Sustainable Conduct

Procurement and Supplier Management

The procurement organization supplies the company with goods and services around the world. We exert influence on society and the environment as a result of our procurement activities and supplier relationships. Not just economic, but also ethical, ecological and social principles are therefore anchored in our Procurement policy, which is binding for all employees.

Procurement (excluding Covestro) has been organized since 2016 as a corporate function that acts centrally on behalf of all segments. Synergies can be leveraged by pooling know-how and procurement volumes. Our procurement activities are directed by the Procurement Leadership Team, which acts as the highest decision-making body for procurement issues. The team is led by the Head of Procurement, who reports directly to the Chief Financial Officer. Covestro has its own procurement organization. Unless explicitly stated otherwise, all information hereafter with the exception of the Group targets includes Covestro.

Procurement operates according to uniformly established procurement and supplier management processes. Long-term contracts and active supplier management for strategically important goods and services are important elements here. Thus we not only minimize procurement-specific risks such as supply bottlenecks or significant price fluctuations, but also safeguard the company’s competitiveness and ensure smooth production processes.

€ 21.8 billion

Bayer’s procurement spend in 2016

We procured goods and services in 152 countries during the reporting period. Procurement spend from transactions with approximately 110,900 suppliers amounted to some €21.8 billion. In 2016, our procurement spend in Germany, the United States and Switzerland accounted for nearly 68% of our expenditures in OECD countries, which in turn made up about 54% of the Bayer Group’s global procurement spend. Brazil, India and China together accounted for about 66% of expenditures in the non-OECD countries or about 13% of the total spend. An online table contains information about Bayer’s procurement volumes and supplier shares based on the regional origin of goods and services.

Online Annex: A 1.4.2.1-1

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Procurement Spend and Number of Suppliers in OECD and Non-OECD Countries in 2016

 

 

Spend

 

Suppliers

 

 

€ billion

%

 

Number

%

OECD countries

 

 

 

 

 

 

Germany

 

5.3

24.2

 

22,108

19.9

United States

 

5.3

24.2

 

11,540

10.4

Switzerland

 

1.2

5.6

 

1,789

1.6

Other

 

5.7

26.0

 

42,649

38.5

Total

 

17.5

80.0

 

78,086

70.4

Non-OECD countries

 

 

 

 

 

 

China

 

1.9

8.7

 

3,432

3.1

India

 

0.5

2.3

 

3,785

3.4

Brazil

 

0.5

2.2

 

2,546

2.3

Other

 

1.5

6.9

 

23,052

20.8

Total

 

4.4

20.1

 

32,815

29.6

Bayer purchases locally wherever possible in order to adequately react to the requirements of our sites and strengthen regional economies. In 2016, this applied to 71% of our procurement spend at our main business locations, and also 71% of procurement spend in all countries worldwide. The following table shows the main procurement products in 2016.

Online Annex: A 1.4.2.1-2

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Main Procurement Products

Zetia (finished product), cell media culture (raw material), Betaferon (interferonbeta-1b) (bulk product) and Eylea protein (bulk product), packaging materials

Active ingredients (e.g. naproxen sodium, loratadine, paracetamol), vitamins (e.g. vitamin C and B), auxiliaries, finished products (e.g. Canesten, Dr.Scholl’s, Berocca), packaging materials

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

Active ingredients (e.g. moxidectin, praziquantel and permethrin), finished products, packaging materials (e.g. Seresto tins)

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

The use of renewable raw materials plays only a subordinated role at Bayer for portfolio reasons. We primarily use renewable raw materials when it makes technical, economic and ecological sense to do so.

Online Annex: A 1.4.2.1-3

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At Pharmaceuticals, a number of hormones are synthesized 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. We additionally purchase various steroids that are manufactured from diosgenin or its intermediate stages. 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.

For some products, Consumer Health uses extracts of plant leaves. We take great care with the cultivation and extraction of the raw materials for manufacturing plant-based pharmaceuticals. The controlled, integrated cultivation and extraction of plant-based raw materials take place according to local regulations, e.g. the GACP (Good Agricultural and Collection Practice) guidelines of the European Medicines Agency.

Crop Science processes soy, e.g. in the production of crop protection products. To support the maintenance of sustainability criteria in soy cultivation, Crop Science is a member of the Round Table for Responsible Soy (RTRS) and, starting in 2017, intends to purchase RTRS certificates corresponding to the soybean consumption in its production. In addition, we cooperate with farmers to support the certification of their soybean production in accordance with international standards.

We use a small amount of palm oil derivatives in some of our Life Sciences This term describes Bayer’s activities in health care and agriculture and comprises the Bayer Group excluding its legally independent subsidiary Covestro. It refers to the businesses of the Pharmaceuticals, Consumer Health and Crop Science divisions and the Animal Health business unit. products. 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). In 2017, we plan to purchase so-called RSPO credits, which promote the sustainable production of palm oil, according to the quantities used by us.

