7.1 Procurement and Supplier Management

Bayer’s procurement organization supplies our internal business partners around the world with goods and services while operating in accordance with the ethical, ecological, social and economic principles established in our procurement directive. This directive is binding for all employees. Our procurement activities aim to ensure security of supply, provide a financial value contribution and meet quality and sustainability requirements. Procurement makes a substantial value contribution to the Bayer Group by centrally pooling know-how, leveraging network effects and economies of scale throughout the organization and facilitating access to innovation.

We exert significant influence on society and the environment in many regions as a result of our procurement activities, which in 2015 took place in 151 (2014: 147) countries and accounted for a procurement spend of some €22.2 billion (2014: €20.3 billion) from transactions with approximately 112,500 (2014: approximately 112,000) suppliers in all areas.

In 2015, our procurement spend in Germany, the United States and Japan accounted for nearly 67% of our expenditures in OECD (Organisation for Economic Cooperation and Development) countries, which in turn made up about 53% of the Bayer Group’s global procurement spend. Brazil, India and China together accounted for about 68% of expenditures in the non-OECD countries or about 14% of the total spend.

Online annex: 3-7.1-1:

limited assurance
Procurement Spend and Number of Suppliers in OECD and Non-OECD Countries in 2015

 

 

Spend

 

Suppliers

 

 

€ billion

%

 

Number

%

OECD countries

 

 

 

 

 

 

Germany

 

5.4

24.3

 

22,286

19.8

United States

 

5.3

23.9

 

11,515

10.2

Japan

 

1.1

4.8

 

1,888

1.7

Other

 

5.8

26.3

 

43,461

38.7

Total

 

17.6

79.3

 

79,150

70.4

 

 

 

 

 

 

 

Non-OECD countries

 

 

 

 

 

 

China

 

2.1

9.5

 

4,032

3.6

India

 

0.5

2.5

 

3,738

3.3

Brazil

 

0.5

2.1

 

2,387

2.1

Other

 

1.5

6.7

 

23,103

20.6

Total

 

4.6

20.7

 

33,260

29.6

Where possible, Bayer buys locally. In 2015, this applied to 75% of our procurement spend at our main business locations, and 71% of our total worldwide procurement spend. This enables us to align our procurement activities to the requirements of our sites in the regions and to help strengthen local economies.

Bayer minimizes procurement-specific risks for goods and services of strategic importance, such as supply bottlenecks or major price fluctuations, through long-term contracts and active supplier management. In this way we ensure both the company’s global competitiveness and smooth production processes.

Indirect goods that are not of relevance to production are procured by the respective major user within the Bayer Group. The individual procurement organizations were coordinated during the reporting period by the Group Procurement Committee, which reports directly to the Chief Financial Officer. In line with the company’s procurement strategy, direct and production-related procurement in the Bayer Group is organized decentrally in the subgroups so that Bayer can act in accordance with differentiated market and production requirements. The composition of HealthCare’s supplier portfolio has changed as a result of the acquisitions of the nonprescription medicines businesses of Merck & Co., Inc. and Dihon Pharmaceutical Group Co. Ltd., as well as the divestiture of the Diabetes Care business.

Online annex: 3-7.1-2:

limited assurance

Main Procurement Products by Subgroup

Main procurement products

Zetia (finished product), cell media culture (raw material), Betaferon (interferon-beta-1b) (bulk product)

Consumer Care: Supradyn (finished product), naproxen (active ingredient), Berocca (finished product)
Radiology: iopamidol (active ingredient), iodine (raw material), cyclen (raw material) Animal Health: moxidectin (active ingredient), Avenge (finished product), Baycox-isocyanate (intermediate)

Packaging materials, adjuvants and solvents (e.g. rapeseed oil, soybean oil, toluene, ammonia), complex intermediates (e.g. pyridine polyfluoride) and active ingredients (e.g. mancozeb)

Key basic raw materials are benzene and phenol, propylene oxide, toluene, acetone and hexamethylenediamine.

The use of renewable raw materials currently plays only a subordinated role at Bayer. We use them more intensively when it makes technical, economic and ecological sense to do so.

