Building a sustainable supplier base

Our wide product range and a high number of different delivery locations make our supply chain development and management challenging. Standardization and harmonization are key drivers in establishing a sustainable supplier base.

Our supply chain management covers Outotec’s own operations, and often also those of our suppliers. Our Global Supply function manages our supplier base and global sourcing. Operational Supply personnel are involved in day-to-day supplier management during the project delivery phase.

Outotec has two main policies serving as the basis for collaboration with suppliers. Our Supply Policy steers supply activities throughout the company, defines ways to enhance supply quality, and provides guidelines for everyone involved in supply-related activities.

A parallel Supplier Policy imposes strict requirements on Outotec’s suppliers, by clearly setting out our principles on ethical conduct, compliance with laws and regulations, environmental impacts, health and safety, labor, intellectual property and improper benefits. Suppliers are expected to ensure compliance with Outotec policy, identify any deviations, manage corrective actions, ensure the transparency of these actions, and communicate with us systematically on such issues. As all of our major suppliers (2015: 92%) were committed to Outotec’s Supplier Policy in 2016, we achieved our annual target.

Our reporting covers our suppliers’ operations, contractors working under Outotec’s supervision and our project sites. We measure our performance by calculating the percentage of new suppliers screened using labor practices, environmental and human rights criteria.

We strive to improve cost efficiency without compromising on product quality, safety and sustainability

Our supplier base

Our manufacturing facilities are relatively small. They all have local quality, health and safety systems in place, and they duly manage, sort and process their wastes. Since some 80% of Outotec’s manufacturing is sourced from external suppliers (based on monetary value), supplier selection is of key importance to our business.

Outotec had approximately 3,300 (3,400) active direct suppliers in 2016. Most of our suppliers were based in Finland, Germany, Brazil, Australia, and South Africa. Outotec has also developed best-cost-country sourcing in China, India, Eastern Europe and Mexico.

The majority of our direct suppliers are either manufacturing workshops or component/equipment manufacturers. The rest are logistics, engineering and construction companies, and other service providers. In addition, thousands of our direct suppliers’ own suppliers form part of Outotec’s supply chain.

Our total spend on customer-related purchasing in 2016 was EUR 486 million (629 million). Total spend decreased due to declining order intake and sales.

Selecting new suppliers and supplier audits

Of the potential 1,435 new suppliers in 2016, Outotec screened 164 suppliers, equaling 11% (2015: 70 equaling 18%), using criteria related to environmental impacts (G4-EN32), human rights (G4-HR10) and labor practices (G4-LA14, G4-LA15).  The rest of the potential new suppliers were in a category that we do not normally screen, for example, one-time indirect suppliers are normally approved by default.  Some of these non-screened suppliers have, however, signed our Supplier Policy. No potential new suppliers were screened using criteria for impacts on society (G4-SO9).

Human rights impacts were assessed as part of the screening of potential new suppliers. All the screened companies qualified as new suppliers, as none of the companies were identified as having significant potential negative human rights impacts (G4-HR11).

Outotec has not identified any significant actual or potential negative impacts for labor practices in its supplier screening (G4-LA15).

In addition to screening new suppliers, Outotec audited over 20 major suppliers during 2016. In our supplier audits, 8% of the audited suppliers were identified as having negative environmental impacts (G4-EN33). These impacts were relatively small and related to operational eco-efficiency, and none of these impacts were considered as potentially significant in Outotec’s assessment. Common development topics and improvement measures were subsequently discussed and agreed with these suppliers. No relationships have been terminated as a result of our supplier audits.

Working together with our suppliers

Outotec’s Supplier Account Managers work with our most important global or local suppliers. They are responsible for facilitating collaboration between Outotec and the suppliers across and above individual projects. This procedure enhances visibility, alignment and the management of supplier-related risks, while also improving overall collaboration between Outotec and individual suppliers.

The main challenge for our supply chain management in 2016 concerned the need to improve cost efficiency without compromising on product quality, safety and sustainability. The allocation of more business to fewer suppliers enables better management and development partnerships, in turn enhancing delivery excellence and cost competitiveness.

During 2016 we continued to train our sales and project implementation personnel on our project risk assessment process and tool, which were then tested in larger sales cases. The resulting risk assessments have provided our management with important information about major risks and planned mitigation actions.

Spending on local suppliers

Outotec’s supply chains often combine global project deliveries and purchases from local suppliers. We define ‘local suppliers’ as suppliers who we do not manage globally from our offices in Finland, Germany and Sweden. However, even in projects managed globally, the supply defined as ‘global’, consists of some local subcontracting in these countries.

Our spending on local suppliers in 2016 amounted to EUR 310 million (EUR 270 million), equivalent to 64% of our total supply spend (G4-EC9). The largest shares by country – each amounting to EUR 10–50 million – were spent in the USA, China, Australia, the UAE, Sweden, South Africa, Mexico, Chile, and the UK. The remaining local spend was distributed among 45 countries.

Actual and potential negative impacts in the supply chain

No notable risks related to the use of child labor (G4-HR5) or forced or compulsory labor (G4-HR6) have been identified in Outotec’s own manufacturing units.

The main sustainability-related risks in the supply chain, identified in our internal workshops, include bribery and kickbacks, occupational safety, protecting information and reporting misconduct. With regard to environmental issues, material toxicity and chemicals were ranked as the greatest risks (G4-EN33, G4-SO10).

In addition, we have identified three countries in our supply chain with potential risks regarding child labor (G4-HR5), hazardous work, or rights to exercise freedom of association or collective bargaining (G4-HR4). These countries are China, India and Mexico. In 2016, 5% (3%) of our suppliers were based in China, 2% (2%) in India, and 1% (2%) in Mexico. To mitigate these risks, our dedicated supply personnel in each of our Market Area offices perform Supplier Assessment and Approval Processes carefully, and make observations during audits and other visits. Forced or compulsory labor has not been identified as a potential risk in Outotec supply chain (G4-HR6).

The carbon footprint of our supply chain

The 2016 analysis of the carbon footprint of our supply chain showed that the biggest sources of CO2 emissions in Outotec’s supply chain were metal products, representing 27% (25%) of the total. In 2016, the carbon footprint of our supply chain, at 360,000 tonnes of CO2 equivalent (345,000) (G4-EN33), was considerably larger than the footprint of Outotec’s own operations, which amounted to 26,344 tonnes of CO2e (35,862) (G4-EN16,G4-EN17).

Calculations were based on Outotec’s spending and supply chain emission factors as defined by the UK Department for Environment, Food and Rural Affairs (DEFRA).

Our policies: