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Ric Erdheim
Philips Electronics
iNEMI Conference February 23, 20111
Supply Change Sustainability and Other
Environmental Challenges
2
3
AGENDA
• Background on Philips
• Philips Supplier Sustainability Program
• BOMcheck Supplier Declaration Program
• Plastics Recycling
• Eco Vision 5
4
Founded in 1891Headquartered in Amsterdam, the Netherlands
Sales over EUR 25.4 billion in 2010 (USD 33.8
billion)
Emerging Markets 33% of sales generated in Emerging Markets
Globally recognized brand (world top 50)Our brand value doubled to $8.7bln since 2004
118,000 employeesSales and service outlets in over 100 countries
€1.6 billion investment in R&D, 6% of sales50,000 patent rights – 36,000 registered trademarks –
63,000 design rights
A blue-chip company leading
in health and well-being
5
6
Philips Supplier Sustainability
• Philips Public Supplier Sustainability Webpage
– (http://www.philips.com/about/sustainability/oursustainabilityfocus/s
uppliersustainability.page)
• Links to:
– Philips Supplier Sustainability Program Manual
– EICC/Philips Supplier Sustainability Declaration
– Supplier Self-Assessment Questionnaire
– Philips Supply Sustainability Audit Tool
– Corrective Action Plan
– Risk Country List
• Regulated Substances List
– http://www.philips.com/shared/global/assets/Sustainability/rsl.pdf
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Supplier Sustainability Involvement Program
Create
commitment
Supplier
Sustainability
Declaration
and Regulated
Substance List
Training and
capability
building
Follow up
Consequence
management
Repeat audit
cycle every
3 years
Manage
Risk
Working with
StakeholdersBuilding
understanding
Philips risk
assessment
EICC audit tool
Transparency
Constructive
dialogue
Monitor
identified risk
suppliers
88
Role of Philips Supply Management
Supplier Sustainability Declaration & Restricted Substances List
Suppliers have to sign as part of General Purchasing Agreement
Audit Program
all 1st tier suppliers with:
- production site in risk county
- min spend 100 k€/yr
Royal Philips 2009 Supplier Risk Country List:
Belarus, Brazil, China, India, Indonesia, Mexico,
Pakistan, Philippines, Russia, Thailand, Ukraine,
Vietnam
99
Create Commitment: Supplier Sustainability
Declaration (SSD) and Royal Philips List of
Restricted Substances in Products (RSL)
• Both SSD and RSL are signed as part of General Purchasing agreement
• The SSD is based on the EICC Code and covers 5 Area‟s of attention:
– Labor
– Health and Safety
– Environmental
– Management System
– Ethics
– Additional Philips Annex to recognize the “Right to organize”
and “Collective Bargaining”
• Philips requires that all Products or Parts, Product-Packaging and Transport
Material delivered to Philips comply with all applicable requirements in the
RSL. The RSL contains minimum requirements related to Federal, state,
county, or municipal law, regulation, ordinance or code, and Philips own
requirements.
1010
Build Understanding: Training/capability building
• Objective
– Increase suppliers awareness to our sustainability requirement
– Increase suppliers awareness to local legal requirement
– Prepare suppliers for audit
• Content of our supplier training
– EICC and Philips
– Supplier workgroup sharing on best practices
– Full Audit Checklist
– Document List for Audit (relevant legal permits, approval, license…etc)
• Use of Supplier Self Assessment Questionnaire
• Quick scan to supplier (one day onsite visit to suppliers highlighting the high
risk problems)
1111
Monitor and Manage Risk:
Supplier Sustainability Audits
• By 2009, we have 1000+ risk suppliers audited/will be audited
• During an on-site audit the compliance to the EICC code is validated
• Audit checklist developed by EICC members is used during audit
• Each violation to the EICC norm is called a non-compliance (NC)
• 3 categories of NCs: red, orange and yellow NC
• Philips uses an external party to do the initial audit
• All other steps are done by Philips purchasing together with the supplier; audit
preparation, plan corrective actions, resolving NCs, monitoring progress,
making audit planning.
