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 email@example.com.
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.