May 12th, 2009 Regulations of the Euromate Quality Management- and Social Compliance Process Dear valued Business Partner, Lux and Euromate are responsible for the global sourcing and development of private brand products within the OBI group. Our product range includes all core areas of a DIY, home improvement and garden center assortment. Worldwide sourcing, quality management, our very own procurement and an integrated full service at POS make our companies successful. OBI is number one in the German building and do-it-yourself business and also belongs to the top market leaders in Europe. At present OBI owns 334 stores in Germany. Additionally there are 182 stores abroad, with a total turnover of more than 6 billion Euros (further information on www.obi.de). Our core values are the fundamental beliefs that we stand for: Committed employees Innovation and improvement High-class quality standards We have strong concerns regarding social, environmental, quality and supply chain processes and therefore developed our new Global Quality Management Process. Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 1 of 8
As a condition of doing business with Euromate, each supplier must go through the complete supplier pre-selection and pre-qualification process and afterwards through the final production process. Pre-qualification does not guarantee business with Euromate, but will aid in our final selection. Below is an overview of the major steps of the supplier and product set-up process. Factory Quality Assessment Social Compliance Audit (BSCI) Pre- Product Testing During Production Inspection Pre- Shipment Inspection FQA SCA PPT DPI PSI Supplier Contract International Sales Contract (ISC): A Euromate contract that defines the terms and conditions under which Euromate and the supplier agree to do business. The finalized and countersigned Article Pass (AP) shall be part of this contract. Part A, Testing and qualification All below mentioned procedures will be conducted upfront, before a sales contract will be signed. Costs for testing and qualification (FQA, SCA and PPT) will be charged to suppliers directly from our service provider if suppliers agrees to that. If supplier prefers to have the costs for testing and qualification first to be borne by Euromate, an additional 10% handlingfee for administration and interims financing will be charged to the supplier at the time the total order volume exceeds an amount of USD 10000. 1. Supplier Pre-Qualification Factory Quality Assessment (FQA): An assessment of the quality management systems, manufacturing processes and facilities, manufacturing capacity and capability, and the factory working environment. 2. Supplier Ongoing Qualification Social Compliance Audit (SCA): Part of the Euromate qualification program will be the execution of a Social Compliance Audit (SCA) which is an assessment of social compliance to international standards (will examine employment conditions, working conditions, environmental conditions, legal requirements). For details to the SCA please refer to Part B of this document Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 2 of 8
3. Product Pre-Qualification Pre- Product Test (PPT): Proposed product will be tested upfront at an accredited laboratory approved by Euromate. Packaging Review Product packaging and labels will be reviewed by Euromate to ensure they meet all requirements prior to mass production. 4. Briefing of test institutes and certifying bodies The vendor has to agree that Euromate will contact his and/or the test institutes and certifying bodies of his suppliers and sub suppliers. It is necessary that the test institutes and certifying bodies provide all inspection documents and certificates for the testing of Euromate products. To guarantee Euromate full inspection of these documents and if necessary to get access to their internet database, the vendor has to provide Euromate with the necessary hold-harmless agreements in order to get the required information. If applicable the vendor makes it part of his contract with the manufacturer and/or sub suppliers and has to assure that the manufacturer is clearly and sufficiently informed. Furthermore the vendor has to guarantee that the manufacturer and if applicable their sub suppliers agree and apply for the before mentioned verification from the certifying body, and whose general terms and conditions are recognised, to ensure Euromate will receive the requested information and in addition is entitled, at any time to verify the appropriate test documents, as well as getting informed about the status of the tests and/or certifying process. 5. Inspections During Production Inspection (DPI) and Pre-Shipment Inspection (PSI). An inspection plan is implemented for all import products produced for Euromate; DPI and/or PSI depends on product groups. The full costs of inspections (DPI / PSI), including expenses, will be covered by Euromate unless: I) an inspection failed due to severe non-conformity of the ordered merchandise II) the merchandise was not 100% finished, packed and ready for inspection at the time the inspector arrives at the factory III) an inspection was cancelled less than 2 working days before fixed inspection date In those cases the full costs of failed inspections and re- inspections will be charged to supplier. The next steps in our quality assurance process are: Our global operating service provider will contact you to schedule FQA, SCA, PPT Euromate buyer will contact you for outstanding documents & next steps Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 3 of 8
Part B, Social Compliance Audit This document will guide you through the steps of performing the Social Compliance Audit program. Factory Quality Assessment Social Compliance Audit (BSCI) Pre- Product Testing During Production Inspection Pre- Shipment Inspection FQA SCA PPT DPI PSI In order to follow this process, supplier needs to sign the BSCI Code of Conduct (more information see: www.bsci-eu.org) and the Euromate Code of Conduct in which you have agreed to allow an independent check of your company and factories. If you have not signed these two important documents yet, please do so and return them to us (see enclosure). These are important prerequisites of your future business relation with OBI through Euromate. The following is an overview of the SCA program: Independent Assessment Company Our service provider, has been contracted as a 3 rd party to conduct factory assessments and to help educate suppliers and factories on OBI minimum standards and local country laws. We do not accept assessments already conducted by other monitoring companies, or those done for other retailers unless they were conducted by independent auditing companies that have been accredited by Social Accountability International (SAI) and selected by the BSCI. Only these companies will be entrusted with carrying out BSCI social audits. This assures the best possible audit quality while avoiding costly and bureaucratic accreditation procedures. The BSCI social audit will be mainly performed by our service provider. Assessments We strive for new supplier and factory assessments. But companies found to have violations may be assessed on annual base. Factory Visits Factory assessments will generally be announced for the first audit and will be unannounced for annual audits. Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 4 of 8
