Sustainable Supply Chain Management

Group Purchasing has primary responsibility for supplier management, including establishing global purchasing strategies and processes. The organization works closely with internal clients and suppliers to integrate key environmental, social and governance considerations into its global purchasing processes, enabling responsible and sustainable economic success for the Group as a whole. In addition to the buying teams, several other teams within Group Purchasing support the selection, management and development of a high-quality, high-performing automotive supply base. These include Supplier Quality, Supplier Relations, Product Development Purchasing, and Integration, Methods and Strategy. Group Purchasing operates according to eight Foundational Principles whose objective is to maximize the value of our supplier partnerships. These principles are: 1. mutual transparency, 2. proactive collaboration, 3. sense of urgency, 4. integrity, 5. long-term mindset, 6. empathy and advocacy, 7. continuous improvement and 8. personal accountability.

In 2014, Group Purchasing managed around €53.4 billion in direct materials purchases through a base of 3,127 direct materials suppliers. The supplier base is highly concentrated, with the top 176 suppliers, which are considered strategic, accounting for approximately 59% of total purchases by value. The Group classifies suppliers as strategic through a formal process based on the following criteria: allocated spending amount, production and spare parts capacity, absence of technical and commercially-viable alternatives, and the value of Group procurement orders as a percentage of the supplier’s annual turnover. Approximately 69% of direct materials purchases (by value) are destined for plants in NAFTA, 18% for plants in EMEA, and 8% for plants in LATAM, and 5% for plants in APAC. By source, 71% of direct materials purchases are from NAFTA, 16% from EMEA, 2% from LATAM, and 11% from APAC.

Environmental and Social Impacts of Suppliers

FCA aims to prevent or mitigate any adverse environmental or social impacts that may be directly linked to our own business activities, or to products and services from our suppliers. As partners, suppliers play a key role in the continuity of our activities and can also have a significant impact on external perceptions of our social and environmental responsibility. Any adverse event within the supply chain can not only have a direct, material impact on production and economic performance - both for us and our suppliers - but can also affect our collective reputations. As such, building and maintaining collaborative, long-term relationships with our suppliers are essential elements in the effective prevention or mitigation of any potential negative environmental or social impacts of our activities.

Our target for 2020 is to conduct sustainability audits or assessments of all Tier 1 suppliers with potential exposure to significant environmental or social risks. For strategic suppliers, these audits will be conducted by external auditors.

The assessment of supplier compliance with sustainability criteria is conducted in three phases over a period of approximately one year. The first phase is the completion of a self-assessment questionnaire. In 2014, Group Purchasing introduced the Supplier Sustainability Self-Assessment (SSSA) questionnaire in all four operating regions. This standardized tool - developed by the Automotive Industry Action Group (AIAG) with the contribution of a workgroup that included FCA and other auto industry OEMs and suppliers - has a three-fold purpose: 1) to communicate our expectations to suppliers; 2) to determine the effective level of sustainability activity within the supply base; and 3) to create an effective and efficient tool that reduces the burden of multiple and similar information requests received by suppliers. The Group has developed a user interface (accessible via the eSupplier Connect portal), which can be used by suppliers to complete the SSSA online.

The questionnaire covers environmental, labor practice, human rights, compliance, ethics, diversity, and health and safety criteria. During 2014, it was expanded with an increased emphasis on water and environmental stewardship.

The results of the self-assessment are used to create a risk map for the purpose of identifying any suppliers that may be at risk and, therefore, require further investigation.

On-site Supplier Audits may be conducted by either FCA Supplier Quality Engineers (SQE) or external auditors. If any critical issues are identified during an audit, a supplier may be placed on watch status or, in particularly severe cases, the relationship with the supplier may be suspended or terminated. Where areas for improvement are identified, a plan of corrective actions may be developed with the supplier concerned. Each action plan sets out specific responsibilities within the supplier’s organization, activities and deadlines for implementation.

In addition to the existing monitoring programs, the Group has also adopted models of consultation and collaboration with suppliers based on effective, interactive communication processes. Initiatives such as local seminars, discussion forums and training programs have been developed over the years to facilitate the exchange of ideas and knowledge and to increase the level of collaboration.

On the environmental front, for example, suppliers are encouraged to develop internal policies and guidelines and to adopt a certified environmental management system. As part of the Group’s 2020 target to monitor CO2 emissions of at least 90% of our top suppliers, we are continuing to support suppliers in addressing climate change issues, including reducing greenhouse gas emissions.

In 2014, selected suppliers were invited to participate in CDP’s supply chain program. The 88 suppliers that disclosed (out of 126 invited) achieved a score of 65/100 for transparency in disclosure and placed in the C performance band for commitment toward reducing carbon emissions. The results revealed that measures implemented by these suppliers had yielded a 62 million ton reduction in CO2 equivalent emissions. The Group has also initiated a series of consultations with several strategic suppliers on monitoring water management within the supply chain and, over the next few years, developing a joint water stewardship strategy in water-stressed areas.

Another important area of long-term focus for the Group, in collaboration with industry peers and stakeholders, is the respect of human rights and working conditions at all levels in the supply chain. In-depth training on responsible working conditions is offered to suppliers in partnership with AIAG. Developed in collaboration with other automakers, the training is designed to help assure and protect the rights and dignity of the workers who make vehicle components. We are also committed to promoting entrepreneurial growth by providing entrepreneurs the practical capacity-building training they need to achieve a higher level of sustainability.

In addition, the Group encourages supplier innovation through various initiatives focused on cost reduction. The Technical Cost Reduction SUPER (SUpplier Product Enhancement Reward) Program, for example, encourages suppliers to be proactive by sharing the economic benefits generated through proposals for innovative manufacturing technologies and leaner component design. During 2014, approximately 300 ideas were implemented by suppliers in NAFTA, EMEA and LATAM regions, allowing to share economic benefits for approximately €43 million.