• Corrective Action plans must be agreed to within 30 days
• Zero Compliance issues (improper disposal, lack of permits, working hours,
occupational safety, emergency preparedness) must be resolved within 3
months unless extension granted
risk country
> 100 K€/yr
1212
5 Sections in the Audit Checklist
• Freely Chosen
Employment
• Child labor
avoidance/youn
g
worker
management
• Working hours
• Humane
Treatment
• Non-
discrimination
• Freedom of
association
• Occupational
Safety
• Emergency
Preparedness
• Occupational
Injury and
Illness
• Industrial
Hygiene
• Physically
demanding work
• Machine
safeguarding
• Dormitory and
canteen
• Environmental
permits and
reporting
• Hazardous
substances
• Waste water and
solid waste
• Air emissions
• Product content
restrictions
• Company
Commitment
• Corrective action
process
• Documentation
and records
• Management
Accountability
and responsibility
• Legal and
Customer
Requirements
• Risk Assessment
and Risk
Management
• Performance
Objectives
• Training
• Communication
• Worker feedback
and participation
• Audits and
assessments
• No improper
advantage
• Disclosure of
information
• Intellectual
property
• Fair business,
advertising and
competition
• Protection of
identity
• Community
engagement
B: HEALTH AND
SAFETY
A: LABOR C: ENVIRONMENTAL D: MANAGEMENT
SYSTEMS
E: ETHICS
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Working with Stakeholders
• Publicly report results yearly in annual report
• 2009 Audits
249 initial audits of potential suppliers, new suppliers including those
from acquisitions, new sites or spend exceeding EUR 100,000,
111 continual conformance audits at suppliers audited in 2006, and
498 resolution audits focusing on zero-tolerance issues
(continual seven-day work weeks, immediate life threatening situations,
hazardous waste handling).
12 suppliers phased out because of lack of improvement
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Audits per Country Non-Compliances
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Results 2009 Audits
1515
What Works Well
• Philips expertise available to suppliers
– Group training and on-site consultancy
– Support in audit preparation and follow-up
• Outsourced audit model: suppliers own audit report
– Over 1000 supplier audits completed in risk countries
• Auditing on „hard topics‟: working hrs, wages, permits, waste handling
• Increased interest from e.g. investors
1616
Number of people‟s lives that were touched
upon through the program in 2008 - 2 highlights
• We solved more than 40 cases of continuous working week in our supply
base, resulting more than 30,000 workers are benefited from a better
work/rest balance.
• We solved more than 55 cases of immediate health and safety threat in
working place, bringing a healthier and safer working condition to more than
23,000 workers.
1717
Challenges
• Management systems to enable structural improvements in the areas
of labor, health & safety and environment
• Sustainability issues deep down in the supply chain
– Example conflict minerals
• Supplier to take ownership instead of the customer
• Structural societal problems
– Phantom unions in Mexico
– Working hours in China
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Philips needed an alternative to a signature
under Regulated Substances List because…
1. More and more legislation about substance information in products:
– REACH: companies need to declare whether articles contains
Substances of Very High Concern (SVHC) in > 0.1% by weight
– 38 in 2010, >100 SVHC in 2012, >300 SVHC in 2015
2. Philips cannot manage the compliance evidence on paper anymore as
legislation is updated every 6 months
Conclusions:
1. Philips needs one central database for Substance Management!!
2. Philips should encourage Full Material Declaration
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BOMcheck Other system
(e.g. PTC, JAMP,
Technidata)
Share data with multiple
customers
yes no
Guidance on
substances
yes no
Multiple language
platform
yes no
Free training to supplier yes no
BOMcheck is the most effective tool in electronics sector for making declarations
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A wide range of OEMs are using BOMcheck
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BOMcheck: from risk to opportunities roadmap
Compliance
stakeholder/customer
expectations
Eco-Design, CO2, preferred
Materials
Cost savings/Revenue
growth
License
To
operate
Staying
Afloat
Ahead
of
The
curve
Short Term Long Term
Full Material
Declaration
Regulatory
Compliance
Declaration
Setting the standard
in 2015
22
Suppliers PhilipsBOMcheck
PLMPLMBOMcheck
Philips architecture for REACH and Other Chemicals
Knowledge Program (ROCK)
BOM
PLM
Pa
rt M
ap
PLM
1-level BOM
with alternatives
Supplier
Supplier
Supplier
Declaration
calculator
Declaration
database
Supply management
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Full Material Declaration vs. Regulatory Compliance
Declaration
FMD benefits Regulatory compliance declaration
benefits
1. Only done once
2. Anticipate future regulations
3. Analyze materials
4. Improve Life Cycle Assessment
5. Stimulate Ecodesign (e.g. CO2
footprinting)
6. After sales service analysis
1. Less effort than FMD
FMD disadvantages RCD disadvantages
1. High initial effort
2. Need to declare >95% of weight
3. More effort to get supply chain to
cooperate
1. Needs to be updated every 6
months
2. Cannot predict future regulatory
impact
3. Cannot use for LCA
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Tech-Clarity survey amongst 300 electronics companies, 2009
Supply Management
Challenges
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Philips request to suppliers
1.
