SUPPLY CHAIN MANAGEMENT

Transcription

1 SUPPLY CHAIN MANAGEMENT NEW SUPPLIERS ASSESSMENT NUMBER OF NEW SUPLIERS THAT WERE ASSESSED: 611 Number of suppliers assessed using specific criteria Percentage of suppliers assessed using specific criteria 3.4% 3.4% 100% Central America NUMBER OF NEW SUPLIERS THAT WERE ASSESSED: 71 Number of suppliers assessed using specific criteria Percentage of suppliers assessed using specific criteria 8% 8% 100% United States NUMBER OF NEW SUPLIERS THAT WERE ASSESSED Number of suppliers assessed using specific criteria Percentage of suppliers assessed using specific criteria SUPPLIERS ASSESSEMENT Number of suppliers assessed (from those assessed) with whom agreements were made based on the assessment Porcentage of suppliers identified with significant, true or potential negative impact with whom agreements were made based on the assessment s with whom the contracting relationship was terminated PERCENTAGE OF SUPPLIERS IDENTIFIED WITH SIGNIFICANT, TRUE OR POTENTIAL NEGATIVE IMPACT WITH WHOM THE CONTRACTING RELATIONSHIP WAS TERMINATED 69.5% 75.9% 80.0% 0% 0% 0%

2 Significant actual and potential impacts Significant actual negative impacts in the Supply Chain: Inefficient waste disposition program / Lack of an environmental management Occupational Health and Safety system/measuring, controlling and Administration monitoring the use of natural resources Quality and lead times Significant potential negative impacts in the Supply Chain: Disposal of toxic and hazardous waste/illegal mining Illegal mining/ Lack of social security and extra hour payments to employees/ Informality Corruption/Money laundering Central America Number of suppliers assessed (from those assessed) with whom agreements were made based on the assessment Percentage of suppliers identified with significant, true or potential negative impact with whom agreements were made based on the assessment Number of suppliers identified with significant, true or potential negative impacts with whom the contracting relationship was terminated PERCENTAGE OF SUPPLIERS IDENTIFIED WITH SIGNIFICANT, TRUE OR POTENTIAL NEGATIVE IMPACT WITH WHOM THE CONTRACTING RELATIONSHIP WAS TERMINATED % 16.2% 13.7% 0% 0% 0% Significant actual and potential impacts Significant actual negative impacts in the Supply Chain: Significant potential negative impacts in the Supply Chain: Waste disposal; there are not enough companies that offer this service/lack of knowledge of environmental issues. Giving Work to unqualified Wokers /OHS _ Monopolistic conditions; there are not many companies that offer the product/high cost of the product 2 United States Number of suppliers assessed Number of suppliers identified with significant, true or potential negative impact (from those assessed) Percentage of suppliers identified with significant, true or potential negative impact with whom agreements were made based on the assessment Number of suppliers identified with significant, true or potential negative impacts with whom the contracting relationship was terminated Percentage of suppliers identified with significant, true or potential negative impact with whom the contracting relationship was terminated

3 Significant actual and potential impacts Name the significant actual negative impacts in the Supply Chain None None None Name the significant potential negative impacts in the Supply Chain None None None PROPORTION OF SPENDING ON LOCAL SUPPLIERS AT SIGNIFICANT LOCATIONS OF OPERATIONS Central America and the Caribbean USA USD COP USD COP USD COP Value of total products and services purchased made in the reporting period (COP) Value of products and services purchased locally (COP) PERCENTAGE OF PRODUCTS AND SERVICES PURCHASED LOCALLY (COP) Number of total suppliers Number of local suppliers Percentage of local suppliers Number of critical suppliers assessed in sustainability criteria 668,184,936 2,005,029,217, ,610, ,990,626, ,742,942 2,894,913,793, ,654,611 1,850,401,659, ,547, ,753,749, ,380,669 2,716,826,675 92% 69.9% 94% 3,867 1,897 6,824 3,645 1,448 6,796 94% 76% 99.59% TOTAL SUPPLIERS SPEND BY CATEGORY 3 Suppliers Spend Caribbean & Central America United States USD COP USD COP USD COP Raw materials 70,656, ,019,561, ,539, ,700,036, ,360,816 1,327,396,523,159 Administrative 107,386, ,234,584,614 14,272,045 42,826,268,206 51,434, ,340,144,435 Transportation 175,548, ,770,426,036 17,007,183 51,033,623, ,534, ,749,500,732 Fuels 68,138, ,464,192,917 8,750,592 26,257,990,256 28,565,156 85,715,749,741 Technology 19,793,130 59,393,442,966 2,278,510 6,837,147,646 14,033,962 42,111,849,693 Services 168,071, ,334,204,262 31,581,229 94,766,110,423 90,131, ,458,644,481 Consumables, spare parts and equipment 58,590, ,812,805,902 35,184, ,577,452, ,682, ,141,381,008

