Supplier management system

HP’s supply chain social and environmental responsibility (SER) program is based on a four-phase supplier management system that aims to build suppliers’ capabilities (see graphic below). Over the past seven years, all of our key production suppliers have completed the introduction and assessment stages. These first two stages now comprise mainly new suppliers. Suppliers move to the validation phase based on risk assessments (see below), before entering the capability-building phase, where we develop programs to address key training needs, ensuring lasting performance improvement. Currently, we concentrate our efforts on validation and continual improvement. Our experience is that suppliers’ performance improves most in these two stages.

In 2009, we expanded our program to include many more nonproduction suppliers. We have targeted 24 global strategic suppliers, ten high-risk suppliers in Latin America and 27 high-risk suppliers in Asia Pacific. Since the start of this initiative, 90 percent of our targeted nonproduction suppliers have signed SER agreements and completed SER assessments (See Assessment in graphic below).

The following sections explain each step in the four-phase supplier management system.

Phase 1: Introduction

HP assesses potential suppliers according to our risk-based approach outlined below. This helps us establish the appropriate level of participation in our program for a supplier. Once the assessment is complete, we confirm the SER requirements in our contract.

Phase 2: Assessment

HP requests that high-risk suppliers complete a self-assessment questionnaire to identify potential SER performance risks. Self-assessments help suppliers understand our expectations for conformance to HP’s Electronic Industry Code of Conduct .

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 believes that auditing will always remain a critical part of supplier engagement.

We have developed a network of local internal auditing teams, backed by independent verification. We do not rely on supplier certification to external standards, because standards can vary among certified companies, and suppliers without certification can have equally rigorous SER management systems. Instead, 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 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 Electronic Industry Code of Conduct (EICC) using standard ISO guidelines.

• Major nonconformance A significant failure in the management system that affects its ability to ensure that conditions conform to HP’s EICC or General Specification for the Environment.
• Zero-tolerance major nonconformance The most serious type of major nonconformances are zero-tolerance items, which include underage workers (below the legal age for work or apprenticeship), forced labor, health and safety issues posing immediate danger to life or serious injury, and violation of environmental laws posing serious and immediate harm to the community. If such an item is uncovered, our zero-tolerance policy requires auditors to escalate it immediately. The issue must then be rectified within 30 days of the original audit. HP returns between 30 days and 90 days after the audit days 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 between 180 and 360 days to address minor nonconformances.
• Observation Not considered a nonconformance to HP’s EICC. It recognizes there could be better monitoring or documentation processes.

HP requires suppliers to provide a detailed corrective action plan addressing all identified nonconformances within 30 days of receipt of the site audit report. Suppliers need to demonstrate to us that they have addressed major nonconformances within 180 days. They can do this by delivering to us appropriate documentation or other evidence of resolution. For major nonconformances that require physical checks, we return to all audited sites within two years. We typically see substantial reductions in nonconformances between initial and follow-up audits. See more in Audit results.

Phase 4: Capability building

We believe that remaining engaged with suppliers and providing support is the best way to help them improve their long-term performance.

If a supplier rejects the continual improvement approach, we emphasize that we will not tolerate serious or repeated violations of HP’s Electronic Industry Code of Conduct and will terminate the relationship. Terminating a contract can mean the loss of jobs, so we prefer to collaborate with suppliers to improve factory conditions. See the Proactive engagement section for more information.

Risk-based implementation

We conduct risk assessments to prioritize implementation of our supply chain SER. Our first-tier suppliers (see diagram) select and manage their own suppliers (second-tier suppliers).

The risk factors we use to prioritize suppliers are:

• 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 or telecom services.
• Company information Information from previous audits, press articles, incidents or accidents may impact our assessment of supplier risk.