Strategy

We launched our supply chain social and environmental responsibility (SER) program in 2000 with a long-term vision of cooperation throughout the supply chain to improve standards of labor management, human rights and environmental performance. Our strategy to achieve this is multi-faceted. It includes:

• Proactive engagement Through collaborative assessments, improvement plans and capability-building initiatives, we help suppliers achieve their own independent, robust internal governance to ensure continued improvements. We also collaborate internally to ensure the importance of SER is understood throughout the HP sourcing community.
• Transparency We work openly with non-governmental organizations (NGOs) and other interested parties to communicate our challenges and progress, and ensure we target the right issues. We also publicize the results of our audits and a list of our suppliers.
• Meaningful results Our audit program reveals issues requiring attention and helps us monitor suppliers’ performance, ensuring we achieve long-term results.

We believe that higher labor and environmental standards lead to higher-quality products. They also protect our reputation and assure the continuity of our lines of supply by ensuring SER issues do not adversely affect a supplier’s production capability. The program creates efficiencies that can decrease cost and strengthens partnerships for HP.

Suppliers often question whether they can meet HP’s SER standards and cost requirements. We believe that our sourcing needs should not result in nonconformances to our code or violations of the law. Lasting change takes time, however, as suppliers must not only build their management capability but also often challenge a prevailing culture.

Our program, markets and supply chain are always evolving, so new issues and trends constantly emerge. We stay on top of developments, adapting and enhancing our program to meet its changing needs. For example, in 2009, HP revised our Supply Chain SER Policy to highlight the importance of supplementing regulatory compliance with continual improvement in environmental performance. We require suppliers to promote efficient use of energy and other resources and minimize the use of hazardous materials.

We expect several important trends to influence our future strategy:

• Introduction of super codes (the Global Social Compliance Program base code, for example), which are broader than industry-level codes of conduct
• Increased focus on SER by retailers (see Proactive engagement for more information)
• Incorporation of SER standards in bilateral and multilateral trade agreements
• Increased focus on traceability through many levels of the supply chain (see more in Proactive engagement)
• Increased focus by HP on more difficult issues as our SER program begins to expose deeper underlying problems
• Increased attention on the role of business in respecting and promoting human rights

Internal collaboration and governance

Our supply chain SER governance system defines responsibility and reporting across relevant HP businesses and functions. All HP businesses support our supply chain SER program through the Supply Chain Board, which meets monthly and reports directly to the HP Executive Council.

It is imperative that HP’s procurement teams understand SER issues and consider them in day-to-day sourcing and supplier management decisions. These teams receive regular training in how to assess the SER risk associated with a potential supplier. Supply chain SER is included in the Supplier Evaluation, Contract Development and Execution Management phases of HP’s Procurement Management Process, which defines how our procurement organizations worldwide manage production suppliers. Compliance with our Procurement Management Process is audited internally and by external organizations that certify HP’s quality system (ISO 9000).

HP uses a High-Performance Supplier Scorecard (HPSS) to evaluate and improve production suppliers’ performance. The scorecard has multiple performance categories weighted according to importance, such as business (including SER), cost, quality, supply and technology. The scorecard rating system allows us to rank a supplier’s management capacity as well as its SER performance against HP’s Electronic Industry Code of Conduct (EICC). SER issues account for 10 percent of suppliers’ HPSS score. HP reviews scorecards regularly to identify issues and trends to address. Suppliers can also rate HP through our reverse scorecard, which focuses on our order and supplier management processes.

Strategic audit program

Audits verify conformance with HP’s EICC and establish whether the supplier has systems to promote continued conformance. Audit results also enable HP to identify and focus on the most pertinent issues for specific types of suppliers, sites, countries and regions. We believe that audits are most strategic when they are collaborative and constructive. Experience shows that achieving cooperation from suppliers is essential because it creates an environment for lasting improvement. For this reason, we usually announce our audits in advance even though we know this can allow a supplier to present an artificially positive picture (which happens, but rarely). We believe our audit methodology is robust enough to produce accurate findings, and we find that announcing audits usually allows us to build a good relationship.

