Integrative supplier management

The production countries and factories for our consumer goods are chosen based on the require­ments of our strategic risk management: we source partic­u­larly relevant product groups from at least two production markets – if possible – to ensure avail­ability. We choose the factories carefully, following strict guide­lines, to ensure that they meet our quality and sustain­ability standards. We see long-term business relation­ships with strategic partners as a decisive point of leverage – which is why in recent years we have, in a socially respon­sible way, reduced the number of suppliers that work for us to around 700. We have concluded framework agree­ments with our most important strategic suppliers, our core suppliers. They can have goods produced for Tchibo at more than one factory. The number of our core suppliers remained constant at 41 in 2016. As part of these minimising purchasing strategies, there are specific charac­ter­istics for three purchasing countries:

For years, Bangladesh has been one of the growing markets for purchasing clothing inter­na­tionally. We have a direct business relationship – i.e. do business without inter­me­diates –with a few selected producers there. These include long-term partners as well as newly opened, modern factories that meet our strict quality and sustain­ability require­ments. Since 2012, we have handled purchasing in Bangladesh via a separate office in Dhaka. This greatly facil­i­tates our oversight of the factories.

The historic Turkish company Ayka Textile has been our supplier for many years. Since 2010, Ayka has had a textiles factory in Ethiopia which we source products from. Ayka has fully integrated production in Ethiopia, i.e. all the production stages of cotton processing through to the finished product are combined in a single, modern factory. We have been involved locally here with our WE programme since 2011, and will continue these efforts.

Around 50 % of our consumer goods assortment is produced in China, where we also work with longstanding partners who have modern factories. To stay compet­itive, Chinese companies are increas­ingly investing in the garment industry in other Asian countries, e.g. Myanmar. We only accept the factories there if our suppliers can prove that they meet our stringent standards for quality, environ­mental, and social respon­si­bility.

Ensuring respect for human rights in the supply chain

In 2011, the United Nations adopted the Guiding Principles on Business and Human Rights. They are based on existing human rights obliga­tions such as the Inter­na­tional Human Rights Charter and the ILO core labour standards. They serve as an inter­na­tional framework that formu­lates require­ments for the public and private sector, and for the first time form a generally accepted reference framework that also obliges businesses to respect human rights in global supply and value chains and prevent human rights viola­tions. We are aware of this corporate respon­si­bility and integrated human rights care into our business practices many years ago. We follow the guideline of respecting human rights and preventing viola­tions of human rights – from raw material to product, above and beyond compliance with national laws. We are committed to ensuring that workers in the supply chains can assert their rights.

One key element in improving working condi­tions at production sites is our WE (Worldwide Enhancement of Social Quality) quali­fi­cation programme, through which we have since 2007 supported 342 producers in imple­menting and improving their labour and social standards using dialogue-based training. Another important step on this path is the signing of the framework agreement with the Indus­triALL Global Union in September 2016. The aim of this agreement is to further improve working condi­tions in the Asian production sites from which Tchibo sources products. This includes, in particular, the workers’ right to form unions and engage in collective bargaining.

Creating trans­parency in the supply chain

An essential prereq­uisite for making supply chains sustainable is trans­parency. But supply chains are complex, as exemplified by the supply chain for cotton textiles: there are many steps in getting from cotton farming to finished garment, not just harvesting and trans­porting the raw material, but also other upstream steps such as spinning, weaving, knitting, dyeing, washing, packaging, packing. These are often carried out by different suppliers in different countries. In addition, there are suppliers of ‘ingre­dients’ such as buttons, zippers and appliqués. Knowing these different stages of the value creation chain is a challenge that we tackle together with our suppliers, because asserting labour, social and environ­mental standards involves the entire supply chain of all products, not just the last step of manufac­turing. Our concept of focusing on fewer producers and devel­oping them into strategic suppliers greatly facil­i­tates this task.

To increase public trans­parency in global supply chains, in early 2017 we published our list of producers for home textiles, clothing and footwear. More and more consumers want to know where products come from and under what condi­tions they are made. We want to meet this need for infor­mation. However, this step also involves risks for our business, because by publishing our lists of producers, all our competitors now have trans­parency about the production sites we have qualified – including those competitors who choose not to publish their own lists of producers. This carries the risk of losing supplier capacity for our own needs. However, we rely on the principle of fairness in compe­tition and feel that society’s interest in vigor­ously asserting social and environ­mental standards in global supply chains is more important than the potential threat to our individual interests.