Online annex: 3-7.1-3:

limited assurance

A number of hormones are synthesized at HealthCare through certain sterols and phytosterols that result as byproducts during the production of plant oils from soybeans, oilseed rape / canola or sunflowers, as well as during wood processing. Palm oil or palm kernel oil is not used here due to its low sterol content. We additionally purchase various steroids that are manufactured from diosgenin or its intermediate stages. Today, this substance is usually obtained from yam grown in countries such as China. We also use raw materials such as water, glucose, yeast, soybean starch, castor oil and corn steep water in our fermentation processes. Extracts of plant leaves (Centella asiatica) are used in some Consumer Care products. This plant is widely found in Asia and is not an endangered species. We also take great care with the cultivation and harvesting of the raw materials for manufacturing plant-based pharmaceuticals for holistic treatments. They are collected and cultivated in line with the GACP (Good Agricultural and Collection Practice) guidelines of the European Medicines Agency.

On the European market, CropScience offers a mild weed control product based on fatty acids derived from palm oil. As the production of palm oil is often associated with social and ecological problems, Bayer takes part in the Round Table for Sustainable Palm Oil (RSPO). This underscores our commitment to responsible materials procurement. In 2015, Bayer for the second time purchased GreenPalm certificates, which support the production of sustainable palm oil.

Covestro is developing processes for the replacement of raw materials derived from crude oil. In 2016, for example, the company is planning the commercial production and market launch of pentamethylene diisocyanate (PDI), an isocyanate produced from a novel renewable raw material derived in turn from biomass.

Sustainability in supplier management

Bayer regards adherence to sustainability standards within its supply chain as both a crucial factor for value creation and an important lever for minimizing risks. For this reason, not just economic standards, but also ethical and environmental, social and governance (ESG) standards apply for the selection of new as well as established suppliers. These standards are defined in Bayer’s Supplier Code of Conduct, which is based on the principles of the U.N. Global Compact and our Human Rights Position. It forms the basis for our collaboration with suppliers and is available online in 14 languages. The Code of Conduct is integrated into electronic ordering systems and contracts throughout the Bayer Group. Since 2015, furthermore, relevant new and renewed supply contracts have contained special clauses that request suppliers to observe the sustainability requirements defined in the Code of Conduct and authorize Bayer to monitor this.

Group targets:
supplier management

In order to consistently drive sustainability in supplier management, Bayer has set ambitious targets. By 2017, we plan to evaluate all strategically important suppliers i.e. those with a major influence on business in terms of, for example, procurement spend and long-term collaboration prospects (3-5 years) according to sustainability-relevant criteria (target attainment as of 2015: 84%). By 2020, we also aim to include in the evaluation all those suppliers with a significant procurement spend (> €1 million p.a.) that are regarded as potential high-risk suppliers (target attainment as of 2015: 73%). Risk definition is based on a country- and material-based approach. Another objective is the development and establishment of a sustainability standard for our supply base by 2020. Here we are working with both the Together for Sustainability (TfS) initiative and the Pharmaceutical Supply Chain Initiative (PSCI). The goals include standardizing and sharing sustainability assessments and audits of suppliers in the same industry and describing clear expectations regarding sustainability so as to establish appropriate sustainability practices among our suppliers. The TfS initiative counts 16 and the PSCI 19 participating companies.

A key challenge for sustainable supplier management in the Bayer Group is to prevent child labor in the seed supply chain of our CropScience subgroup.

Our Human Rights Position is unequivocal and includes a strict ban on child labor. We therefore also obligate our suppliers along our supply chain strictly to refrain from employing children. For many years, CropScience has taken systematic action to prevent child labor in the seed supply chain in India, Bangladesh and the Philippines through its Child Care Program. Special teams from Bayer visit the fields used, for example, in cotton, rice and vegetable seed production without prior notice throughout the cultivation season in order to raise awareness of the issue and the Bayer requirements and to determine the age of the workers there. Thanks to this stringent monitoring system, which is supported by local educational initiatives, there are now only very few incidences of child labor among our contractors, and we are closely tracking these cases. Further risk assessments were carried out in vegetable and rice seed production for Bayer in Thailand, China, Indonesia and Vietnam. It is planned to introduce the Child Care Program in these countries as well in 2016. We measure the success of our comprehensive program using the indicators “Child labor incidence per monitored km2” and “Child labor incidence as a percentage of total monitorings of laborers.”

