SUSTAINABILITY REPORT2017

Integrative supplier management

GRI 407-1; 408-1; 413-1; 414-1

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. This is why, in 2017, we further reduced, in a socially respon­sible way, the number of suppliers that work for us to around 600, and continued working inten­sively with the suppliers to these key producers. As part of this risk-minimising purchasing strategy, there are specific charac­ter­istics for three purchasing countries:

  • Bangladesh: 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.

  • Ethiopia: The historic Turkish company Ayka Textile has been our supplier for many years. Since 2010, Ayka has had a textiles factory in Ethiopia as well, 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 concen­trated in a single, modern factory. We have been involved locally here since 2011, especially with our WE programme, and will continue these efforts in 2018.

  • Myanmar: Because around 50 % of our consumer goods assortment is produced in China, we work with longstanding partners there, too. 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 commit­ments such as the Inter­na­tional Human Rights Charter and the ILO core labour standards. As an inter­na­tional framework, they formulate 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. The National Action Plan for Business and Human Rights (NAP) was adopted at the end of 2016 to implement the UN Guiding Principles on Business and Human Rights. In it, Germany’s Federal Government has for the first time, enshrined the respon­si­bility of German companies for respecting human rights in a fixed framework. 

We are aware of this corporate respon­si­bility and integrated due care for human rights 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.

As a respon­sible company, we contin­u­ously conduct risk analyses on current human rights issues. In February 2017, for example, we cancelled our partic­i­pation in the inter­na­tional clothing summit in Dhaka with other manufac­turers to protest the Bangladeshi government's repressive action against workers and trade union leaders. In December 2017, in a letter co-authored with other leading brands and trade unions, we called on the Myanmar government to recognise the rights of the Rohingya ethnic minority.

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 364 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. In close coordi­nation with the Indus­triALL Global Union, we began imple­menting this in the priority countries Ethiopia, Bangladesh, Myanmar, and Turkey in 2017.

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, and updated it in early 2018. More and more NGOs and consumers want to know where products come from and under what condi­tions they are made. We want to meet this need for infor­mation. At the same time, however, it is important to us to limit expec­ta­tions of trans­parency, because trans­parency is one thing, change is another. Greater trans­parency is not always accom­panied by improve­ments. This applies in particular to production steps that lie deep in the supply chain, such as Tier 3 or Tier 4. This is one reason why we have so far taken a critical view of trans­parency in the form of trace­ability – it involves consid­erable manual effort in data collection, which devours capac­ities that we would rather invest in change programmes. Besides, we have known for some time that many problems are so complex that they have to be dealt with in cooper­a­tions. The focus on single supply chain approaches, driven by trace­ability require­ments, carries the risk that time and energy cannot flow into change measures. Moreover, this step 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 trans­parency in global supply chains is more important than the potential threat to our individual interests.

In 2017, Tchibo also further increased the trans­parency of wet opera­tions - i.e. upstream suppliers that use water and chemicals on a large scale. Since integrating a corre­sponding query into our standard processes, we have received infor­mation on the relevant prelim­inary stages for around 90 % of the textile products placed. In all, 166 wet opera­tions were identified where water-based processes such as dyeing or finishing are carried out.

Supplier quali­fi­cation: building trust and improving condi­tions in dialogue

Since 2007, Tchibo has relied on the WE 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, Tchibo empowers employees, managers and employees in the production facil­ities, as well as their repre­sen­ta­tives, to build and maintain mutual trust; moderated by trained dialogue facil­i­tators, they indepen­dently develop solutions. Tchibo employees are an integral part of this dialogue. 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 2017, 364 producers from eleven countries (Bangladesh, Cambodia, China, Ethiopia, India, Laos, Myanmar, Pakistan, Thailand, Turkey and Vietnam) had partic­i­pated in WE training courses or completed the programme. This means we have reached around 360,000 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 step in the 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 Commitment. This allows us to delineate the topics more sharply from each other and increase the effec­tiveness of the measures, as the two topics require different imple­men­tation approaches.

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.

At the Fair Wear Foundation (FWF) conference in November 2017, the ‘Strong Together’ project, which we carried out in cooper­ation with hessnatur, came third in the Best Practice Award 2017. In cooper­ation with hessnatur, we were able to sustainably improve working condi­tions in a supplier company through intensive training and restore the destroyed trust between the union and management.

Case Study Ayka Textile

In Ethiopia, we cooperate with the Turkish textiles 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 6,000 employees work at the Addis Ababa site. We have been running our WE programme (Worldwide Enhancement of Social Quality) 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. 

In the autumn of 2017, we faced a major challenge: Due to a national state of emergency in the fourth quarter of 2016, reliable production in Ethiopia was virtually impos­sible, and production losses were high. Together with Ayka boss Yusuf Aydeniz, in December 2017 we began to further develop the struc­tures and processes at Ayka in such a way that stability can be restored. A first workshop on restruc­turing the production process has already taken place. The aim is to further improve not only delivery times but also product quality. The further devel­opment of high social standards and the integration of sustainable local cotton into the supply chain will also be part of future activ­ities. We are working with the Ethiopian government and other stake­holders on imple­men­tation. The devel­opment of a sustainable cotton sector in Ethiopia is also part of a 15-Year Plan by the Ethiopian government

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), which we updated in May 2017. 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 portfolio of producers. 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 their respect for human rights and culture of dialogue between managers and employees. The results of these analyses are incor­po­rated into the purchasing strategy.

