Procurement and Supplier Management

  • Sustainability criteria consistently anchored in supply management
  • Expansion of supplier development in the area of sustainability

The procurement organization supplies the company with raw materials, goods and services all around the world. We exert influence on society and the environment through our procurement activities and supplier relationships. Not only economic, but also ethical, social and ecological principles are therefore anchored in our Procurement Policy, which is binding for all employees worldwide.

Procurement is a corporate function, the head of which reports directly to the Chief Financial Officer. This function acts centrally on behalf of all segments and leverages synergies by bundling know-how and procurement spend.

Our main direct procurement materials include active ingredients, raw materials, intermediates and finished products. Technical goods and services, marketing services and research and development are important components of our indirect procurement portfolio.

The share of renewable raw materials in Bayer’s procurement portfolio plays a subordinated role in the Bayer Group. These materials are primarily used when it makes technical, economic and ecological sense to do so. More information can be found on our website.

In 2018, Bayer’s supplier portfolio changed as a result of the acquisition of Monsanto and the divestment of the vegetable seed and digital farming businesses. The acquired agriculture business’s procurement area is already part of Bayer’s Procurement function for organizational purposes. Until the integration into Bayer processes has been completed, this part of the procurement organization will continue to apply its existing procurement and supplier management processes and existing procurement directive.

The following table provides relevant data on our procurement activities (including of the acquired agriculture business).

Procurement Activities

 

 

2017

 

2018

1

Due to the integration of the newly acquired agriculture business (Monsanto), there may be duplication in the number of suppliers. Supplier consolidation is scheduled to begin 2019

Procurement spend in € billion

 

14.9

 

17.1

Spend in OECD countries (mainly Germany and U.S.A.) in € billion

 

12.2

 

13.5

Spend in non-OECD countries (mainly Brazil, India and China) in € billion

 

2.7

 

3.6

Number of suppliers1

 

93,330

 

101,188

of which from OECD countries

 

64,827

 

68,900

of which from non-OECD countries

 

28,503

 

32,288

Number of countries

 

148

 

153

Our selection of suppliers takes account of all types of suppliers and supplier diversity, as supported, for example, by our supplier diversity programs in the United States.

Established procurement processes and long-term contracts

Procurement operates according to established procurement and supplier management pro-cesses. Long-term contracts and active supplier management for strategically important goods and services are important elements here. They serve to minimize procurement-specific risks such as supply bottlenecks or significant price fluctuations, as well as to safeguard the company’s competitiveness and ensure smooth production processes. Bayer works closely together with selected suppliers to systematically involve them in innovation processes.

Bayer purchases locally wherever possible in order to respond promptly to the requirements of our sites, thereby simultaneously strengthening local economies. In 2018, this applied to 74% (2017: 71%) of our procurement spend at our Significant locations of operation A selection of countries that accounted for more than 80% of total Bayer Group sales in 2018 (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Poland, Russia, Spain, Switzerland, Turkey, the United Kingdom and the United States) , and to 74% (2017: 71%) of procurement spend in all countries worldwide.

Sustainability in the supply chain

Clear, sustainability-oriented criteria and standards apply to our supply chain at both a global and regional level. Bayer regards adherence to these criteria and standards as a crucial value-adding factor and a lever for minimizing risks.

A four-step process is thus established throughout the company to improve sustainability practices in the supply chain, comprising the elements awareness-raising and supplier nomination, performance evaluation and development. This process is centrally steered by the Sustainability team in Procurement and implemented through cross-functional cooperation between the Procurement and the Corporate Health, Safety & Sustainability functions. The newly acquired part of the procurement organization will continue to use its existing processes for sustainability in procurement until integration into the Bayer processes has been fully implemented.

Sustainability requirements defined in the Supplier Code of Conduct

Our sustainability requirements are established in the Bayer Supplier Code of Conduct, which is based on our Bayer Human Rights Policy and the principles of the U.N. Global Compact. The code is available in 14 languages and covers the areas of ethics, labor, health, safety, environment and quality, and management systems. The code is applied in the selection and evaluation of our suppliers and is integrated into electronic ordering systems and contracts throughout the Bayer Group. Furthermore, Bayer’s standard supply contracts contain a clause that authorizes Bayer to verify suppliers’ compliance with our sustainability requirements.

The acquired agriculture business’s supplier code of conduct still applies to existing supplier relationships and its content largely corresponds with that of Bayer’s own code. A new joint code of conduct will be published at the beginning of 2019.