4 SUPPLIER MANAGEMENT We are committed to leading the industry in global sustainable supply chain management through our relationships with suppliers and contractors who represent our corporate values and principles, including sustainability, innovation, respect for human rights, and compliance with labor and environmental laws. Our influence in this area spans across three major geographic regions, as we source all raw materials, services, consumables and spare parts, transportation, fuel and technology. In addition, we jointly build harmonious, fair, and mutually beneficial relationships supporting a responsible supply chain. We are committed to transparent and suitable supply chain partnerships, resulting in direct impact on our business performance in terms of cost, quality and sustainability. Our management approach Understanding the risks and the need to mitigate them, we continue to apply the entire cycle of supplier management through the processes of pre-selection, selection, performance assessment, audits, certifications monitoring, capacity building programs, recognition programs and management systems. The Argos Goods and Services Procurement Manual and a Code of Business Conduct governs the relationship between employees and other stakeholders, including suppliers and contractors. These processes and policies provide important controls which help identify the risks related to legal, environmental, economic and social issues, and mitigating them through compliance with practices set by the company, which ensure reliability and sustainability in the services contracted and goods supplied. Through the use of technology, such as the SAP Ariba tool, we are increasing transparency, and standardization of the purchasing processes. Additionally, the tool allows for analytical analysis of past performance and helps provide real time information on suppliers. In 2016, looking toward the improvement of the operations and better monitor the Health & Safety, as well as the sustainability performance of our suppliers and contractors, Argos has contracted with a third-party provider, Avetta. This partnership allows us to establish a single platform to conduct suppliers and contractors assessments. Through the use of cloud-based technology, Avetta (formerly PICS) connects the world s leading organizations with qualified suppliers and contractors leading to more efficient Supplier Pre-qualification Process and Management. 4 This tool will help us: Improved suppliers and contractor Management Develop a Common and systematic approach for the effective management of suppliers and contractor health and safety Better manage and control potential exposures and risk associated with fatalities, injuries and incidents arising from the work performed by suppliers and contractors on behalf of Argos Ensure that contractor employees work under the same health and safety expectations as that of Argos employees Assess Sustainability performance of our contractors Argos works closely with our suppliers to develop achievable sustainability objectives, while supporting suppliers in the sphere of influence of our plants through field visits, group meetings and external consultancy. During this process suppliers address specific issues that build on their strengths, while increasing their standards, thus potentially increasing their economic independence within their own markets.

5 Risk management We continue to implement the Suppliers Sustainability Index. In 2016, based on experience and results obtained during a 2014 and 2015 joint partnership with the Massachusetts Institute of Technology (MIT), we improved the index to better measure the performance of our suppliers. We wanted to evolve the index to be even more effective in measuring and communicating key environmental, social and economic priorities. To accomplish this we: Modifies the weights of the questions in order to prioritize must haves, especially for small suppliers Streamlined questions in lengthy sections Clarified index goals, purpose, objectives, targets, and timelines The index was applied to 62 suppliers within our critical segments. As in the two previous years, the social dimension had the highest performance, with Industrial Safety and Occupational Health criteria ranking highest within the dimension. This is typically due to the implementation of strong Safety and Occupational Health policy and commitment to the health and welfare of their employees. The index placed the Economic dimension in second place, with innovation ranking as the number one criteria. Finally, the Environmental dimension revealed Environmental Management System criteria as the highest rating within this dimension. The use of our Sustainability Index revealed gaps among our suppliers on sustainability best practices. This allows us to focus our resources on strengthening our partners and their methods through supplier development programs on issues related to corporate governance, our Code of Business Conduct, our anti-corruption and anti-bribery policy, risk planning and assessment, human rights, environmental management systems and relationships with communities in our areas of influence, as well as the measurement of impacts caused on them and strengthening the supply chain. Within the sustainability supply chain framework, we continue to implement capacity building programs and extending coverage. The first half of 2016 we finished implementing the program with 56 suppliers in our plants sphere of influence located in Rioclaro, Nare, Sogamoso, Yumbo and Toluviejo. We ended the year having started the program with 14 suppliers from Cartagena and Medellin city. 5 The program reinforced entrepreneurial strength with the help of external consultants in the following areas: Management: strategic planning, leadership, corporate culture, information management, work team, monitoring and control, efficient use of resources, control dashboards, strategic thinking, and business model. Financial and administrative: cost structure, revenue sources, budgets, breakeven analysis, suppliers, resource funding and tax management. Internal processes: sales strategies and strategic marketing, operating efficiency, standardization and innovation management. Customer: price, quality, after-sales servicing, brand, image and communication. We continue to strengthen relationships with our suppliers through activities such as Sustainability Dialogues, which are opportunities to report our management results and to elicit their feedback, expectations and suggestions regarding sustainability. And, through the establishment of Sustainability Week for our suppliers, we focused on the regions of, the Caribbean and Central America with the Social dimension as the main subject: Health and safety. A total of 201 suppliers were involved in this activity.