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. We also continue to further develop our monitoring system. In 2017, for example, we began succes­sively auditing leather-tanning opera­tions.

We see long-term partner­ships with suppliers and producers as an oppor­tunity to sustainably improve condi­tions in the supply chain. In 2017, we focused on further devel­oping our existing key supplier program. We will give our partners greater planning certainty and focus on greater commitment in adhering to and improving social and environ­mental standards.

Estab­lishing grievance mecha­nisms

Grievance mecha­nisms allow those affected by viola­tions of labour and environ­mental standards to formulate and address their problem elsewhere than to their employer. If there is a lack of trust in the employer or national complaints bodies, or if there is a threat of serious conse­quences, they can turn to the production site’s clients or to independent organ­i­sa­tions. After­wards, the latter can – ideally in cooper­ation with the complainant – seek joint solutions and provide access to remedies. 

However, such a grievances mechanism alone cannot be the sole approach to problems in factories. On the one hand, it requires resources that those affected do not neces­sarily possess despite many measures: the knowledge that an independent grievance channel exists and access to it, as well as the language and capacity to formulate a complaint. This creates hurdles, especially for individuals affected by infringe­ments, which they find difficult to overcome without the trust and support of others. On the other hand, such a mechanism does not contribute to long-term improvement, as it only inter­venes retro­spec­tively, in some cases long after the incident occurred. Causal struc­tures in the workplace that favour viola­tions of labour law are rarely changed in this way. 

The key to change is local trust and dialogue. In this way, those affected and those respon­sible can jointly identify, solve, and prevent the problems. Employee repre­sen­ta­tives provide safety when lodging complaints with super­visors, and are also important partners for improving workplaces and processes in dialogue.

In addition to the SCoC, which forms part of every purchasing contract and which also obligates producers to set up grievance proce­dures for employees and their repre­sen­ta­tives, Tchibo relies on three different approaches to anonymous complaints mecha­nisms:

  1. Sectoral grievance systems: We also work with the Indus­triALL Global Union to 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 resolve complaints directly and locally and prevent viola­tions. 

    The framework agreement with Indus­triALL also describes a process by which Tchibo's national and local Indus­triALL member­ships inform us about labour law viola­tions at production sites. In the first year of the framework agreement, we worked with trade unions from Bangladesh, Cambodia and Turkey to resolve incidents on the ground. We also work with other major brands to increase our leverage. As part of the ‘Accord on Building and Fire Safety in Bangladesh’ we have estab­lished a cross-factory grievances system with repre­sen­ta­tives of trade unions, NGOs and trading companies. In addition, health and safety committees are being set up to report security issues at an early stage.

  2. Dialogue-oriented grievance channels: In our dialogue-oriented quali­fi­cation program WE, we create a trustful space and the oppor­tunity for employees to address short­comings and wishes, and to work together with the management on improve­ments. 

  3. Direct grievance channels: 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 Facil­i­tators 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 seek appro­priate action beyond the programme as well. 

    We also accept complaints directly: Grievances can be addressed directly to Tchibo through non-govern­mental organ­i­sa­tions or by using the email address social­com­pliance@tchibo.de

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 at 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 hazardous production chemicals that have been priori­tised, and a timeline for their elimi­nation. As part of its membership In the Partnership for Sustainable Textiles Tchibo supports the MRSL of the Zero Discharge of Hazardous Chemicals (ZDHC) initiative as a common minimum standard and starting point for the industry. But Tchibo often goes far beyond them in its own require­ments. 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. In addition, process-based restric­tions were defined in 2017. Since signing the Detox Commitment, Tchibo has system­at­i­cally created trans­parency about the detox-relevant upstream steps in its textile value chains. Since Jun 2017, we have identified the upstream ‘wet plants’ for about 90 % of our orders. Wastewater analyses were conducted at these wet plants 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, and we further expanded this offer in 2017.  To promote the avail­ability of on-site consulting services, we developed a quali­fi­cation programme for chemical- and wastewater-intensive production areas in a strategic alliance with REWE Group and the Gesellschaft für Inter­na­tionale Zusam­me­narbeit (GIZ). The project will run for three years and has an investment volume of 2.4 million euros. In 2017, the training concept and materials were developed and trainers were trained in Bangladesh and China. 20 producers with wet processes took part in the workshop held in the run-up to imple­men­tation. By 2020, 110 producers in Bangladesh and China are to be trained. Findings from individual factory visits and training sessions conducted by Tchibo 2017 were incor­po­rated into the strategic alliance’s devel­opment of the program.  

The long-term goal is to establish a training and consulting network that is available to all companies in the region.

However, this goal and other more complex problems arising from commitment cannot be solved by individual actors or groups of actors alone. That is why we are committed to creating challenging and consistent framework condi­tions in the textile industry. We have teamed up with other players in the sector in the Partnership for Sustainable Textiles and other cross-sector initia­tives and cooper­a­tions to develop solutions for making the ambitious Detox targets a reality. Also in 2017, Tchibo developed scenarios for a sustainable Chemicals sector as part of a research project at Darmstadt University of Applied Sciences. 

“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.” (Green­peace)

Carbon Perfor­mance ­Improvement­ Initiative (CPI2)

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, for which 23 factories regis­tered in 2017.

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. We will publish our next Progress Report in 2018.