In the following diagram depicting the latter indicator, we demonstrate the continued elimination of child labor in Indian cotton and vegetable seed production sites contracted by Bayer based on the results of field monitoring.

Child Labor Incidence in the Production of Cotton and Vegetable Seed for Bayer in Relation to the Total Number of Monitorings 1

Child Labor Incidence in the Production of Cotton and Vegetable Seed for Bayer in Relation to the Total Number of Monitorings (line and bar chart)Child Labor Incidence in the Production of Cotton and Vegetable Seed for Bayer in Relation to the Total Number of Monitorings (line and bar chart)

Below you will find a graphic for the indicator “Child labor incidence per monitored km2” and further information on our Child Care Program.

Online annex: 3-7.1-4:

limited assurance

Child Labor Incidence in the Production of Cotton and Vegetable Seed for Bayer in Relation to the Cultivation Area Monitored 1

Child Labor Incidence in the Production of Cotton and Vegetable Seed for Bayer in Relation to the Cultivation Area Monitored (line and bar chart)Child Labor Incidence in the Production of Cotton and Vegetable Seed for Bayer in Relation to the Cultivation Area Monitored (line and bar chart)

Once a year, the audit firm EY (formerly Ernst & Young), India, conducts unannounced inspections of randomly selected farms on behalf of Bayer.

Suppliers who can verify that they strictly observe our ban on child labor receive a bonus from Bayer along with training in raising agricultural efficiency. Graduated sanctions are applied for noncompliance. These range from written warnings to termination of the contract in the case of repeated noncompliance.

Bayer regards school attendance not only as essential for children’s development but also as an effective tool to drive the elimination of child labor. We therefore also visit the parents of children we find working in the fields to convince them of the importance of school education. We promote this with the “Learning for Life” initiative within our Child Care Program. This initiative aims to ensure that children and young people get a proper education and covers everything from reintegrating children into the regular school system to vocational training measures. Between 2005 and the end of 2015, the “Learning for Life” educational programs benefited more than 6,100 children and young people.

The Child Care Program Advisory Council, comprised of international experts and recognized professionals, supports Bayer in the protection of children’s rights and the obligation of seed production without child labor. The annual meeting of the Advisory Council, which took place in India in May 2015, focused on the effectiveness of the Child Care Program and on a project concerning minimum wages in the seed supply chain.

Evaluating the sustainability performance of our suppliers

Bayer verifies the observance of sustainability requirements by our suppliers through online assessments and on-site audits. Suppliers are selected for these evaluations based on a combination of country and material risks as well as strategic importance in accordance with our Group targets.

The online assessments are carried out on Bayer’s behalf by EcoVadis, an established provider of sustainability performance evaluations. They are comprised of a web-based, modular questionnaire completed by the supplier, coupled with accompanying verification documents and 360° screening. The evaluation criteria comprise the areas environment, labor practices and human rights, fair business practices and sustainable procurement.

Together with external, independent auditors, Bayer carries out on-site audits of its suppliers based on the PSCI and TfS sustainability criteria. In addition, internal auditors evaluate suppliers with a focus on health and safety, environmental protection and sustainability.

Through cooperation with the industry initiatives PSCI and TfS, we leverage synergies through the exchange of comparable, high-quality supplier assessments and / or audits among members using the IT platforms of the respective initiatives.

