employees in inditex’s shanghai offices | strategic plan for … · 2018-08-26 · purchasing...

Our priorities - Socially responsible supply chain

We approved our Strategic Plan for a Stable and Sustainable Supply Chain 2014-2018 in the year 2013. With our strategic plan we reiterate our commitment to the United Nations Guiding Principles on Business and Human Rights. The plan has four lines of action (identification, assessment, optimisation and sustainability) and provides a roadmap with objectives and activities that have guided

our activity to guarantee the social sustainability of our supply chain.

The activities developed within each of the lines of action and along with the Workers at the Centre programmes have contributed to the achievement of, with one year still to go, practically all of the specific objectives contained in the plan.

|STRATEGIC PLAN FOR THE SUPPLY CHAIN 2014-2018: OVERVIEW 2017

STRATEGIC PLAN FOR A STABLE AND SUSTAINABLE SUPPLY CHAIN 2014-2018

IDENTIFICATION

Traceability

Training for auditors

Audit quality

Effective and efficient reference partners with whom Inditex can share best practices and create shared strategies

LINES OF ACTION

GO

ALS

Monitoring

Training

Continual improvement

Commitment to stakeholders

ASSESSMENT

Compliance Programme

Worker participation

Corrective Action Plans

OPTIMISATION

Effective auditing

Training for suppliers

Consolidation of the supply chain

SUSTAINABILITY

Mature relationships with suppliers and a

holistic approach

Employees in Inditex’s Shanghai offices (China)


102-9, 103-3, 205-1, 308-1, 412-3, AF7, AF8

INDITEX SUPPLY CHAIN IN 2017 (*)

Geographic area

Suppliers with purchase

in 2016Suppliers not used in 2017

New suppliers

in 2017

Suppliers with purchase

in 2017

Africa 141 15 25 151

Americas 65 24 7 48

Asia 938 191 233 980

Europe (non-EU) 179 43 46 182

European Union 482 85 66 463

TOTAL 1,805 358 377 1,824

(*) Suppliers of fashion items, mainly clothing, footwear and accessories, with a production for Inditex of over 20,000 units/year. Suppliers with smaller production account for 0.29% of total production.

| IDENTIFICATION OF THE SUPPLY CHAIN

STRATEGIC OBJECTIVE 2014-2018 DEGREE OF COMPLIANCE 2017 2016

Verification of the traceability of production

0% 25% 50% 75% 100%

OUR CLUSTERS

BRAZIL

ARGENTINA

MOROCCO

PORTUGAL SPAIN TURKEY

BANGLADESH

VIETNAM

CAMBODIA

INDIA

PAKISTAN

CHINA

AMERICAS

No. of suppliers 48

No. of factories 92

EUROPEAN UNION

No. of suppliers 463

No. of factories 2,238

EUROPE (NON-EU)



ASIA



AFRICA


No. of factories 390

TOTAL SUPPLIERS AND MANUFACTURERS BY GEOGRAPHIC AREA

TRACEABILITY AUDITS 2017

Geographic area Nº of audits

Africa 485

Americas 664

Asia 513

Europe (non-EU) 927

European Union 32

Total 2,621

See page 70 of this Annual Report.

TOTAL SUPPLIERS 1,824

TOTAL FACTORIES 7,210

57% OF THE FACTORIES ARE CONCENTRATED IN PROXIMITY COUNTRIES SUCH AS SPAIN, PORTUGAL, MOROCCO AND TURKEY.


AF6, AF16

Inditex’s Code of Conduct for Manufacturers and Suppliers Compliance Programme is a key tool for ensuring that all the companies in Inditex’s supply chain comply with the Code of Conduct. This programme encompasses the different actions designed to assess and optimise all factories and suppliers

with a permanent focus on improving the social and working conditions of employees. Thus, the Compliance Programme is the basis for all of the initiatives we develop to protect and promote Human Rights and labour rights for workers, which go far beyond mere monitoring and assessment of these rights.

| ASSESSMENT OF THE SUPPLY CHAIN


Auditing system designed to evaluate and improve management methods

Ensure sustainable compliance with the Code of Conduct for Manufacturers and Suppliers

0% 25% 50% 75% 100%

COMPLIANCE PROGRAMME

PRE-ASSESSMENT

AUDITSPre-assessment

consists of a preliminary evaluation

of potential suppliers and factories

performed by internal or external auditors

without prior notice.

