining processes and coordinating our participation in external initiatives. Our Procurement employees in all countries are kept up to date on these guidelines and processes through internal communication channels such as our company intranet. All new Sourcing staff are trained on sustainability aspects important for procurement. Sourcing employees are responsible for the supplier selection process.

Our commitment: Guidelines and standards

We expect all our suppliers and service providers to comply with environmental and social standards, which are primarily derived from the core labor standards of the International Labour Organization (ILO) and the UN Global Compact.

Moreover, we support the Initiative of the German Association for Supply Chain Management, Procurement and Logistics (BME) and have endorsed the BME Code of Conduct. In particular, this code sets out rules for combating corruption, antitrust violations and child labor, as well as for upholding human rights, protecting the environment and public health, and promoting fair working conditions.

Our Group Procurement Policy stipulates our expectations of our suppliers and specifies how we monitor compliance with our standards. This policy further reflects both internal and external guidelines, such as our Code of Conduct, our Human Rights Charter, our EHS Policy (Environment, Health and Safety Policy), , and the BME Code of Conduct. In our Responsible Sourcing Principles we set out our expectations for our suppliers in terms of corporate responsibility, and formally oblige them to apply these standards to their own vendors.

Whenever legal frameworks are modified, we incorporate these changes and initiate the appropriate measures where necessary.

Global procurement

In total, the goods and services we purchased from more than 64,000 suppliers in over 145 countries in 2017 amounted to around € 7.0 billion. Of these goods and services (including R&D services), we purchased 50% from suppliers based in EU countries and 35% from vendors based in OECD countries outside the EU. The share of goods and services sourced from suppliers based in non-OECD countries outside the EU increased from 14% in 2016 to 15% in 2017.

Share of overall goods and services purchased

Strategy workshop on sustainability within the supply chain

In August 2017 we held a workshop in Darmstadt focusing on sustainability within the supply chain. At this event we worked with external experts to analyze which aspects of supply chain sustainability will become increasingly important to us. The aim was to uncover risks and opportunities within our supply chain and devise appropriate actions.

How we monitor our supply chain

We pursue various approaches to keep track of our suppliers and ensure adherence to our standards and values. These approaches are generally based on the risk they pose, combining the factors of country risk, product category and sales.

  • Under the Together for Sustainability (TfS) initiative launched by companies in the chemical industry, we encourage our suppliers to be assessed either on self-reported information or via audits.
  • In selected cases we conduct our own CR audits on suppliers.
  • Regarding our mica supply chain, we engage the global consultancy Environmental Resources Management (ERM) to conduct audits and the Indian organization IGEP to conduct inspections.

TfS supplier assessments and audits

Under TfS, suppliers are assessed either on information obtained during audits, or on the basis of self-reported and publicly accessible information provided by EcoVadis, an independent rating agency. EcoVadis assesses suppliers from 110 countries and 150 sectors across the four categories of Environment, Labor Practices, Fair Business Practices, and Sustainable Procurement. The results of these supplier assessments are shared among TfS member companies in compliance with all restrictions stipulated by competition law. In 2017, the TfS initiative realigned its strategic focus to concentrate more strongly on the initiative´s demonstrable improvements of supplier sustainability standards. We've been a member of TfS since 2014.

We now have access to the sustainability checks of more than 730 of our suppliers – 463 of which we initiated in 2017. Based on all the audits and assessments conducted since joining the TfS initiative, in 2017 we focused on risk reduction and risk management. Our priority was the mitigation activities for TfS audit results, with more than five major findings and assessment scores below 30 (on a scale of 1 to 100). In 37 cases, the issues related to environmental impacts, in 100 cases to labor practices and human rights, and in 65 cases to impacts on local communities and society as a whole, while some suppliers were found to have multiple issues.

Conducting our own audits

In 2017 we conducted five of our own risk-based CR audits, assessing vendors according to both environmental and social criteria. The non-conformances identified for two suppliers as having a potential environmental impact were related to air emissions and waste management/ground contamination. In terms of social aspects, the audits found no deficiencies. To correct the ecological shortcomings, we jointly agreed on a corrective action plan and are monitoring our vendors' progress to ensure that the improvements are being made. The defects identified did not lead us to terminate business ties with any of the suppliers.

Neither our audits nor those of TfS revealed indications of violations of the right of association, the right to collective bargaining, cases of child labor, forced labor or compulsory labor.

Impact on our vendors

In 2017, one of the goals we set was to make a greater impact on our suppliers' sustainability. To achieve this, we teamed up with vendors relevant to future procurement activities whose audits revealed critical sustainability defects. Together, we identified ways to boost sustainability and then monitored their implementation.

Favoring local suppliers for certain products

We have no internal guidelines stipulating that preference be given to local vendors in allocating contracts, and generally procure our goods and services globally. However, in some cases local vendors do have an advantage: Products bought locally may be less expensive, as proximity eliminates additional transport costs. Country-specific regulations such as import duties and licenses also help us decide whether to source our goods locally or globally. Furthermore, in some countries local laws require contracts to be awarded to regional suppliers.

Adherence to laws and regulations as well as to voluntary codices that are internal to Merck KGaA, Darmstadt, Germany. Compliance is a component of diligent corporate governance.
ISO 14001
This international environmental management standard sets globally recognized requirements for an environmental management system.

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