Sourcing and supply chain

how we think what we've been doing our performance in 07/08 Sourcing and supply chain “We aim to behave ethically and with integrity when sourcing...
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how we think

what we've been doing

our performance in 07/08

Sourcing and supply chain

“We aim to behave ethically and with integrity when sourcing products and dealing with our suppliers.”

Sustainably sourced and ethically sourced products raise important concerns for our stakeholders and the retail sector generally. We are committed to policies that reduce the environmental and social impacts of the products we source. In recognition of this, Homebase was the first UK DIY retailer to receive FSC chain of custody certification. We remain committed to our programme of ethical audits across our supply chain. A product and supply chain group meets quarterly to focus on sourcing from a social, ethical and environmental perspective. This group reports into the waste, energy, products and supply chain management group, which is chaired by the Group Commercial Director.

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Product sourcing Overview Buying the products we need – both those we sell to our customers and for our own business – gives us a number of social and environmental responsibilities; see below for examples of how we fulfil our commitments. Wood and paper

We try to ensure that the wood and wooden products we buy are sourced from legal, well managed forests. This also applies to our bulk purchases of paper for catalogues and flyers. Read our timber policy or see how we performed this year for more information. Homebase is an active member of the World Wildlife Fund’s Global Forest and Trade Network.rk. Chemicals

We make sure that the chemicals used in our products are safe for consumers and control the use of chemicals with potential long-term effects such as bioaccumulation and environmental toxicity. We have a chemicals policy and are improving our controls in this area in preparation for the new REACH guidelines. Jewellery

When buying luxury items like diamonds, we believe our customers want to have a clear conscience and know that the money they spend is not being used to fund conflict or violence. We work with our diamond suppliers to ensure we meet the protocols of the Kimberly Process Certification Scheme, i.e. that our suppliers aren’t buying any conflict diamonds and that an audit trail is in place. We are also aware of social and environmental concerns around certain types of gold mining and have joined the Council for Responsible Jewellery Practices

(CRJP) to work with others on these problems. We support the aims of the Catholic Agency for Overseas Development to improve gold mining practices but have advised that its Golden Rules are in essence a guarantee that cannot as yet be substantiated by retailers. However, we continue to work with suppliers and the CRJP to achieve greater visibility and influence over the sourcing of gold for our products and higher standards within the gold mining industry. Wild sourcing

We recognise that the uncontrolled sourcing of animal and plant species and minerals from the wild can have serious effects on local eco-systems under pressure from both trade and land development. We avoid sourcing from wild populations wherever possible. We have a policy for our suppliers and a separate policy on our use of peat in growing media. Ethical issues:

In common with many retailers we now buy much of our product directly from non-UK manufacturers, particularly in Asia. We work closely with our suppliers and third-party auditors to try and ensure that workers in these factories are treated well. We have a clear code of practice and take steps to ensure it is understood and supported in supplier companies.

Performance Objective Progress Comments

Attain certification for sourcing Completed paper from well managed forests

Argos has received FSC chain of for the Group’s printed materials

Review current policy guidelines for product selection

These will be reviewed annually

Ongoing

Maintain recycled paper content Completed of catalogue at 13%

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The recycled paper content of the catalogue was 12% but the total recycled content of all publications was 17%

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Product sourcing Highlights Timber

We have continued to track the source of the timber we use in products through our TimberTracker database, which encompasses all of our suppliers of wooden products. The database contains details of the supplier, wood type and forest source. We use it to test that our product sources are known and legal, report progress to the World Wildlife Fund and track the amount of Forest Stewardship Council (FSC)-certified product that we are selling. We support the FSC scheme as the best independent way to demonstrate that wood products originate from a well managed forest. Of 85% of the total volume of timber products sold, 41% comes from FSC sources. Garden furniture is something of a special case. As it must be outside in all weathers, it is often made of tropical hardwood species that are frequently taken illegally from important bio-diverse tropical forests. We therefore pay careful attention to the sources of our garden furniture. In 2007/08, 60% of our wooden garden furniture range was FSC-certified. The remainder came from suppliers who are members of the reputable World Wildlife Fund Global Forest and Trade Network (GFTN) or Tropical Forest Trust (TFT) and who are working towards FSC certification. Catalogue and promotional flyers paper

All paper for the Group’s publications is purchased through a central print procurement team. This year we created a centralised database to improve our data management system for paper purchasing. Our aim is to achieve 100% certified or recycled paper through a mix of FSC and Programme for the Endorsement of Forest Certification (PEFC) schemes by the end of 2009. Chemicals

We are working with the British Retail Consortium and professional advisors to prepare for the REACH regulations. This is the new European legislation that obliges us to collect comprehensive data on the chemicals in our products, concentrating on products that will be released into the environment (paints, cleaners etc), and a list of chemicals of concern. We have a chemicals policy in place, although we recognise that it will be superseded to some extent by the requirements of REACH. Gold

We have joined the Council for Responsible Jewellery Practices to work with others to drive up social and environmental standards.

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FSC lines GFTN / TFT lines

Homebase

54%

46%

Argos

66%

34%

Group

60%

40%

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Product sourcing Catalogues and other publications – total paper used (thousand tonnes)

Catalogues and other publications: Total paper used per £1,000 of sales (kilograms)

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The paper used to produce the Argos main catalogue increased by 4%, reflecting increases in the number of pages and their content. Our scope to tackle this trend is limited, since the catalogue represents the ‘shop window’ of Argos, although we are driving up our use of recycled and certified paper



The paper used for other publications (e.g. flyers and promotional materials) increased by 30%, as we actively promote more products to offer our customers even better value.