Supplier quali­fi­cation: building trust and improving condi­tions in dialogue

Since 2007, Tchibo has relied on the WE (Worldwide Enhancement of Social Quality) quali­fi­cation programme to achieve a long-term improvement in working condi­tions at the production sites and ensure respect for human rights, especially in Asia. The dialogue programme, which was jointly developed with the Germany’s Society for Inter­na­tional Cooper­ation (GIZ) and Federal Ministry for Economic Cooper­ation and Devel­opment (BMZ), locally supports producers in complying with human rights at their factories and gradually improving working condi­tions. Through dialogue and training, we Tchibo puts employees, managers and employees in the production facil­ities, as well as their repre­sen­ta­tives, in a position to build and maintain mutual trust; moderated by trained dialogue coaches, they indepen­dently develop solutions. Tchibo employees regularly take part in the activ­ities. This approach has had a tangible impact: thanks to WE, occupa­tional health and safety have been improved, wages increased and benefits such as accom­mo­dation, canteen meals and oppor­tu­nities for recre­ation improved. By the end of 2016, 323 producers from nine countries (Bangladesh, China, India, Cambodia, Laos, Myanmar, Pakistan, Thailand, Turkey and Vietnam) had partic­i­pated in WE training courses or completed the programme. This means we have reached around 342,000 people in factories to date – managers as well as workers.

In 2015, based on a project evalu­ation and our many years of experience, we began to develop the next evolution of the WE programme. On the one hand, the idea is to tailor the programme even more individ­ually to the respective production countries and increase its effec­tiveness. On the other, we are focusing WE even more strin­gently on human rights in accor­dance with the ILO Core Labour Standards, to boost social sustain­ability. We are also separating out the environ­mental standards training from the WE programme, and shifting it to independent programmes and projects as part of our Detox Commit­ments. This allows us to delineate the topics more sharply from each other and increase the effec­tiveness of the measures.

Five key topics will form the core of the programme from now on: prevention of modern forms of slavery, occupa­tional health and safety, living wages and reasonable working hours, freedom of associ­ation and collective bargaining, and protection against discrim­i­nation and sexual assault. The training and measures related to these key topics are based on inter­na­tional and national standards, guide­lines and laws. The factory’s employees and managers and the local dialogue coaches indepen­dently decide which of the focus topics they consider a matter of priority based on their individual circum­stances.

Case Study Ayka Textile

In Ethiopia, we cooperate with the historic Turkish company Ayka Textile, which opened a factory for clothing and textiles in Addis Ababa in 2010. At Ayka Textile in Ethiopia, all production steps take place at one site, from processing the cotton to the finished product. Around 7,000 employees work at Ayka Textile in Addis Ababa. We have been running our WE programme locally here since 2011 and have achieved a great deal since then. Commu­ni­cation and the working atmosphere have improved signif­i­cantly, a pay-scale system has been estab­lished, co-deter­mi­nation struc­tures have been intro­duced and are also practised, and there is a trusting and constructive working relationship with the local trade union. Discrim­i­nation cases have decreased signif­i­cantly, occupa­tional health and safety measures have been intro­duced and benefits improved for all employees.

Preventing risks, auditing producers

Usually the value chain of a consumer good comprises many stations worldwide. As a trading company, we cannot rule out breaches in this global chain, but we can identify them and system­at­i­cally work to minimise them. To do this, we have developed a risk management system across the value chains, as stipu­lated by the United Nations’ Guiding Principles for Business and Human Rights.

The basis for cooper­ation with our suppliers is the Tchibo Social and Environ­mental Code of Conduct (SCoC). We always audit new suppliers and producers according to the require­ments of the SCoC before awarding a contract. Only if factories pass the audit do we accept them into our supplier portfolio. At a higher level, we also analyse the situation and risks in those countries where we want to produce our products or have them produced. We also prioritise factories with regard to respect for human rights and the culture of dialogue between managers and employees. The results of these analyses are incor­po­rated into the purchasing strategy.

Existing suppliers that have not yet been able to partic­ipate in the WE programme are audited every three years in compliance with the stipu­lated deadlines; either we audit them ourselves, or commission external service providers to perform the audits. And although our producer monitoring has proven effective, we continue to further develop it. In 2016, for example, we carried out more audits of upstream suppliers.

Estab­lishing grievance mecha­nisms

The SCoC, which is an element of all purchasing contracts, also requires producers to set up grievance proce­dures for employees or their repre­sen­ta­tives.

In our dialog-driven quali­fi­cation program WE (Worldwide Enhancement of Social Quality), we create space for employees and the oppor­tunity to address short­comings and to work together with the management on improve­ments. We work with the Indus­triALL Global Union, we also make particular efforts to promote freedom of associ­ation and the workers’ right to form unions. Our strategic objective is for workers to be able to form local, independent and legit­imate employee repre­sen­ta­tions and exercise their right to join unions. The idea is to mitigate viola­tions and resolve complaints directly and locally.

Since the share of (unionized) production sites in Asia and hence among our suppliers is low, Tchibo has set up mecha­nisms whereby workers can also turn directly to Tchibo in cases of labour law viola­tions. Since the WE trainers are regularly on site at the factories and have built up the necessary trust among employees, they are often the first point of contact. If they cannot resolve the problems as part of their activ­ities, they will involve Tchibo and we will also seek appro­priate action outside of the program. The framework agreement with Indus­triALL also stipu­lates a process whereby Tchibo's national and local Indus­triALL-affil­iated unions will report on labour rights viola­tions in factories; In the first year of the framework agreement, we already worked with unions from Bangladesh, Cambodia and Turkey to resolve local incidents

As part of the 'Accord on Building and Fire Safety in Bangladesh' in Bangladesh, we have set up a cross-factory grievance system with union repre­sen­ta­tives, members of non-govern­mental organ­i­sa­tions and trading companies. In addition, health and safety committees are set up to report safety risks at an early stage.

