Monitoring adherence to the requirements and principles of the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries, and consequences of misconduct

Minimize Risks and seize opportunities

We aim to minimize risks and leverage the opportunities in our network of suppliers to best effect. Our supplier management process therefore focuses not only on quality, costs and availability, but also on our suppliers’ ability to innovate, and sustainability aspects. In addition, we have developed a system of suitable processes (detection modules) that allow us systematically to identify potential risks in our supply chain. These detection modules consist of supplier evaluations and self-assessments, as well as on-site inspections (audits).

To proactively identify sustainability-related risks in our supply chain we apply a risk-based approach. This framework makes use of both internal and external information sources that enable us to focus our risk mitigation activities where they are most needed. Within this framework a customized action plan for the future is drawn up for any supplier identified as high-risk. Possible actions include the initiation of a development plan, a sustainability audit or the phasing-out of the supplier.

 

Sustained adherence with the requirements and principles of the Code of Conduct for Siemens Suppliers is checked using the following elements:

  • Risk-based Approach

  • Corporate Responsibility Self Assessment

  • Incident Driven Inspection

  • Supplier Quality Audits

  • External Sustainability Audits

The internal approach systematically identifies those suppliers with potential risks that have been addressed through our supplier qualification process and regular supplier quality audits. Suppliers that perform below a certain predefined threshold are added automatically to a list of suppliers with potentially elevated risk. The list is shared with the responsible Procurement units at the Divisions, which then take further steps to clarify the situation.

We also make use of external sources to identify risk. Examples of such sources are non-governmental organization (NGO) databases, media reports or information channeled through our compliance ombudsman or 'Tell Us' hotline. Any report of a suspected breach of the requirements of the Code of Conduct for Siemens Suppliers and Third-Party Intermediaries undergoes a clarification process to determine the next steps to be taken, e.g. what is known as an incident-driven inspection. To achieve complete risk screening of our procurement portfolio, a risk mapping framework has been developed on the basis of external data. The framework includes country risk mapping and commodity risk ratings

 

Country risk mapping

In order to provide an overview of sustainability-related risks, the country risk mapping framework comprises 15 sustainability risk indicators for each country. The indicators relate to areas such as water security, potential corruption, and human rights. 

 

Commodity risk ratings

To assess the risks involved in sourcing different commodities, each of our commodity categories has been rated in terms of sustainability-related risks. The risks include environmental, labor practice & occupational health and safety matters.

The Corporate Responsibility Self-Assessment takes the form of an online questionnaire on our SCM STAR supplier portal.

 

As an essential module in our supplier qualification process it serves three important purposes:

  • To communicate what sustainability at Siemens Energy means and what our minimum requirements are in order to become a Siemens supplier
  • To give our suppliers a method of identifying risks and opportunities for improvement at an early stage in our cooperation
  • Based on the identified risks, to define corrective actions for mitigation as part of the Siemens Energy supplier development framework

Once the supplier qualification process has been initiated the supplier will receive an invitation to complete the Corporate Responsibility Self Assessment electronically in SCM STAR. The questions check a selection of basic requirements as set out in our Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries.

 

The result of the Corporate Responsibility Self-Assessment will be calculated in the supplier portal and displayed in the form of a traffic light.

 

  • Category 'green': The supplier has met and implemented the requirements in a sustainable manner and does not present a corporate responsibility risk.
  • Category 'yellow': The supplier shows minor deviations from the requirements of the Code of Conduct for Siemens Suppliers and Third-Party Intermediaries and presents a potential corporate responsibility risk.
  • Category 'red': The supplier shows significant deviation from the requirements of the Code of Conduct for Siemens Suppliers and Third-Party Intermediaries and presents a potentially severe corporate responsibility risk.

The Corporate Responsibility Self-Assessment remains valid for 3 years after completion. When the questionnaire becomes due for renewal, the supplier will receive an automatic e-mail invitation to complete the questionnaire again. If discrepancies are identified in the questionnaire with regard to the requirements of the Code of Conduct, the system automatically generates a corrective action plan that needs to be confirmed by the supplier.

The Corporate Responsibility Self-Assessment follows a risk-based approach by focusing on suppliers whose main manufacturing base is located in non-OECD states. Nevertheless, if there is any suspicion of non-adherence to the Code of Conduct for Siemens Energy Suppliers, the Corporate Responsibility Self-Assessment can be executed regardless of the supplier's location.