Only those suppliers that pass can join

to the supply chain. From that moment on they are subject

to Inditex’s Minimum Requirements

SOCIAL AUDITS

The aim of social audits is to verify the degree of compliance with the Code of Conduct and to establish Corrective Action Plans (CAPs) intended to ensure respect for Human Rights and fundamental labour rights.

Basis for the sustainability of the supply chain

Assignment of a ranking

Corrective Action Plan

SPECIAL AUDITS

Inspections related to specific issues such as the health and safety of workers, and competence visits to ensure compliance with the Corrective Action Plans.

TRACEABILITY AUDITS

The aim is to verify the traceability of the supply chain based on analysis of the information gathered from the manufacturer management system.

WORKERS AT THE CENTRE

Carried out by internal and

external auditors

Methodology developed internally by Inditex with

stakeholders

Aimed at achieving continual

improvement

Audits are unannounced

Information is obtained from various sources

FEATURES SHARED BY ALL INDITEX AUDITS

4,215 AUDITS

2,159 AUDITS

2,621 AUDITS

2,252 AUDITS


308-1, 412-1, 414-1, AF3, AF8, AF16

Even before they belong to Inditex’s supply chain, all suppliers and manufacturer are subject of a pre-assessment audit to verify compliance with Inditex’s Code of Conduct for Manufacturers and Suppliers and make sure that only those complying can join our supply chain.

PRE-ASSESSMENT AUDITS IN 2017

Geographic area Nº of audits % Approved

Africa 97 77%

Americas 19 68%

Asia 1,551 75%

Europe (non-EU) 275 84%

European Union 310 95%

Total 2,252 79%

RESULTS OF PRE-ASSESSMENT AUDITS

2017

Not approvedApproved

79% 21%

In 2017 some 2,252 pre-assessment audits were carried out, of which some 79% had an approved result, meaning that the company involved can receive orders from Inditex’s purchasing teams and, from that moment, is subject of the standards set out in the document Inditex Minimum Requirements, which includes requirements related to social issues, traceability, and product health and safety.

Following the pre-assessment audit, regular social audits are carried out to assign a rating to suppliers depending on their level of compliance with the Code of Conduct. These audits form the basis for the creation of Corrective Action Plans (CAP) (where breaches of the Code are detected) and they are a vital source of information for developing other improvement activities such as the programmes of the Workers at the Centre strategy.

SOCIAL AUDITS IN 2017


Africa 265

Americas 91

Asia 2,012

Europe (non-EU) 787

European Union 1,060

Total 4,215

Social audits are mainly carried out by external auditors, and their regularity varies depending on the rating obtained, with a maximum of two years between each audit. The method used for this type of audit is always the same, regardless of the rating obtained by the supplier or factory, because at Inditex we have our own social audit methodology. This was developed jointly by Inditex, IndustriALL Global Union, the Cambridge Centre for Business and Public Sector Ethics and the University of Northumbria (United Kingdom).

One essential element of the social audit are interviews with workers and their trade union representatives. These interviews allow the auditor not only to compare the information obtained from other sources but also to gain a clear vision of the real picture of the factory. The other phases of the process involve documentation review, inspection of the facilities and interviews with management. Overall, these elements make it possible to carry out a detailed assessment, verifying the factory’s level of compliance with the Code of Conduct.

In 2017, 95% of production was carried out by suppliers with an A or B rating – those suppliers with the higher ratings within Inditex’s own methodology. This demonstrates that we have maintained our high standards of compliance within the supply chain.