6 In continuity with the measurement of the risk in the contracting segment, in 2016 we included the analysis of social risk through the criteria of communities while working towards a holistic view that provides certainty that our suppliers understand the risk they are facing, which assists them with risk mitigation planning during the development of their activities. We will apply this model of risk analysis on processes that involve contractors as a pilot, and from the analysis generate strategies to mitigate risks identified through this process. We implemented a custom Web portal which allows supplier tools to be efficiently assigned to close gaps found in the results of the Assessment, and allows monitoring and oversight by management while tracking their performance and improvements. The tools are assigned to each provider according to their action plan by elements such as strategic documents, e-learning courses, checklists and downloaded documents. These elements represent a diverse and complete content in each subject of the social, environmental and economic dimensions. At the end of 2016, 27 suppliers taken advantage of this web portal. As part of our commitment to contribute to the development of our suppliers and encourage partnership on sustainability and innovation, we hosted our first recognition event called: Growing together. During this event we highlighted the achievements and good practices of those suppliers, who through Innovation, Sustainability practices improved their processes, products and services adding value to our companies supply chain. Leading up to this first event more than 60 suppliers demonstrated groundbreaking innovation and sustainability initiatives and practices in hopes of being selected through our application process. On September 13, after a challenging selection process, we held a very moving event in Medellin where 14 suppliers, of diverse procurement segments throughout the industry, where recognized in three categories: Innovation, Sustainability and Integral Supplier. 6

7 ARGOS SEGMENTATION OF CRITICAL SUPPLIERS Argos identify their critical suppliers in order to develop tailor-made tools to manage and to mitigate associated risk Critical Provider: It refers to the supplier of goods and/or services who can cause a negative impact on reputational, operational, or sustainability (environmental, social and economic) aspects if they fail to or do not comply with the contracting requirements or policies. To identify the critical segments it is necessary to introduce the definition of a critical supplier into the analysis from different points of view: Critical Suppliers for our comprehensive Suppliers related to the transportation of management systems ISO 9001, ISO 14001, products whose delivery time and quality can OHSAS 18001, BASC (Business Alliance for affect the level of our customer service. Secure Commerce) and API (American Petroleum Suppliers related to the packaging of the Institute), if applicable. product that may affect its preservation, related to the chemical and physical presentation and authenticity. Suppliers features of the product, i.e., that the good or service they provide can affect the resistance and the setting time. Suppliers who directly affect the quality of the environment on which our employees work, their safety and security. 7 The seven critical segments defined by Argos are: High spend (Paretto): This segment describes the suppliers that comprise the top 80% of our spend. These vendors represent both an operational and economic risk to the supply chain that limits our ability to substitute them easily. High spend suppliers who also qualify for one of the segments below are also considered as critical suppliers. Raw Material Suppliers: These suppliers are those that provide the raw materials that feed the production of our finished goods. This segment is considered critical because of the risk associated to environmental, social, and operational risks it represents. Contractors: They are the suppliers that perform a service within Argos s facilities. This segment also includes transportation suppliers. Their criticality consists mostly on the risk associated to health, safety and environmental conditions as well as labor issues. Non-Substitutable (Unique): Suppliers whose product, service, or expertise cannot be substituted. For example, exclusive representatives of important brands, suppliers who sell a specific good or offer a specific service not found elsewhere, suppliers with a significant development and technical knowledge for the company, or suppliers regulated by the government. Suppliers with High Environmental Impact: Those that supply environmental services or whose products could be hazardous or dangerous if not properly manipulated. They represent environmental, economic, and operational risks. Weights & Measurements: These suppliers provide services that allow us to calibrate our scales and other measuring equipment to ensure accurate weights and measurement of our products and processes. Their products and services carry an operational risk because they can affect the appropriate use of our raw materials and the overall quality of our final products. Security: Suppliers providing services to protect and secure our most strategic assets, which are our people and property (human and operational resources as well as the strategy).