While a green light indicates no sustainability risks, a yellow or red light indicates a potential sustainability risk and therefore requires action. Based on the identified discrepancies a corrective action plan will be created and automatically recorded in the supplier development module. Each of the corrective actions also has a defined time frame (grace period) for implementation.

 

Suppliers are able to access SCM STAR and report on how implementation of the corrective actions is progressing. Once all corrective actions have been confirmed as implemented by the supplier, the mandated buyer can close the corrective action plan in the system.

 

Siemens Energy may also initiate an external sustainability audit on the supplier's premises to ensure proper implementation of the corrective actions through an assessment by an independent sustainability auditor. If the required corrective actions, despite assistance from Siemens, are not implemented within the grace period, whether due to lack of commitment or ability, Siemens Energy will endeavor to resolve the problems in an escalation meeting together with the supplier.

 

If all efforts remain unsuccessful, Siemens Energy reserves the right to terminate the business relationship and phase out the supplier.

In the event of identified breaches of the requirements of the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries, incident-driven inspections will be initiated to minimize risks in the supply chain.

An incident-driven inspection is an on-site inspection that focuses specifically on the investigation of specific breaches of the Code of Conduct.

 

During the inspection, a nominated specialist in the relevant topics will review the current status of the supplier’s site and define corrective actions jointly with the supplier in order to meet the Siemens Energy requirements in a sustainable manner. The implementation of these corrective actions has to start immediately and will be checked in a follow-up inspection once a reasonable time frame for implementation, defined by the nominated specialist, has ended.

 

The mandated specialist in the topics covered by the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries will be an in-house Siemens Energy employee trained in these topics or a specialist from an external, certified company working on behalf of Siemens.

These inspections are carried out at the supplier's site if

  • a strong suspicion exists that there has been a breach of the requirements of the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries (e.g. media reports, information from recognized and reliable sources), or
  • the Corporate Responsibility Self-Assessment produces a confirmed result of "Category red".

Should the nominated specialist find unrecoverable conditions at the site, or conclude that the proposed actions have not been implemented and/or that a commitment to improvement is lacking, he or she will recommend that business with the supplier be suspended. As a last resort Siemens Energy will terminate the purchasing contracts.

Siemens Energy sustainability requirements are also checked within the regular supplier quality audit.

Within the scope of the regular supplier quality audit, compliance with the requirements of the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries is checked through integrated sustainability questions.

The relevant questions about sustainability are included in all quality audits in both higher and lower risk countries.

Having experienced an increase in the number of agreed improvement measures, we have been encouraged to concentrate even further on our auditing and capacity-building efforts with our suppliers.

 

The agreed corrective actions do not predominantly reflect violations of the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries, but apply mainly to structural improvements in the management systems for sustainable compliance with the requirements of the Code of Conduct (such as missing or incomplete policies, guidelines, information and training, or organizational provisions).

 

External sustainability audits (ESA) are intended to verify adherence to the requirements of the “Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries” and assess the sustainability performance of our supply chain. Siemens Energy has appointed internationally recognized auditing companies to conduct these on-site audits based on the universally valid principles of the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries. The outcome is an in-depth assessment and report that enables Siemens Energy and its suppliers to identify and manage potential sustainability risks.

 

The suppliers in focus for external sustainability audits are selected in accordance with a risk-based approach. This evaluation identifies the parts of our supplier base that present potential sustainability risks, and which merit the more detailed inspection provided by an external sustainability audit.

 

In addition, an external sustainability audit can also be triggered if a potential sustainability risk has been indicated by a ‘red’ result in a Corporate Responsibility Self-Assessment. If the circumstances concerning the deviations from the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries, as declared in the Corporate Responsibility Self-Assessment, remain and the situation merits a more detailed investigation, an external sustainability audit should be initiated.

Suppliers undergoing an external sustainability audit will be asked to schedule an audit with the appointed auditor within a defined time window. The audits relate solely to the supplier's conformance and performance in relation to the six categories of the Code of Conduct for Siemens Suppliers and Third-Party Intermediaries.