CLASSIFICATION OF SUPPLIERS WITH PURCHASE IN 2017

2017

Classification (*) Suppliers % Suppliers % Production

A 661 36% 37%

B 962 53% 58%

C 101 5% 2%

CAP 71 4% 2%

PR 29 2% 1%

Overall total 1,824 100% 100%

(*) Supplier A: Complies with the Code of Conduct.

B supplier: Breaches a non-material aspect of the Code of Conduct.

C supplier: Breaches a sensitive aspect of the Code of Conduct.

Supplier subject to Corrective Action Plan (CAP): Breaches of the Code of Conduct which trigger immediate implementation of a Corrective Action Plan.

PR supplier: undergoing an auditing process.


AF3

In 2017 we updated our auditing questionnaire, which is a key component of our social audits since it allows the auditor to assess compliance of all aspects of the Code of Conduct for Manufacturers and Suppliers. Modifications also include the updating of the rating system. The new questionnaire assigns ratings automatically based on the responses given by the

auditor. The rating assesses compliance with each section of the code, increasing the objectivity of the result. The evaluation of breaches has also been reviewed to increase strictness when it comes to giving a rating in order to advance on the continual improvement of our supply chain.

UPDATE OF THE SOCIAL AUDITS METHODOLOGY

UPDATING OF THE SOCIAL AUDIT QUESTIONNAIRE

What did we base it on?

- Best practices, lessons learned and proposals from all of the local sustainability teams.

- Experience accumulated since the previous review.

- Experience with the implementation of the Global Framework Agreement with IndustriALL Global Union.

THE AIM OF THE AUDIT REMAINS THE SAME: Establish the level of compliance with the Code of Conduct in Inditex’s supply chain

IMPROVEMENTS INTRODUCED INTO THE QUESTIONNAIRE

Completeness The questionnaire guides the auditors through the auditing process, and does not allow them to omit any aspect of that process.

Ratings system The objectivity of ratings has increased.

Final report The final report is generated automatically based on the information gathered in the questionnaire. The auditor fills in the information on corrective measures.

Audit duration Its easy-to-use format reduces the time spent on paperwork.

Format Greater ease of information processing and analysis.

Information storage The most complete information related to each section of the Code of Conduct is stored in databases along with compliance ratings.


103-3, 407-1, 406-1, 408-1, 409-1, 414-2, AF1, AF8, AF9, AF10, AF11, AF12, AF13, AF14, AF15, AF17

they are not using techniques that are damaging to worker health and prohibited by Inditex (such as sandblasting) or competence visits to evaluate the implementation of Corrective Action Plans.

SPECIAL AUDITS IN 2017


Africa 142

Americas 82

Asia 1,700

Europe (non-EU) 163

European Union 72

Total 2,159

Updating the social audit questionnaire has made it possible to achieve a more rigorous and exhaustive auditing process which has also been reflected in the percentage of compliance with the Code of Conduct by factories. This increased strictness is accompanied by advances in the development of our Workers at the Centre programmes, with an emphasis on those areas and countries where analysis of the results of social audits has revealed their need for special attention.

Special audits are another of Inditex’s assessment tools within its Compliance Programme. These audits focus on a specific area for improvement and are carried out as a complement to social audits. Some examples of the themes that form the focus of special audits are structural assessments of factories, specific worker health and safety evaluations, the review of wet process factories to ensure that

PERCENTAGE COMPLIANCE WITH THE CODE OF CONDUCT IN THE ACTIVE FACTORIES (*) USED BY SUPPLIERS WITH PURCHASE IN 2017

Africa Americas AsiaEurope (non-EU)

European Union

Prohibition of forced labour

Prohibition of work by youths or minors (**)

Prohibition of discrimination

Respect for freedom of association and collective bargaining

Prohibition of abuse or inhumane treatment

Hygiene at work

Wage compliance

Working hours

Environmental commitment

Regular work

Implementation of the Code (***)

-50%+50%+70%+90% compliance

(*) Since the questionnaire and rating system used in our social audits have been updated, the results of audits in 2017 are not comparable with previous years. For this reason only percentage compliance for active factories in 2017 is shown. Does not include the factories rejected in 2017.