Covestro is developing processes for the replacement of raw materials derived from crude oil. In 2016, for example, it launched the commercial production of a curing agent for polyurethane coatings and adhesives based on renewable raw materials. The product is 70% based on raw materials derived from biomass that does not compete with food production.

Bayer sustainability requirements defined in its Supplier Code of Conduct

Bayer regards adherence to sustainability standards within its supply chain as a crucial factor in the value chain and an important lever for minimizing risks. A four-step process is thus established throughout the Group to improve sustainability practices in the supply chain comprising the elements awareness-raising, supplier nomination, sustainability performance evaluation and development. It is defined in a special instruction and centrally steered by a sustainability team whose management reports to the Procurement Leadership Team.

Our sustainability requirements are established in Bayer’s Supplier Code of Conduct. Based on the principles of the U.N. Global Compact and our Human Rights Position, it establishes the basic foundation for this cooperation. For this reason, not just economic standards, but also ethical and environmental, social and governance (ESG) standards apply for the selection and evaluation of new and existing suppliers. The Code of Conduct is integrated into electronic ordering systems and contracts throughout the Bayer Group. Furthermore, our standard supply contracts contain clauses that authorize Bayer to verify suppliers’ compliance with our sustainability requirements.

Evaluating the sustainability performance of our suppliers

Group target 2017:

evaluation of all strategically important suppliers

Group target 2020:

evaluation of all potentially high-risk suppliers with significant Bayer spend

Bayer verifies the observance of the Code 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. By 2017, Bayer plans to evaluate all strategically important suppliers according to sustainability-relevant criteria (target attainment as of 2016: 98%). This group includes suppliers with a major influence on business in terms of, for example, procurement spend and long-term collaboration prospects (3-5 years). By 2020, we also aim to evaluate all those suppliers with a significant procurement spend (> €1 million p.a.) that are regarded as potentially high-risk suppliers (target attainment as of 2016: 83%).

Group target 2020:

development and establishment of a new sustainability standard for our supply base

Bayer carries out the online assessments together with an established provider of sustainability performance evaluations (EcoVadis). The assessment criteria comprise the areas environment, labor practices and human rights, ethics and sustainable procurement. On-site audits are carried out by independent external auditors. Audits are based on the criteria of the Together for Sustainability (TfS) initiative and the Pharmaceutical Supply Chain Initiative (PSCI). In both initiatives, Bayer works together with other companies to standardize sustainability assessments and audits of suppliers in the same industry and to leverage synergies by sharing information. In line with our Group target, we plan to develop and introduce a sustainability standard for our suppliers by 2020. In addition, Bayer auditors evaluate suppliers with regard to sustainability aspects focusing on health, safety and environmental protection.

Online Annex: A 1.4.2.1-4

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Supplier Assessments and Audits

 

 

2015

 

2016

1

Initial and re-assessments of suppliers working for Bayer; initiated by Bayer and shared as part of the TfS initiative

2

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

3

Health, safety, environmental protection

Sustainability assessments1 via the EcoVadis platform

 

521

 

795

Sustainability audits2 by external auditors

 

71

 

73

Sustainability / HSE3 audits by Bayer auditors

 

107

 

168

Within the scope of the TfS initiative, a total of 1,773 supplier assessments using EcoVadis and 241 audits – performed, for example, in Poland, Mexico and South Korea – were successfully completed in 2016. In the same year, 51 shared audits were carried out through PSCI, for example in China, India, Israel and Brazil.

Verifying the requirements with new suppliers

Our Life Science businesses undertake separate evaluations of suppliers with regard to the contract manufacturing of quality-relevant goods and services. These evaluations cover the areas of health, safety and environmental protection among others and are performed prior to the commencement of business operations.

Furthermore, the Life Science businesses obligate potentially risky, 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. The relevant suppliers evaluated in this way in 2016 met our sustainability requirements.

The online assessments and on-site audits are analyzed and documented so that – in the event of unsatisfactory results – specific improvement measures can be defined with the suppliers. In 2016, this applied above all to the categories Ethics, Sustainable Procurement and Health and Safety. In 2016, 24 suppliers (3% of those evaluated) posted a critical result (assessment level low). These suppliers were requested by Bayer to rectify the identified weaknesses on the basis of specific action plans. Overall some 400 of our suppliers improved their sustainability performance in 2016.