 

The audit process follows these steps:

  • A kick-off meeting in which management is briefed on the audit scope, methodology and audit process, and interviewed regarding policies and topics with relevance for the Code of Conduct for Siemens Suppliers and Third-Party Intermediaries
  • A physical inspection of the factory/facility to cross-check the reported/documented non-conformances with the current situation
  • Employee interviews to obtain information about employee work conditions in the facility and check the implementation of policies and procedures that ensure that the requirements of the Code of Conduct are met
  • A final review of the reports to assess compliance with labor or pay guidelines

The auditor treats all information as confidential, to the extent that such information is not already published, generally available to third parties or otherwise already in the public domain.

The suppliers in focus for an external sustainability audit are selected in accordance with a risk-based approach. This framework systematically identifies suppliers with a high risk that have been evaluated within our supplier qualification process and in our regular supplier quality audit. An external sustainability audit can also be initiated if Siemens Energy identifies risk through external sources. Examples of such sources are non-governmental organization (NGO) databases, media reports or information channeled through our ombudsman or ‘Tell Us’ hotline.

 

Any report of a suspected breach of the requirements of the Code of Conduct for Siemens Energy Suppliers may result in an external sustainability audit to assess the full scope of our Code of Conduct.

 

External sustainability audits also play an important role in the scheme of supplier development by improving the supplier's sustainability profile. In addition to the supplier assessment aspects, suppliers can enhance their awareness of Siemens Energy’ sustainability requirements.

In the event of any discrepancies with the Code of Conduct for Siemens Energy Suppliers and Third-Party Intermediaries, corrective actions must be agreed between the auditor and supplier. A time frame (grace period) for implementation will be agreed for each corrective action which, depending on the nature and extent of the action, can cover a period of weeks or months. The agreed corrective actions are documented and monitored regularly.

 

A follow-up audit is scheduled at which the auditor checks whether the corrective actions have been implemented.

 

If the required implementation of corrective actions, despite assistance from Siemens Energy, proves ineffective, Siemens Energy will endeavor to resolve the problems in a meeting together with the supplier. If all efforts remain unsuccessful, whether due to lack of supplier commitment or ability to develop the supplier, Siemens Energy reserves the right to scale back or terminate the business relationship.

Consequences of a breach of the Code of Conduct

In the case of deviations from the Code of Conduct, Siemens Energy and the supplier will agree to implement sustainable measures for improvement within a suitable time frame.

 

Deviations from this Code of Conduct by Third Party Intermediaries who are not Suppliers are regulated by the respective contractual clauses. The time frame for rectification can, depending on the type and extent of the deviation, cover an agreed period of weeks or months during which time the required remedial measures are defined and put in place by the supplier immediately following discovery of the deviation. All measures put in place after inspections are incorporated into the company-wide standard Supplier Management method at Siemens Energy and are systematically selected and pursued. Implementation of the measures has, therefore, an influence on the supplier’s annual performance rating and on the assessment of the supplier’s future potential, as well as on the approval of the supplier within the regular supplier qualification process.

 

How do you, as a supplier, actively ensure us that the requirements of the Code of Conduct are implemented and sustained?

 

We expect our suppliers to:

  • Answer enquiries regarding compliance with the Code of Conduct within the requested time.
  • Actively support the need for clarification and demonstrate active co-operation and willingness to improve, should a potential risk arise from the information in the Corporate Responsibility Self-Assessment, for example failure to check the age of young employees or non-implementation of corrective measures in the case of a well-known environmental incident.
  • Permit the quality auditors access to the required documents and areas so that they can gain a full awareness of your compliance with the Code of Conduct.

Make competent employees available for confidential interviews at Regular Supplier Quality Audits, External Sustainability Audits and Incident Driven Inspections.

Serious breaches of the provisions of the Code of Conduct

  • Should minor breaches be discovered or reported, for example no documented record of the person in your corporate responsible for legal compliance, a suitable and binding period for improvement will usually be put in place. In the context of the companywide mandatory Supplier Management method, measures to correct the problem will be implemented and incorporated into the Supplier Development program.
  • In the case of a significant breach, for example significant risks or dangers for employees are present which are not analyzed and eliminated, even when severe accidents take place, and if no measures are taken against the problem, or if measures are not sufficiently implemented within the agreed improvement period, the business relationship will be terminated.