HP's four-phase supplier management system (see graphic below) provides an overarching framework for suppliers to progress through our supply chain social and environmental responsibility (SER) program. We focus our resources according to risks posed by supplier activities and assess each supplier in that regard. The system aims to improve long-term SER performance by building suppliers' capabilities. Over the past eight years, all of our key production suppliers have completed the introduction and assessment stages.
Nonproduction suppliers
HP's supply chain SER program has historically focused on production suppliers, which generally present the greatest risk of poor SER performance. Since 2009, we have also focused on introducing nonproduction suppliers to the program. HP uses nearly 50,000 nonproduction suppliers, which follow the same supplier management system as production suppliers.
We prioritize nonproduction suppliers to introduce to the SER program by considering the supplier's risk profile, strategic value to HP, and industry. All 56 of HP's most strategic global nonproduction suppliers, which represent around 30% of total nonproduction supplier spend, have completed the introduction, assessment, validation, and improvement stages of the program (see below). We continue to expand the program. In 2010, 34 nonproduction suppliers in Mexico completed the introduction stage (see below). In 2011, we intend to increase the number of nonproduction suppliers taking part in the program by expanding our geographical focus to China and India.
Four-phase supplier management system
The gap between introduction and assessment represents supplier sites that pose low risk. The gap between assessment and validation represents sites whose self-assessments indicate they are low risk. The increases in introduction and assessment starting in 2009 and 2010 are largely due to the expansion of our program to nonproduction suppliers. By the end of 2010, all 56 of HP's most strategic nonproduction suppliers had entered the program. More information will be reflected in our next report.
The following paragraphs explain each step in the four-phase supplier management system.
Phase 1: Introduction
HP considers supplier risk profiles and conducts a formal risk assessment if necessary. We then confirm the SER requirements in our contract.
The risk factors we use include:
- Location Risk is higher in some locations than others
- Procurement category Risk is higher in some procurement categories, such as manufactured parts, components, and real estate construction services, and lower in others, such as software licensing, marketing services, and telecom services
- Company information Insight from previous audits, press articles, incidents, or accidents may affect our assessment of supplier risk
- NGO reports We consider information highlighted in NGO reports and determine the likely impacts for suppliers
Our first-tier suppliers (see diagram below) select and manage their own suppliers (HP second-tier suppliers).
Phase 2: Assessment
If HP's risk assessments show a supplier poses high SER risk, they must complete a self-assessment questionnaire . These help us identify potential SER performance risks, and help suppliers understand our expectations for conformance to HP's Electronic Industry Code of Conduct (EICC) . HP reviews and provides feedback on the self-assessment, and suppliers create and implement an improvement plan, if required.
Phase 3: Validation and Improvement
Validating conformance
HP uses local internal auditing teams, backed by independent verification. We use three types of audits:
- Audits conducted by HP employees
- Audits conducted by an external organization to verify the results of HP audits or to investigate allegations
- Joint audits conducted by an external organization on behalf of HP and other Electronic Industry Citizenship Coalition member companies
Responding to nonconformance
We rank nonconformance to HP's EICC using standard ISO guidelines.
Major nonconformance
A significant failure in the management system that affects a company's ability to ensure conditions conform to HP's EICC or General Specification for the Environment . Suppliers must demonstrate that they have addressed major nonconformances within 180 days, by delivering appropriate documentation or other evidence of resolution. For major nonconformances that require subsequent monitoring, we return to all audited sites within two years.
The most serious types of nonconformance are zero-tolerance items. These include underage workers (below the local legal age for work or apprenticeship), forced labor, health and safety issues posing immediate danger to life or risk of serious injury, and violation of environmental laws posing serious and immediate harm to the community. Our zero-tolerance policy requires auditors to escalate such items immediately. They must then be rectified within 30 days of the original audit. HP re-examines the zero-tolerance item between 30 and 90 days after the audit with an in-person visual verification to confirm resolution of the issue.
Minor nonconformance
Not a systemic problem and typically an isolated finding, such as an overdue corrective action from an internal audit or a procedure that has not been revised to reflect a change in regulations. Suppliers have up to 360 days to address minor nonconformances.
Corrective action plans
HP requires suppliers to provide a detailed corrective action plan (CAP) addressing all identified nonconformances (except zero-tolerance items, which are treated independently) within 30 days of receipt of the site audit report. We review these plans and request quarterly reports to allow us to monitor progress and subsequent closure of nonconformances. When progress is inadequate, we intervene to help create a more effective plan. We typically see substantial reductions in the number of instances of nonconformance between initial and follow-up audits. (See more in Audit results.)
Phase 4: Capability building
Remaining engaged with suppliers and providing support is as important to our SER program as uncovering problems. Our capability-building programs include collaboration with suppliers on key processes, such as reviewing CAPs, and implementing training programs in conjunction with local nongovernmental organizations (NGOs) and training groups.
Risk-based approach to supply chain social and environmental responsibility
- * In addition to EICC VAP audits performed by third party.
If a supplier rejects the continual improvement approach, we emphasize that we will not tolerate serious or repeated violations of HP's EICC and will terminate the relationship if needed. Terminating a contract can mean the loss of jobs, so we prefer to collaborate with suppliers to improve factory conditions where possible. (See Capability building for more information.)