Suppliers

Strategy

As well as a reliable supply of raw materials, technical goods and services at competitive prices, our partnerships with suppliers are based on mutual value creation. We work together in an open and transparent way to realize long-term benefits for both sides. In doing so, we create added value that goes above and beyond procurement alone, for example by developing solutions to target market-specific customer requirements together with our suppliers.

Our sustainability-oriented supply chain management also contributes to risk management by clarifying our expectations and standards for our suppliers, and by supporting them in carrying out our requirements. We count on reliable supply relationships and want to make our suppliers’ contribution to sustainable development transparent. In order to achieve this, we set ourselves an ambitious goal: By 2020, we aim to evaluate the sustainability performance of 70% of the BASF Group’s relevant suppliers¹ and develop action plans for any necessary improvements.

In 2017, we reviewed our evaluation methods for high-risk suppliers in order to focus even more closely on relevant issues. For example, we increased the weighting of industry- and country-specific risks in the evaluation to avoid the ambiguities in the previous system. The proportion of relevant suppliers evaluated by the end of 2017 in accordance with the new risk approach was 56%.²

Worldwide procurement

Our 70,000+ suppliers play a significant role in value creation at our company. We work in long-term partnership with companies from different industries around the world. They supply us with important raw materials, chemicals, investment goods and consumables, and perform a range of services. BASF acquired raw materials, goods and services for our own production totaling approximately €38 billion in value in 2017. There were no substantial changes with respect to our suppliers in 2017.

What we expect from our suppliers

• Global Supplier Code of Conduct
• Country-specific risk analysis forms basis of new supplier selection

New suppliers are selected and existing suppliers are evaluated not only on the basis of economic criteria, but also on environmental, social and corporate governance standards. Our Supplier Code of Conduct is founded on internationally recognized guidelines, such as the principles of the United Nations’ Global Compact, the International Labor Organization (ILO) conventions and the topic areas of the Responsible Care^® initiative. The Code of Conduct covers compliance with human rights, labor and social standards, and antidiscrimination and anticorruption policies in addition to protecting the environment. The Code is available in 26 languages.

A country-based risk analysis forms the basis of our selection process for new suppliers. As a result of the country-related risks identified in South America and Asia, we specifically asked 6,467 suppliers in these regions to commit to the values of our Supplier Code of Conduct in 2017. Only those companies that have committed to our Code of Conduct actually became new suppliers.

Training

In 2017, we continued our collaborations in China and Brazil to instruct suppliers on sustainability standards. 179 suppliers received training in 2017 as part of local partnerships with the East China University of Science and Technology in Shanghai and the Espaço Eco^® Foundation in Brazil, for example. In addition, we instructed 704 BASF employees on sustainability-oriented supplier management. These are ways in which potential supply chain risks can be identified and minimized together with our suppliers.

Evaluating our suppliers

• “Together for Sustainability” initiative aims to harmonize and standardize supplier assessments and audits
• 120 raw material supplier sites audited

BASF is a founding member of the Together for Sustainability (TfS) initiative of leading chemical companies for the global standardization of supplier evaluations and auditing. With the help of TfS, we promote sustainability in the supply chain. The initiative aims to develop and implement a global program for the responsible supply of goods and services and improve suppliers’ environmental and social standards. The evaluation process is simplified for both suppliers and TfS member companies by a globally uniform questionnaire. The 20 members of the initiative conducted a total of 1,794 sustainability assessments and 441 audits in 2017. The collaboration between the TfS initiative and the China Petroleum and Chemical Industry Federation (CPCIF) to educate suppliers and raise awareness of sustainability topics continued in 2017. More than 300 participants took part in a joint TfS/CPCIF course.

Using TfS evaluations, we pursue a risk-oriented approach with clearly defined, BASF-specific follow-up processes. A total of 120 raw material supplier sites were audited on sustainability standards in 2017. We also received sustainability assessments for 513 suppliers from an external service provider.

If we identify potential for improvement, we support suppliers in developing measures to fulfill our standards. We conduct another review according to a defined timeframe based on the sustainability risk measured. If the weak points discovered were particularly severe and we are unable to confirm any improvement, we reserve the right to terminate the business relationship. This occurred in one case in 2017. We use this approach to evaluate suppliers with an elevated sustainability risk at least every five years. The approach itself is reviewed every two years to identify possibilities for optimization.

Audit results

Our audits have identified some deviations with respect to environmental, social and corporate governance standards, for example in waste and wastewater management and relating to occupational safety, working hours and minimum wage. In the follow-up audits conducted in 2017, we found improvements in all areas. None of our 2017 audits identified instances of child labor. For the suppliers we reviewed, persons under 18 were excluded from overtime and dangerous work. We did not find any incidences of forced labor in 2017.

BASF undertook a thorough examination of the issues raised at platinum supplier Lonmin Plc, London, in connection with the events in Marikana, South Africa. ³ We intensified our regular dialog with both Lonmin and with local stakeholders, such as leading industry and human rights representatives. We had an internationally recognized audit firm conduct a follow-up audit conducted at Lonmin in January 2017. This reviewed to which extent Lonmin had resolved the weaknesses we had identified in the first audit in 2015. The audit also addressed working conditions below ground, social and work schedules, communication between Lonmin and local stakeholders and affected parties, as well as the progress of the construction of employee housing. This follow-up audit reported positive findings in several areas such as working standards. However, it also identified gaps that Lonmin still has to close, such as assessing the impact of Lonmin’s operations on local communities, improving dialog with various stakeholders in the community and implementing a grievance mechanism. We maintain an ongoing, close dialog with Lonmin and will continue to support the company in its improvement process.