• Sign Annex• confirm compliance with Philips Regulated Substances List and make
declarations in BOMcheck
2.• Attend BOMcheck introduction webinar
3. • Buy BOMcheck license
4.• Attend BOMcheck expert webinar
5.• Make BOMcheck declarations
• Preference for FMD. Priority: ROHS, SVHC, PVC, and BFR
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Support for BOMcheck roll out
• Hotline support:
– Environ: www.bomcheck.net/contact
– Philips BOMcheck Support Centre:• Email: bomcheck.apac@philips.com or bomcheck@philips.com
• Phone:+86 571 8793 0464 or +48 42 291 8140
• Internet/user manual/video:
– www.philips.com/suppliers
– www.bomcheck.net/suppliers
• Training:
– Environ: Bi-weekly webinars
– Philips: face-to-face training for suppliers
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Results of BOMcheck roll out to suppliers
0
500
1000
1500
2000
2500
3000
3500
to date
target end 2010
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Challenges & learnings of BOMcheck roll out
Challenges Learnings
1. Lack of chemical knowledge•Need for guidance on SVHCs
•Improve component management &
product design processes
1. Focus on priority suppliers •Plastics, cables, finished articles
•Low risk suppliers: make own-
declaration
2. Language support •Chinese, German, Japanese, etc.
•Q: Why not needed for paper
declarations?
2. Focus on priority substances•SVHC, ROHS, PVC,BFR. FMD later
•Validate declarations (completeness,
correct families, reliability)
3. First mover syndrome•“Philips is the only one asking”
•“You have to pay for this information”
•“I am worried about confidentiality for
FMD data”
3. Internal organization•Get your house in order!
•Engage supplier account managers
•Central support organization
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Conclusion
• Online database is the future for substances management in the
electronics sector
– Nobody can manage spreadsheets and paper anymore
• Promulgation of different online dbases is not desirable
– Harmonization reduces administrative burden and increases
knowledge/reputation of the entire sector
• Resistance to BOMcheck mainly related to confidentiality issues around
FMD
• BOMcheck can be the industry standard that meet all ambitions:
– Risk management: Regulatory Compliance Declaration
– Eco-design: Full Material Declaration
30
Our vision/dream: make use of recycled plastics
common practice for our products
30
+ Less scarcity issues
+ Less landfill and incineration
+ Lower CO2 footprint (> 50 % less for recycled plastics)
+ We want to establish a lasting cost benefit for Philips (lower
prices)
+ Use of recycled plastic will stimulate
proper recycling of our products
… and it contributes to EcoVision 5 / our image
31
It is not as simple as it seems
31
Philips chemical
requirements (RSL)
not tuned to recycled
materials
Conflict in legislation:
• WEEE requires
recycling and reuse
• REACH requires full
transparency of
materials
Availability Quality Price
Post Industrial recycled
Plastics (PIR)
(from industrial waste)
• Offers choice, but
availability is limited
Post Consumer recycled
plastics (PCR)
(from used products)
• In principle high availability,
but difficult to get high
quality
Challenge to be explored: application recycled plastics at OEMs
Challenges in
High quality recycled
plastics are scarce.
Suppliers tend to
ask price premium
32
How we have tackled the challenges
Co-development with suppliers
Supply base has better understanding of our needs
Understanding of suppliers‟ long term directions in recycled materials
Solution oriented cooperation
I&D & Purchasing & Businesses & Sustainability & Quality
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Pragmatic approach to deal with compliance issue
Today compliance tests per batch.
Next phase: release of compliant processes
Understand price build-up
Created in-depth understanding recycling process and price build-up
Use all knowledge
Learnings shared quickly between the projects in the various businesses
Central knowledge build-up to enable scaling-up
33
EcoVision5 programGoing beyond the environmental impact with EcoVision5 (2010-2015)
Improving the energy
efficiency of our total
product portfolio with
an average of 50%
Bringing care to more
than 500 million
people
Doubling our global
collection, recycling
amounts and recycled
materials in products
34
CONTACT INFORMATION
• Ric Erdheim
• Senior Counsel
• Philips Electronics Government and Industry Affairs
• Suite 900
• 1050 K Street NW
• Washington, DC 20001
• ric.erdheim@philips.com
• 202-962-8558
3636
EICC VisionElectronics Industry Citizen Coalition: http://www.eicc.info/
Many companies have come together in the electronic sector to address
corporate
responsibility issues:
• To collaborate
• Establish common tools and practices
• Reduce duplication of effort and cost, increase efficiency
Through the application of high standards we can create better social, economic
and environmental outcomes for all those involved in the supply chain:
• Increased efficiency and productivity for companies and suppliers
• Improved conditions for workers
• Economic development and a cleaner environment for local communities
• Understand and/or reduce risk to ensure the continuity of supply or business
continuity in the supply chain
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