Approach

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We are working to implement systems to achieve long-lasting improvements throughout our supply chain. We ask our suppliers to conform to the same rigorous ethical, social and environmental standards that we hold ourselves to.

We are also working closely with our suppliers to quantify the energy they consume in manufacturing our products and associated greenhouse gas (GHG) emissions that contribute to climate change. We estimate these GHG emissions are on the same order of magnitude as the emissions associated with the energy used by our products during customer use (see Climate and energy), and next year we plan to report the energy use and associated GHG emissions in HP's first tier suppliers representing more than 70 percent of our materials, components and manufacturing supplier spend. HP joined the Carbon Disclosure Project Supply Chain Leadership Collaboration project (see press release) in late 2007 to help develop a consistent and appropriate methodology for disclosing energy use and GHG emissions throughout the supply chain.

	Risk-based program

We employ a risk-based approach to prioritize implementation of our social and environmental responsibility (SER) program with our first-tier suppliers-those with whom we have a direct contractual relationship (see diagram). These suppliers select and manage their own suppliers, also known as second- or sub-tier suppliers or subcontractors.

Risk-based approach to supply chain social and environmental responsibility

The risk factors we use to prioritize suppliers are:

• Location: Risk is higher in some geographies and locations than others.
• Process: Risk is higher in manufacturing, chemical-intensive manufacturing and labor-intensive assembly than in services.
• Relationships: Risk is higher for some types of contracts, such as large contracts for branded products or contracts with new suppliers.
• Company information: Information from previous audits, press articles, incidents or accidents may impact our assessment of supplier risk.

Applying these criteria, we determined that 160 of our direct material suppliers have more than 300 factories in countries we identified as "of concern." These suppliers are the focus of our SER program. We have audited all of these suppliers at more than 252 factory sites. We are also committed to teaching our first-tier suppliers how to audit their suppliers.

	Collaboration

We take an open, collaborative and proactive approach to implementing SER in our supply chain (see Collaboration). Our experience is that communication and collaboration often lead to innovation and rapid improvement and constitute a far more effective approach than policing and enforcing.

For example, HP and our suppliers operate as collaborators when working on joint assessments and improvement planning. We engage both the HP commodity manager and the supplier to ensure they understand the expectations of the SER program and to identify gaps and develop plans. We also engage with NGOs and third-party audit firms to gain insight, expertise and quick follow-through. Suppliers often question whether they can meet HP's SER standards and cost requirements simultaneously. We believe that our sourcing needs should not require nonconformances such as excessive working hours or violations of the law, and that higher labor and environmental standards ultimately lead to higher quality products.

In 2007, we completed the first session of the Focused Improvement Supplier Initiative (FISI) training program with 30 suppliers in China to help them understand how raising their SER standards and practices can benefit their business (see case study). Systemic change requires time however, as suppliers must first build their management capability and, in some cases, challenge the prevailing culture.

We began implementing our SER program five years ago, and after hundreds of audits worldwide, we have a solid understanding of the main issues in the regions where we source. In the future, we will increasingly focus on addressing the root causes of specific issues through innovative training programs and partnerships.