(**) Includes the lack of suitable systems for checking the age of workers.

(***) Includes the lack of suitable systems for registering and informing workers.

The Workers at the Centre programmes focus on those areas and countries where analysis of

the results of social audits has revealed need for special attention


408-1, 409-1, 414-2, AF6, AF15, AF16, AF17

By assessing our supply chain to know and analyse its strengths and weaknesses in order to make improvements, increase its sustainability and optimise the working conditions of the more than 2 million workers involved. Thus, the quest for improvement is an ongoing task with suppliers and factories. In this sense, and throughout our commercial relations with the supplier, we provide them with support and advice, working with them to optimise their own supply chain, benefiting the workers within that chain.

While supplier and manufacturer assessment via audits is the first step in the Compliance Programme the most natural subsequent step is the correction and remediation

of all aspects deemed in need of improvement. Therefore, immediately following a social audit that detects any kind of breach, we implement a Corrective Action Plan that establishes all the measures the factory will need to take to correct that situation, as well as the time available for that task, which will be more or less restrictive depending on the seriousness of the breach and whether it can be easily resolved. Only by working in a collaborative way with suppliers and factories we can achieve the greatest possible benefit for workers, given that if we directly severed relations with a company when faced with any kind of breach, their workers would be left without any kind of protection, and no remediation would be provided to them where due.

| OPTIMISATION


Corrective Action Plans targeted at improving management systems, with self-assessment and worker participation

Establish and maintain stable relationships of trust with suppliers

0% 25% 50% 75% 100%

WHY IS IT CARRIED OUT?

WHO ELSE PARTICIPATES?

WHO LEADS THE PROCESS?

WHEN AND HOW DOES IT END?

WHAT IS THE OBJECTIVE?

WHAT ACTIVITIES ARE INCLUDED IN THE PLAN?

Breaches are detected during a social audit

Support and guide the factory so that they can resolve all breaches

Inditex Sustainability teams

Follow-up social audit to verify whether breaches have been corrected

CORRECTIVE ACTION PLAN

Factory Direct monitoring and ongoing

contact

Purchasing teams

Regular meetings Allocation of new ranking

Supplier Collaboration with relevant entities

Other entities (NGOs, trade unions,

and so on)

Competence visits Supplier rejection


406-1, 407-1, 408-1, 409-1, 414-2, AF6, AF15, AF16, AF17

During the Corrective Action Plan, sustainability teams collaborate with the supplier to offer them advice and support, as well as monitor whether the measures detailed in the plan are going to be completed on time. In this sense, it is very important that purchasing teams participate in the process. Apart from these internal teams, other stakeholders may participate in plans, including NGOs, trade unions or other civil society organisations. In 2017, external collaboration on the development of plans involved entities including IndustriALL and its local members, the Association for Supporting Contemporary Life (Çağdaş Yaşamı Destekleme Derneği - ÇYDD) in Turkey and the NGO Pratham in India.

Inditex uses its own internal Corrective Action Plan procedure which, while it gives a certain margin for adaptation to the situation of each factory, contains certain standard actions applicable in all cases. The most important of these is the performance of a competence visit in which Inditex’s internal teams can assess the level of compliance with the Plan before it comes to an end. This means that where the improvement has not been sufficient there is still a margin for correction. In 2017, some 512 competence visits were carried out.

In cases where there are breaches of the most sensitive aspects of the Code of Conduct the duration of the Corrective Action Plan is restricted to 6 months, while monitoring from our internal teams is much more exhaustive. Once this period is over, a new social audit is carried out to verify whether the corrections required have been implemented. If during this audit it is found that the Plan has not been fulfilled, the factory or supplier will be rejected and will no longer be allowed to produce for Inditex. In 2017, a total of 514 factories with breaches of sensitive aspects of the Code of Conduct initiated a Corrective Action Plan, while 121 of those have already demonstrated improvement.