Online Annex: A 1.4.2.1-5

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Online Supplier Assessments by Category

Online Supplier Assessments by Category (bar chart)Online Supplier Assessments by Category (bar chart)

Improvement measures in the supply chain taking effect

We monitor the implementation of the improvements demanded by us through re-assessments or follow-up audits. Numerous suppliers also voluntary undergo a re-assessment in order to improve their results. In 2016, 583 suppliers underwent a re-assessment through the EcoVadis platform, of whom approximately 67% improved their sustainability performance. Nine follow-up audits verified the rectification of previously identified deficiencies. In 2016, Bayer was not prompted to end any supplier relationship due solely to sustainability performance.

Additional verification processes were established for the fulfillment of further international regulations. This applies, for example, to regulations that require companies to disclose the origin of certain raw materials such as so-called Conflict minerals are those mined in conflict regions. They include tin, tungsten and tantalum ores, gold or their derivatives. Armed conflicts over the control of these resources occur particularly in the eastern part of the Democratic Republic of Congo and neighboring countries. .

Online Annex: A 1.4.2.1-6

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Target: elimination of conflict raw materials

International regulations such as the Dodd-Frank Act in the United States obligate companies to disclose the origin of certain raw materials. The purpose of this is to rule out that minerals from conflict regions such as the Democratic Republic of the Congo or its neighboring countries find their way into products through the supply chain. Bayer has questioned about 150 of its first-tier suppliers who could potentially be impacted by this issue. Nearly 65% of them confirmed to us that they do not procure potential conflict minerals. It was agreed with the remaining suppliers during verification processes that they must ensure compliance with the requirements.

Training measures and dialogue on the issue of sustainability

We support our procurement employees in the implementation of our procurement processes and sustainability requirements with targeted Group-wide training measures. In the reporting period, 244 procurement employees completed training courses explaining the EcoVadis sustainability assessment process. We also offer our suppliers a wide range of development and dialogue opportunities in order to familiarize them with Bayer’s sustainability requirements.

Online Annex: A 1.4.2.1-7

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In 2016, Crop Science used its Supplier Days in India and China as an important dialogue platform for sustainability requirements. Covestro also carried out a Supplier Day in India for its strategically important suppliers. In addition, we offered further Supplier Days, training and workshops in China and India in cooperation with our industry initiatives PSCI and TfS. The Supplier Academy developed by TfS in 2016 and the sustainability webinars developed by PSCI itself offer further training components for suppliers.

Tackling child labor in the seed supply chain

A key challenge for sustainable supplier management in the Group is to counter child labor in the seed supply chain of the Crop Science segment. Our position on this is unequivocal and includes a strict ban on child labor. We therefore also obligate our suppliers along our value chain to strictly refrain from employing children. For many years, Bayer has taken systematic action to prevent child labor in the cotton, rice and vegetable seed supply chain in India, Bangladesh and the Philippines through its Child Care Program and conducts inspections locally. In 2016, Bayer for the first time also inspected external producers of vegetable seed in China and Thailand. No cases of child labor were identified. In addition, Bayer continues to raise awareness of the issue among its suppliers and their local environment and clearly communicates its requirements.

Online Annex: A 1.4.2.1-8

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Bonuses and sanctions for suppliers

Crop Science’s comprehensive activities in its Child Care Program include the observation and monitoring of the seed produced through wage labor in India. To this end, the corporate auditor EY (formerly Ernst & Young), India, carries out unannounced visits to farms in four Indian districts, among other measures. Suppliers who can verify that they strictly observe our ban on child labor receive a bonus 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.

Supporting school education is a key element

Bayer regards school attendance not only as essential for children’s development but also as an effective tool for preventing 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 in India with the “Learning for Life” initiative within our Child Care Program, which focuses both on fostering scientific knowledge and on general vocational training. This covers everything from reintegrating children into the regular school system to vocational training measures. Between 2005 and the end of 2016, “Learning for Life” reached more than 6,200 children and young people.

Thanks to a stringent monitoring system, which is supported by local educational initiatives, there are now only very few instances of child labor among our contractors, which we nonetheless closely track and immediately put a stop to.

The Child Care Program Advisory Council, comprised of international experts and recognized professionals, supports Bayer in the protection of children’s rights and the objective of seed production without child labor. We measure the success of our comprehensive program using the indicator “Child labor incidence as a percentage of total monitorings of laborers.”

Online Annex: A 1.4.2.1-9

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The table informs about the development of the indicator that Bayer uses in the evaluation of child labor cases.

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

1 The figures cover several growing cycles per cultivation year. In India the cultivation year runs from the middle of one year to the middle of the next, depending on climatic conditions and the various seed types. Cumulated depiction on the basis of control inspections performed (at least 3 per cultivation season for vegetables and up to 6 per season for cotton).
2 Vegetable seed included in field monitoring from 2010 / 2011 onward; for vegetables, cultivation areas and number of monitorings refer to a combination of various seed types. Each type of seed has its own monitoring intensity.