Evaluating the sustainability performance of our suppliers

Starting in 2019, we plan to integrate the suppliers gained through the acquisition into Bayer’s processes for evaluating sustainability performance, which include the EcoVadis online assessments and on-site audits by external and Bayer auditors. To date, the acquired agriculture business’s procurement organization has used supplier surveys and audits to review the sustainability performance of its suppliers. Since these processes are not comparable with those of Bayer, the following information for 2018 does not yet include the acquired agriculture business.

Bayer verifies the observance of the code requirements by its suppliers through online assessments or on-site audits. Suppliers are selected for these reviews at the beginning of the year on the basis of their strategic importance and a sustainability risk analysis combining country and category risks. In 2018, there were 248 strategically important suppliers with a procurement spend of €4.84 billion. In addition, there were 238 suppliers with an increased sustainability risk and a significant procurement spend (> €1 million p.a.). Of these 486 suppliers, we evaluated those that did not yet have valid sustainability evaluation.

The number of assessed and audited suppliers also includes a major proportion of the suppliers with a sustainability risk and procurement spend of > €500,000, those for which evaluations were performed through our industry initiatives Together for Sustainability (TfS) and the Pharmaceutical Supply Chain Initiative (PSCI), and suppliers who have proactively allowed themselves to be evaluated.

In total, our service provider EcoVadis assessed 715 (2017: 622) suppliers on our behalf in 2018. The online assessment criteria of EcoVadis correspond to the requirements of our code and also take into account country- and industry-specific conditions and supplier size.

In 2018, we arranged for 79 (2017: 57) of our suppliers to be audited on site by external, independent auditors. The audit criteria included both the specifications of our code and the industry-specific requirements of the TfS and PSCI industry initiatives. These initiatives are designed to help standardize the sustainability requirements for suppliers in the chemical and pharmaceutical industries. Such standardization is furthered by the mutual recognition and exchange of assessment and audit results. Bayer auditors evaluate selected new and existing suppliers with a focus on health, safety and environmental protection. These audits are performed on suppliers with significant risk potential as regards substances, production processes, occupational safety or environmental factors, for example, and on toll or contract manufacturers in countries at increased risk. In 2018, 130 (2017: 115) suppliers were evaluated by Bayer auditors.

Assessments and Audits of Bayer Suppliers

 

 

2017

 

2018

1

Initial and re-assessments of suppliers working for Bayer; initiated by Bayer and shared via EcoVadis as part of the TfS initiative

2

Initial and follow-up audits of suppliers working for Bayer; initiated by Bayer and shared as part of the TfS and PSCI initiatives

3

Health, safety, environment

Sustainability assessments1 via the EcoVadis platform

 

622

 

715

Sustainability audits2 by external auditors

 

57

 

79

HSE3 audits by Bayer auditors

 

115

 

130

The online assessments and on-site audits are analyzed and documented so that specific improvement measures can be defined with the suppliers in the case of critical results. In 2018, suppliers who had undergone online assessments by EcoVadis demonstrated need for improvement in particular in the categories of sustainable procurement and the environment, while those who had been audited required improvement in occupational health and safety. A supplier receives a critical result if a serious violation or several major findings in sustainability performance are identified. In 2018, this applied to 17 suppliers (2% of all assessed and audited suppliers; 2017: 3% (20)). In these cases, Bayer requests that the suppliers remedy the identified weaknesses within an appropriate timeframe based on specific action plans. We monitor the implementation of these activities by way of re-assessments or follow-up audits. Bayer reserves the right to terminate a supplier relationship if no improvement is observed during a re-evaluation. In 2018, Bayer had to end one supplier relationship due solely to sustainability performance.

Our regular monitoring shows that 343 (2017: 348) of the 794 (2017: 679) Bayer suppliers evaluated in 2018 improved their sustainability performance.

Training measures and dialogue on the issue of sustainability

We offer our suppliers a wide range of development and dialogue opportunities. In 2018, to make the operational implementation of our Supplier Code of Conduct more comprehensible, we developed a Supplier Sustainability Guidance. The first instruction session on its implementation was held at a Bayer Supplier Day in Brazil. The industry initiatives TfS and PSCI offer additional advanced training modules for our suppliers through the TfS Supplier Academy and the PSCI Sustainability Webinars. They also organized training courses and workshops for suppliers in India and China in 2018.

In 2018, Bayer joined together with 10 other industrial companies under the umbrella of econsense to form the German Business Initiative for Sustainable Value Chains. In the selected procurement markets China and Mexico, suppliers were trained locally in sustainable business practices over a nine-month period.

We also support our procurement employees in the implementation of our sustainability requirements with targeted Group-wide training measures.

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