The philosophy for improvement contained in the Corrective Action Plans is applicable to all of our actions involving suppliers. In this respect, we give opportunities to improve and offer our support to achieve that improvement. However, we also have an attitude of zero tolerance to those who do not take advantage of opportunities to

improve and fail to comply with the Code of Conduct or the fundamental requirements of our Group. In fact, of the 64 suppliers blocked in 2017, a total of 33 were rejected for failing to comply with some aspect of the Code of Conduct, which demonstrates how sustainability is at the centre of our business, including purchasing decisions. Blocking a supplier is a last resort, since our objective is to ensure that relations with our suppliers are constant and long-lasting, characterised by the mutual trust that upholds a stable and sustainable supply chain.

SUPPLIERS REJECTED IN 2017

Geographic area

Suppliers with purchase (*)

Rejected due to breach of the

Code of conduct

Rejected for commercial

reasons

Active suppliers at 31/01/2018

Africa 151 2 1 148

Americas 48 2 4 42

Asia 980 10 21 949

Europe (non-EU) 182 14 3 165

European Union 463 5 2 456

Total 1,824 33 31 1,760

(*) Suppliers of fashion items, mainly clothing, footwear and accessories, with a production of over 20,000 units/year. Suppliers with smaller production account for 0.29% of total production.

At Inditex we make great efforts to strengthen relations with our suppliers, communicating with them every day to give them advice, resolve their queries and offer our support where necessary. This communication and collaboration work begins when a supplier enters our supply chain. Indeed, we regularly organise training sessions for new suppliers so that they can familiarise themselves with our policies, standards and requirements. Proof that this daily work from the start of our relations with suppliers is beneficial not only to them but also to the well-being of their workers is that supplier ratings improve the longer a supplier works with Inditex. Those that have been part of our supply chain for more than three years tend to achieve the highest level of compliance with our Code of Conduct.

SUPPLIER CLASSIFICATION ACCORDING TO YEARS OF COMMERCIAL RELATIONSHIP WITH INDITEX (%)(*)

Three years or more

One to three years

CAP PRCBA

One year30.7%

34.1%

37.2%

55.5%

52.4%

52.5%

6.6%

7.3%

5.1%

2.2%

4.0%

4.0%

5.1%

2.2%

1.1%

(*) Supplier A: Complies with the Code of Conduct.

B supplier: Breaches a non-material aspect of the Code of Conduct.

C supplier: Breaches a sensitive aspect of the Code of Conduct.

Supplier subject to Corrective Action Plan (CAP): Breaches of the Code of Conduct which trigger immediate implementation of a Corrective Action Plan.

PR supplier: undergoing an auditing process.


| SUSTAINABILITY ACTIVITIES IN CLUSTERS IN 2017

Spain Portugal Morocco Turkey India Pakistan Bangladesh Vietnam Cambodia China Brazil Argentina

IDENTIFICATIONTraceability audits Coordination/Strategy 32 485 927 57 - 83 119 48 206 90 574

Suppliers with purchase during the year

198 161 130 177 131 45 114 5 2 425 12 37

Active factories during the year 447 1,344 310 1,459 382 107 296 145 127 1,866 44 67

Workers in active factories 10,553 49,694 77,946 213,711 217,608 161,950 541,029 151,395 126,529 406,733 11,328 4,355

ASSESSMENT

Audits

Pre-assessment 39 158 71 265 167 54 74 62 46 1,078 11 7

Social 75 856 215 752 404 92 202 120 76 1,052 34 50

Special 0 72 142 163 417 71 882 15 44 271 68 14

Supplier ranking

A suppliers 102 77 53 59 51 15 46 4 1 64 12 32

B suppliers 71 76 54 83 54 26 58 1 1 319 - 5

C suppliers 8 1 8 15 23 1 5 - - 29 - -

Suppliers with CAP 3 5 13 15 3 7 5 - - 12 - -

OPTIMIZATIONCorrective Action Plans - 64 59 185 41 25 18 10 2 106 - 4

Suppliers trained 34 suppliers trained in individual sessions

8 suppliers trained in individual sessions


201 suppliers trained and 90 individual sessions


- 231 suppliers trained and 183 individual sessions



- -

SUPPLIERSWorkers at the centre programmes

- Coordination of the global strategy and support for all programmes

- Worker participation

- Occupational health and safety

- Training and awareness


- Women empowerment




- Living wages

- Responsible purchasing practices

- Women empowerment

- Protection of migrants


- Living wages

- Women empowerment








- Living wages


- Living wages - Living wages







Collaboration with and participation of stakeholders

- UN Global Compact

- Ethical Trading Initiative (ETI)