17% of paper used came from certified sustainable sources (FSC or PEFC)



17% of paper used came from recycled sources

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Paper used per £1,000 of sales increased by 7%.

Profile of total paper used by publication type (thousand tonnes)

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Product sourcing Future objectives and targets

Examples of our work

Objectives for 2008/09

Homebase chain of custody

Achieve 100% certified or recycled paper through a mix of sources by the end of 2009.

Homebase has had its own chain of custody certificate for own-brand products since 2004, allowing it to use the FSC logo on products originating from FSC-certified forests. Homebase was the first DIY retailer in the UK to achieve this certification.

Areas of focus in the coming year include:



Increasing FSC-certified paper content in our publications



Revising our policy on peat to increase ‘peat free’ content



Preparing for REACH compliance.

Group paper suppliers:

All of the Group’s paper suppliers are required to have ISO 14001, Eco-Management Audit Scheme registration and chain of custody certification, ensuring ultimate traceability of all paper used by our business, including catalogues and flyers. These requirements are designed to help us specify and use only paper from known and preferably well-managed forests. Recycled paper

Recycled paper was first incorporated into the Argos catalogue in 2004, when it accounted for 6.5% of the catalogue’s paper content. In 2005 the proportion was increased and reached almost 9%, representing 8,000 tonnes of 80% recycled content paper. The figure for our current catalogues is now 12% of catalogue volume. Furthermore, several million Christmas promotional flyers were printed on 100% recycled paper in 2007. Argos chain of custody

Argos has received FSC chain of custody for printed materials. This accreditation is a sign of our commitment to source paper from well-managed and sustainable sources. Printers and paper suppliers

We are engaging both sets of suppliers to discuss their environmental policies with a view to reducing impacts further down the supply chain.

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Supply chain and auditing Overview We buy directly from more than 450 overseas factories and many hundreds of suppliers - from import agents through to domestic manufacturers. Direct source suppliers - where we buy direct from the factory - are our primary focus; we have a secondary programme for any other exclusive and own-brand suppliers working with us through direct import agents. Our priority for action is summarised in the table to the right. In addition, we engage separately with selected groups of suppliers on timber sourcing (we maintain a database of companies that supply us with wooden products), gold, diamonds and other issues as they arise. New factories are audited before we place contracts and sometimes during our period of working with the factory. This combined audit embraces all aspects of:

Product quality



Manufacturing process and capability



Treatment of workers



Health and safety



Environmental practice.

Product groups Source Priority Activity for action

Exclusive / Own-brand

Direct source Highest (purchased directly)



Action plans agreed



Home Retail Group monitors progress

Exclusive / Direct import Audited by third- Own-brand (imported by agents auditors or third parties) In some cases, audited directly to an equivalent standard by other auditors, with the importing companies monitoring the results

Proprietary / branded product

Imported (purchased from the brand owner)

Exclusive / Own-brand

UK/EU sourced

Proprietary /

UK/EU sourced

branded product

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Audited by third- party auditors

Lowest

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Supply chain and auditing

our performance in 07/08

% Asia direct source factories audited by order value

Performance

1.

Extended range

Our programme now includes all direct source suppliers regardless of size; previously we only worked with turnover above US$500,000. As a result, audit coverage has risen to 89% of direct source orders, representing over 310 separate factories. We are also extending the programme to our direct import vendors; we have set targets to reach 50% of them in 2008/09, rising to 100% within two years.

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Integration with production and quality audits

Two auditors now visit each factory to conduct a full integrated check on all aspects of the manufacturing facility. This not only simplifies the process for factory management but also has other important implications. First, it sends a clear signal that our management of ethical issues is fully integrated into our other purchasing decisions. Second, it means that the resulting action plan is a combination of production and ethical improvements required: we require suppliers to address the matters before an order is placed or renewed. We believe these improvements will help drive change. Audit reports are discussed and agreed with factory management before they are copied to us. The results are expressed as a simple percentage score (see table) and any changes or improvements necessary are included in an action plan for the factory management’s attention. The audit report is graded as red, amber or green, depending on the importance of the issues identified: a red status requires immediate corrective action, usually before an order is placed; actions resulting from amber reports occur over a longer timescale dependant on the nature of the corrective action required. The factory is reaudited (usually by a different team) to check progress and a further audit may be scheduled if necessary. This combined audit process now applies to all direct source suppliers, regardless of size, and is being extended into our direct import supply base.

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Audit results

As part of our audit integration we have amended our audit scoring system, replacing the previous grade system with a simple percentage. The results from the 2008 audits are shown below. We audited 228 factories against the new protocol; the remaining 82 factory audits were undertaken using the old methodology. The introduction of a red/amber/green rating system on the action list allows us to focus on those suppliers where the need for improvement is greatest.

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Supply chain and auditing Future objectives and targets In the coming year we will continue to focus on our programme of ethical audits across our supply chain.

Examples of our work Supplier manual

We have articulated our supply chain principles in a supplier manual, which provides practical examples of our standards illustrated with clear ‘do and don’t’ photographs. Each principle is explained and contextualised in an easy to follow manner. The manual also contains checklists to assist the factory management team. The manual has been translated into Chinese and presented face-to-face to key overseas suppliers.

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our performance in 07/08

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