Online annex: 3-7.1-5:

limited assurance
Supplier Assessments and Audits for 2015

 

 

2014

 

2015

1

Supplier assessments initiated by Bayer as well as assessments of suppliers working for Bayer exchanged as part of the TfS initiative

2

Initial and follow-up audits initiated by Bayer of suppliers working for Bayer and exchanged as part of the TfS and PSCI initiatives

3

Health, safety, environment

Sustainability assessments1 via the EcoVadis platform

 

692

 

521

Sustainability audits2 by external auditors

 

56

 

71

HSE3 / sustainability audits by Bayer auditors

 

94

 

107

Within the scope of the TfS initiative, a total of 2,580 supplier assessments using EcoVadis and 179 audits – performed, for example, in China, India and Brazil – were successfully completed in 2015. A total of 40 joint and / or shared audits were carried out in 2015 through PSCI, for example in Turkey, Brazil and Uruguay.

Alongside consideration of our sustainability criteria in the selection of suppliers, CropScience and HealthCare undertake separate evaluations of suppliers with regard to the contract manufacturing of quality-relevant goods and services. These evaluations encompass the areas of health, safety and environmental protection among others and are performed prior to the start of operations. Since 2015, furthermore, HealthCare has obligated newly selected suppliers with a prospective annual procurement spend in excess of €1 million to undergo an EcoVadis sustainability assessment or an on-site audit after being awarded business. The suppliers evaluated in 2015 in this context satisfied our sustainability requirements.

Moreover, Bayer monitors suppliers who process minerals such as tin, tungsten, tantalum and gold to establish whether these originate in conflict regions. In this way we want to rule out that such materials find their way into our products through supply chains. To tighten up our requirements, the issue of conflict materials has also been included in our Supplier Code of Conduct.

Online annex: 3-7.1-6:

limited assurance

International regulations such as the Dodd-Frank Act in the United States obligate companies to disclose the origin of certain raw materials to rule out that Conflict minerals are those mined in conflict regions. They include tin, tungsten and tantalum ores, gold or their derivatives. Among the regions in which armed conflicts over the control of these resources occur are the eastern part of the Democratic Republic of Congo and neighboring countries. from the Democratic Republic of the Congo or its neighboring countries find their way into products through supply chains. Bayer has questioned about 100 suppliers who could potentially be impacted by this issue. Nearly 60% of them confirmed to us that they do not procure potential conflict minerals. The status of the remaining suppliers is being clarified.

All online assessments and audits are comprehensively analyzed and documented so that – in the event of unsatisfactory results – specific improvement measures can be defined together with the suppliers to ensure the future observance of social, ethical and environmental standards. In 2015, 33 suppliers (equivalent to 6% of those evaluated) posted a critical result. These suppliers were requested by Bayer to rectify the identified weaknesses with the help of corrective instructions or action plans.

Online annex: 3-7.1-7:

limited assurance

The corrective action established together with the suppliers in 2015 mainly related to the areas of occupational health, occupational safety, fair business practices and sustainable procurement. In 2015, we monitored the implementation of the stipulated improvements among 324 suppliers by means of reassessments through the EcoVadis platform; approximately 73% improved their sustainability performance to a relevant degree. In 2015, Bayer was not prompted to end any supplier relationship due solely to sustainability performance or serious sustainability deficiencies.

Training measures and dialogue on the issue of sustainability

We support our HSEQ stands for health, safety, environment and quality. and procurement employees in the implementation of our sustainability requirements with targeted Group-wide training measures. In the reporting period, 162 of these employees completed training courses dealing with the EcoVadis sustainability assessment process. CropScience carried out additional training courses on the subject of sustainability audits. HealthCare organized supplementary sustainability workshops for selected procurement employees. In addition, we also offer our suppliers a wide range of training and dialogue opportunities in order to familiarize them with Bayer’s sustainability requirements.

Online annex: 3-7.1-8:

limited assurance

In 2015, Bayer once again held Supplier Days, which are an important dialogue platform for our subgroups. CropScience organized special training courses on quality, health and safety, and environmental protection for selected suppliers. The TfS initiative organized Supplier Days in China and Brazil that dealt, for example, with environmental protection and occupational safety. In India, PSCI held an education conference where suppliers were trained in occupational safety, environmental protection, process and plant safety, and labor and business ethics. Both initiatives offer extensive supplementary information material and online training courses on their websites.