- IndustriALL

- Action Collaboration Transformation (ACT)

- International Labour Organisation (ILO)

- Universidade Católica do Porto

- Universidade do Minho

- Autoridade para as Condiçoes do Trabalho

- IndustriALL

- IndustriALL Global Union

- Médicos Mundi Andalucía

- Unión de la Acción Feminista

- Provincial national education directorate in Tangier

- Fundación ETEA

- Association for Supporting Contemporary Life (ÇYDD)

- Refugee Support Center (MUDEM)




- ITKIB -Exporters’ Association


- SAVE

- St. John’s Medical College

- SWASTI

- Pratham, Council for Vulnerable Children

- Buyers Forum Pakistan

- BGMEA

- BKMEA


- Accord on Fire and Building Safety in Bangladesh (Accord)






- EHSA Center of Ling’nan University


- National Institute of Industrial Technology (Instituto Nacional de Tecnología Industrial, INTI)


ACTIVITIES IN CLUSTERS IN 2017

Spain Portugal Morocco Turkey India Pakistan Bangladesh Vietnam Cambodia China Brazil Argentina

IDENTIFICATIONTraceability audits Coordination/Strategy 32 485 927 57 - 83 119 48 206 90 574

Suppliers with purchase during the year

198 161 130 177 131 45 114 5 2 425 12 37

Active factories during the year 447 1,344 310 1,459 382 107 296 145 127 1,866 44 67

Workers in active factories 10,553 49,694 77,946 213,711 217,608 161,950 541,029 151,395 126,529 406,733 11,328 4,355

ASSESSMENT

Audits

Pre-assessment 39 158 71 265 167 54 74 62 46 1,078 11 7

Social 75 856 215 752 404 92 202 120 76 1,052 34 50

Special 0 72 142 163 417 71 882 15 44 271 68 14

Supplier ranking

A suppliers 102 77 53 59 51 15 46 4 1 64 12 32

B suppliers 71 76 54 83 54 26 58 1 1 319 - 5

C suppliers 8 1 8 15 23 1 5 - - 29 - -

Suppliers with CAP 3 5 13 15 3 7 5 - - 12 - -

OPTIMIZATIONCorrective Action Plans - 64 59 185 41 25 18 10 2 106 - 4

Suppliers trained 34 suppliers trained in individual sessions








- -

SUPPLIERSWorkers at the centre programmes

- Coordination of the global strategy and support for all programmes





- Women empowerment




- Living wages


- Women empowerment



- Living wages

- Women empowerment








- Living wages


- Living wages - Living wages







Collaboration with and participation of stakeholders

- UN Global Compact


- IndustriALL



- Universidade Católica do Porto

- Universidade do Minho

- Autoridade para as Condiçoes do Trabalho

- IndustriALL


- Médicos Mundi Andalucía

- Unión de la Acción Feminista

- Provincial national education directorate in Tangier

- Fundación ETEA

- Association for Supporting Contemporary Life (ÇYDD)

- Refugee Support Center (MUDEM)




- ITKIB -Exporters’ Association


- SAVE

- St. John’s Medical College

- SWASTI

- Pratham, Council for Vulnerable Children

- Buyers Forum Pakistan

- BGMEA

- BKMEA


- Accord on Fire and Building Safety in Bangladesh (Accord)






- EHSA Center of Ling’nan University


- National Institute of Industrial Technology (Instituto Nacional de Tecnología Industrial, INTI)

Employee in Inditex’s Shanghai offices (China)

employees in inditex’s shanghai offices | strategic plan for … · 2018-08-26 · purchasing...

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