Philips 2011 Annual Report Download - page 194

14 Sustainability statements 14.6 - 14.6
194 Annual Report 2011
Number of initial and continual conformance audits
in 2011 ■-initial--■-re-audit
160
120
80
40
020
8
Brazil
92
59
China
12
4
India
3
4
Indonesia
6
Mexico
4
Others
To track our progress in improving compliance with risk suppliers, we
introduced the new key performance indicator ‘compliance rate’, being
the percentage of the risk suppliers that was recently audited and has
resolved all major non-compliances. Major non-compliances include
two categories: zero tolerance and limited tolerance non-
compliances. By increasing the scope of our KPI to limited tolerance
issues, we aim to structurally drive implementation across all categories
of the Supplier Sustainability Declaration. During 2011 we achieved a
compliance rate of 72%.
The most frequently observed areas of major non-compliance are:
• Working hours, wages and benefits: excessive overtime, continual
seven-day work weeks, insufficient record keeping of standard and
overtime working hours, no payment of overtime premiums
• Emergency preparedness: inadequate fire detection and suppression
systems, blocked or insufficient emergency exits
• Occupational safety: worker exposure to safety hazards, e.g.
electrical shocks
• Lack of adequate management systems to safeguard compliance to
the EICC code for labor and ethics, health and safety and
environment
Areas where we observe improvements compared to previous years
are the payment of overtime premiums, industrial hygiene and workers
health checks, as well as hazardous substances management. These
improvements are due to an increasing awareness at both worker and
management level, and we believe that the Philips program has
contributed to this.
Since we updated the audit tool mid-2010 with increased focus on
management systems and EICC code roll-out to next tier suppliers, we
have observed more non-compliance in these sections. Around 40% of
the audited suppliers did not implement an effective process to ensure
that their next tier suppliers implement the EICC code. In relation to
management systems, the most frequently observed areas of non-
compliance are a lack of self-audits and risk assessments, absence of
performance objectives and a lack of worker feedback and
participation.
Excessive working hours
In China there is a wide gap between legislated working hours and
reality. Especially in regions with high shares of migrant workers a 72-
hour working week is not uncommon. While this issue is not unique
to Philips, we have decided to take a step-wise approach by working
with our suppliers to first reduce to a maximum of 60 work hours per
week and at least one day off per week, except in emergency or unusual
circumstances.
During the 2011 audits we identified 138 suppliers with working weeks
exceeding 60 hours, and 89 cases where workers were not provided
with one day off per week. In these cases we require suppliers to submit
a corrective action plan taking into account factors like employee
turnover, seasonality, workforce size, shift structure, productivity,
demand planning, etc.
Audit findings
The table below shows the results of the full scope audits conducted
during 2011. On average we identified 15 major non-compliances per
audit: 4 zero tolerance and 11 limited tolerance non-compliances. The
limited-tolerance non-compliances include all management systems
related issues, accounting for an average of 8 non-compliances per
audit.
When the full-scope audit reveals areas of non-compliance, we request
suppliers to implement corrective actions and we monitor the
implementation during resolution audits. During the year a total of
2,010 corrective actions were implemented successfully by our
suppliers to resolve major non-compliances. The results of the
resolution audits are not shown in the table below.
During 2011 the decision was taken to phase-out 15 supplier sites in
part to a lack of sustainability improvements.
More information on the Supplier Sustainability Involvement Program,
the EICC Code of Conduct and audit approach can be found at
www.philips.com/suppliers.