We also accept complaints directly – through our WE trainers, our ombudsman and non-govern­mental organ­i­sa­tions. Grievances can also be addressed directly to Tchibo by using the email address social­com­

Reducing environ­mental impact in production

Besides putting labour and social standards into practice, we are also committed to reducing the environ­mental impact of extracting raw materials and manufac­turing our consumer goods. We audit the producers for compliance with our environ­mental standards and share knowledge related to climate and environ­mental protection with them. A key component of our work is the Detox Commitment to Green­peace, signed in 2014, in which we pledged to cease the use of unwanted chemicals in production, especially our textile suppliers, by 2020. In addition, we are engaged in industry-wide initia­tives to reduce CO₂ emissions in production and to conserve biodi­versity.

Detox Commitment: Minimising the use of chemicals

In 2011, the environ­mental organ­i­sation Green­peace launched its Detox campaign to draw attention to the use of hazardous chemicals in textile production. By signing the Detox Commitment

in October 2014, like many other inter­na­tional trading companies we publicly pledged our commitment to end the use of hazardous chemicals in production, especially by our textiles suppliers, by 2020. The task now is to achieve this ambitious goal step by step – a signif­icant challenge, especially given the widely ramified supply chains.

The basis for elimi­nating such chemicals from our supply chains is the Manufac­turing Restricted Substances List (MRSL). It lists poten­tially hazardous substances that can be used in the manufacture of textiles as well as other consumer goods. In the finished product, these are safe for users, but they can accumulate in the environment. In the Alliance for Sustainable Textiles, Tchibo supported the adoption of common minimum require­ments for an MRSL as a starting point for the industry. But our own require­ments go far beyond this. For example, even before 2016, we completely banned all PFCs (per- and polyflu­o­ri­nated compounds) for water-repellent coatings on outdoor clothing textiles. Tchibo uses PFC-free finishes like ecorepel® instead. There is also a complete ban on flame retar­dants in the manufacture of Tchibo products. These require­ments formu­lated in the Tchibo MRSL are being contin­u­ously further developed.

Since signing the Detox Commitment, Tchibo has system­at­i­cally created trans­parency about the detox-relevant upstream steps in its textile value chains. In 2016, we identified 126 ‘wet plants’, which were involved in the production of around 86% of all textiles sold in 2015. At these wet plants, we conducted wastewater analyses to obtain infor­mation on the presence of undesirable chemical groups and to derive priority needs for action from this. The results of these tests are published on the Institute for Public and Environ­mental Affairs (IPE) website.

Tchibo offers its suppliers assis­tance in the imple­men­tation of the sometimes complex and demanding require­ments. In 2016, this included training and workshops at strategic suppliers that manufacture more than 47 % of the textiles produced for Tchibo.

Beyond this, Tchibo provided its suppliers and subcon­tractors with a manual as well as technical documents in 2016. For example, a format for drafting a chemical inventory serves as the basis for estab­lishing a supplier's chemicals management system. The template also enables the consistent integration of Detox require­ments into the sector-wide supply chains.

To further promote our local advisory services, in 2016 we conceived and adopted a quali­fi­cation programme for chemical- and sewage-intensive production companies together with the German Society for Inter­na­tional Cooper­ation (GIZ) and the Rewe Group. As part of the project, local experts are trained in Bangladesh and China to support 110 production companies in setting up a chemicals management system.

Our next steps will be to expand the support to our suppliers and their wet plants in imple­menting the Detox require­ments and to further increase trans­parency in the supply chain. Concur­rently to this, we will continue our involvement in collab­o­ra­tions and initia­tives such as the Textile Alliance, to promote common approaches within the industry.

“In October 2014, Tchibo became the first major retailer to commit to getting rid of toxins by 2020. In contrast to the other super­market chains, Tchibo’s commitment encom­passes not only clothing and footwear, but its entire Non Food portfolio. The various publi­ca­tions connected with its Detox commitment show that Tchibo has estab­lished itself as a frontrunner.”

Carbon Perfor­mance Improvement Initiative

In 2011, we teamed up with eight other companies to found the Carbon Perfor­mance Improvement Initiative (CPI₂). It uses an online tool to give manufac­turers specific recom­men­da­tions on how to reduce energy consumption and hence green­house gas emissions in production. Modules for water and chemicals management have been integrated since 2015. Around 1,600 factories in 34 countries have already used the tool. In 2017, to complement our environ­mental monitoring and Detox quali­fi­cation programmes, we will persuade additional factories that produce for Tchibo to use the online tool.

Biodi­versity in Good Company

Since 2012, we have been a member of a cross-sector initiative called Biodi­versity in Good Company. By signing its Leadership Decla­ration, we have committed, among other things, to protecting biodi­versity in our environ­mental management system, defining concrete biodi­versity targets, and gradually imple­menting them together with our suppliers. In 2016, we published our third Progress Report.