Corrective Action & Preventive Plan (CAPA) After each assessment, our service provider will provide the factory, supplier and Euromate a copy of the corrective actions required, a report that describes the violations found in the factory. The factory is then responsible for responding with a CAPA plan to become compliant. Process Flow o The SCA team requires the vendor to submit a Factory Disclosure Form (FDF) via email. o The vendor is asked to complete the FDF within 3 business days. The audit must be completed within 10 business days of receiving the updated FDF information. o The service provider conducting the audit has 5 business days to generate and deliver the audit report to Euromate s QM department. o The corrective action plan is due within 10 business days of receipt of the formal audit report and should identify steps to be taken to correct non-compliance as well as steps to prevent its re-occurrence. o If the CAPA is not received within 10 business days, the Euromate QA Team follows up with the vendor and may provide an additional 5 business days to complete and submit the CAPA. If the CAPA is not submitted within the additional 5 business days time period, the Euromate buyer is notified and the factory is placed on probation until all corrective action plans have been received. Factory is measured based on the following metrics o o o Time taken for completion of factory disclosure form Time taken to complete corrective action plan Ability to correct non-compliant findings in stated timeframe We need your full cooperation with our service provider and their auditors. Our service provider will be contacting you soon and providing you with a Supplier Starter Kit containing program details and supplier requirements. Again, it is the supplier s responsibility to share this information with their employees and factories and sub-contractors if applicable. The Euromate SCA program and the factory assessment Corrective Action documents are proprietary to Euromate. As such, they are to be treated confidentially and not shared with anyone outside of your company. In accordance with the BSCI Code of Conduct, we kindly ask you for your cooperation by carrying out a self-assessment of your social performance including your subcontractors, if it involves Euromate production, and by submitting the details and results of these assessments to Euromate. Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 5 of 8
The service provider assigned will get in touch with you in the next few days for communicating the time target. We would like to thank you in advance for your collaboration. Should you have any questions or concerns, please do not hesitate to contact us. Communication If you have any questions about the set-up process, please contact us: Quality-Management@lux-tools.de Quality-Assurance@lux-sh.com for the Non-Asian-Region (incl. India) for the Asian-Region We kindly ask you to sign the confirmation letters as annexed and send these documents back to the following address: per e-mail Quality Management or Quality-Management@lux-tools.de Emil-Lux-Straße 1 42929 Wermelskirchen Germany Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 6 of 8
Letter of Confirmation (Euromate Quality Management and Social Compliance Process) Herewith we confirm that we have received and taken due notice to the Euromate Quality Management and Social Compliance Process and that we accept and follow the process as described before.. (Company). (Name, Business unit, Position). (Date, signature, company chop) Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 7 of 8 Klaus Meyer-Kortenbach
Declaration Declaration of Liability Regarding Compliance with the BSCI Code of Conduct We, the undersigned hereby confirm: That we have received and taken due note of the BSCI Code of Conduct of November 2006 of the BSCI Code of Conduct, the BSCI System: Rules and Functioning, and the Management Manual. That we are aware of all relevant laws and regulations of the country or countries in which our company operates. That we will inform in case of conflict between provisions of the BSCI Code of Conduct and any applicable laws or regulations in our countries of operation. That we will observe and conform to the BSCI Code of Conduct in its entirety based on a development oriented approach and without amendment or abrogation. That we will inform all of our subcontractors of the contents and requirements of the BSCI Code of Conduct, and that we will ensure that they also comply with the provisions incorporated therein. That and any organisations acting on its behalf may carry out audits with or without notice at our business premises and the business premises of our subcontractors at any time. Furthermore: We agree to carry out a self-assessment of our social performance, and that of our subcontractors upon the request of, and to submit the details of these assessments to Euromate GmbH for evaluation. This will take the form of a completed BSCI self-assessment questionnaire. We shall notify of the location of all business premises used for the production of goods and / or delivery of services for. We guarantee that the production of goods and / or delivery of services for is carried out exclusively at the locations we have indicated. We understand that failure to inform of the location where work for its products and / or services are carried out is adequate justification for the immediate and unconditional termination of all business and contractual relationships. We will use the BSCI management manual exclusively for purposes relating to business and monitoring activities of the BSCI and. We will not allow any third parties not involved in the BSCI compliance/monitoring process to have access to this manual. Date... Name of company... Signature... Company Stamp/Seal Name... Address... Company s Customer ID/Code Number.......... This document must be signed by a duly authorised representative of the company and returned to. Copyright 2006 The English version is the legally binding one. BSCI 2.1-11/06 Version: 4.0/2009 EM supplier_letter_new QM-process and SCA_06.05.2009.doc Page 8 of 8