Investigative audits are an exception. These are usually in response to a serious, credible allegation where we believe the supplier may try to hide the real situation. See Proactive engagement for an example.

Where we have a strong collaborative relationship, we have started to partner with some of our suppliers to demonstrate how HP conducts the audit process by jointly auditing their suppliers (our second-tier suppliers).

HP’s principles of a strategic audit:

• The philosophy of the audit is a joint and collaborative effort between the supplier and the audit team.
• The purpose of the audit is to determine the level of conformance with HP’s Electronic Industry Code of Conduct .
• The objective of the audit is to identify areas for continuous improvement and to focus our efforts appropriately.

Third-party monitoring

Third-party monitoring is a valuable component of our program, providing independent oversight of our supplier auditing efforts. HP engages third-party audit firms, including Environmental Resources Management (ERM) and Verité, to conduct verification audits of our suppliers, including suppliers associated with a specific allegation in non-governmental organization (NGO) reports. ERM’s validation statements are available here.

We validate our findings with the results of third-party audits; we have found that they usually correspond to the findings of HP’s internal audits. The quality of third-party monitoring is critical to ensure the effectiveness of this validation. The Electronic Industry Citizenship Coalition (EICC) is working to develop a certification process to ensure a consistently high standard for all industry-sponsored audits. When available, all third-party auditors will need this certification before auditing suppliers on behalf of EICC members. HP’s internal auditors will also go through the same certification process.

Capability building

We encourage lasting improvement in suppliers’ SER performance by building their capability to understand and manage the issues they encounter. HP collaborates with local NGOs and training groups to deliver programs that address concerns raised by audit results and stakeholders. Engaging locally ensures our programs address key local challenges, while improving our relationships.

Our biggest programs to date have been:

• Focused Improvement Supplier Initiative (FISI) (2006–2008) Monthly social and environmental management training sessions. FISI connected suppliers with resources, skills and a network of experts to facilitate systematic improvement in SER management.
• Fire Safety and Emergency Preparedness Training (2009) See Proactive engagement for more information.
• HERProject (2008–present) A health training program to improve awareness and access to health care for women. See Proactive engagement for more information.
• Central Europe Supplier Responsibility (CESR) project (2006–2008) Training and workshops to improve the SER performance of HP’s small and medium-sized sub-tier suppliers.
• Multi-Stakeholder Capability Building in China (2007) Led by the Foreign Investment Advisory Service (FIAS), a department of the World Bank, the initiative brought together suppliers, NGOs and leading companies in an effort to raise standards in the electronics sector in southern China.

Reach of capability-building programs

The table below shows the reach of training and capability-building programs to HP’s first-tier suppliers. In addition, HP has trained over 100 second-tier suppliers through programs conducted jointly with our first-tier suppliers. To date, suppliers representing 60 percent of total spending have benefited from at least one program. Our capability-building programs in China, such as the Focused Improvement Supplier Initiative and worker training at Chicony (see Proactive Engagement), have helped raise awareness of SER issues at the participating factories. Audit results have subsequently showed decreases in nonconformances relating to awareness of HP’s Electronic Industry Code of Conduct and labor management systems. Auditors are now also having deeper conversations about fire safety and training as a result of our related program in China (see Proactive engagement).

Program	Suppliers covered to date [% of total spend, rounded to nearest 5%]
At least one capability-building activity	60%
At least one version of the Focused Improvement Supplier Initiative (FISI)	55%
Fire safety and emergency preparedness training (See Proactive engagement for more information.)	30%
HERProject (Mexico and China) (See Proactive engagement for more information.)	20%
Central Europe Supplier Responsibility (CESR) project	15%
Multi-Stakeholder Capability Building in China led by the Foreign Investment Advisory Service (FIAS)	15%