Supplier performance

The trend in outsourcing manufacturing activities continued in 2010, in addition to the increased focus on emerging countries. This implies an increased effort in managing our impact on our supply chain, as this impact is stronger in emerging countries, and will lead to an increase of risk suppliers, requiring a related increase in efforts in our supplier sustainability program.

Our suppliers

Philips remains focused on improving working conditions and environmental performance in its supply chain and encourages its suppliers to have the same focus. Recognizing that this is a huge challenge requiring industry-wide efforts, as well as active involvement of other societal stakeholders, we continue to be active in the Electronic Industry Citizenship Coalition (EICC). We encourage our strategic and preferred suppliers to join the EICC as well. We will continue to seek active cooperation with other societal stakeholders either directly or through institutions like the EICC or the multi-stakeholder program from the Dutch Sustainable Trade Initiative.

Supplier Sustainability Involvement Program

The Philips Supplier Sustainability Involvement Program is built on five pillars: setting out our requirements; getting suppliers to understand these and commit themselves; monitoring identified risk suppliers through audits; working with suppliers to resolve issues; and engaging stakeholders. For more details see Supplier indicators.

2010 supplier audits

Philips conducted 273 initial and continued conformance audits in 2010. During these audits an external specialized company visited the supplier sites in risk countries for a 2 to 4 man-days audit.

Distribution of supplier audits by country

The most frequently observed areas of non-compliance were:

• Working hours, wages and benefits: excessive overtime, continual seven-day work weeks, record-keeping of standard and overtime working hours, payment of overtime premiums.
• Emergency preparedness: fire detection and suppression systems, blocked emergency exits, fire drills.
• Occupational safety: immediate threat to health and safety.
• Industrial hygiene: appropriate controls for worker exposures to chemical, biological and physical agents.
• Hazardous substances: improper disposal of hazardous waste.
• Lack of adequate management systems to safeguard compliance with the EICC code for labor and ethics, health and safety, and environment.

Average non-compliances per audit

At the end of 2010 the identified zero-tolerance non-compliances were either resolved or still within the agreed deadline for resolution. For more details on audit results, please refer to Supplier indicators.

Roll-out in the supply chain

The EICC code requests suppliers to roll-out the code in the supply chain to their next-tier suppliers. During the audits at risk suppliers, it is checked whether the facility implemented an effective process to ensure that their next-tier suppliers implemented the Code and are aware of their ethical and legal requirements. A limited number of second-tier suppliers were identified as high risk suppliers and audited in the 2010 program.

'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 Congo (DRC) where proceeds from the extractives sector are sometimes used to finance rebel conflicts in the region.

Although Philips does not directly source minerals from the DRC and the mines are typically seven or more tiers removed from our direct suppliers, we address the issue through the means and influencing mechanisms available to us. For more details, please refer to Supplier indicators.

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