Supplier Sustainability Performance
We assess our suppliers to the highest standards and drive continuous improvement in a structural and collaborative way.
Supplier Sustainability Performance
We assess our suppliers to the highest standards and drive continuous improvement in a structural and collaborative way.
Beyond auditing
In 2016, Philips introduced the Supplier Sustainability Performance (SSP) program to replace the traditional approach of auditing. Insights from data analysis showed the reliance on auditing was insufficient to drive sustainable improvements and often leads to audit fatigue.
Our SSP approach is characterized by:
In this way, the focus is on ensuring structural, proactive improvement rather than simply reacting to issues that arise, underscoring Philips’ desire to invest in relationships with suppliers who provide a safe working environment, treat workers with respect, and work in an environmentally sound way.
Hold suppliers to the highest standards
First, a set of references, international standards, and Philips requirements are used to develop the Frame of Reference, which covers management systems, environment, health & safety, business ethics and human capital. For each, the maturity level of suppliers is identified in the Program Execution Wheel, which assesses suppliers against the Plan–Do–Check–Act (PDCA) cycle. Suppliers are then categorized through the Supplier Classification model, which differentiates on the basis of supplier maturity, resulting in supplier-specific proposals for improvement. The SSP process is monitored and adjusted through continuous feedback loops. The outcome of the SSP assessment is a supplier sustainability score ranging from 0 to 100. This score is based on supplier performance in environmental management, health & safety, business ethics, and human capital.
Performance-based assessment and classification
We identify suppliers in scope and annually measure their performance against the core elements as described in the Frame of Reference. This process has four key stages: select, identify, agree, and execution. The outcome of assessment is a supplier sustainability score ranging from 0 to 100, based on suppliers’ self-assessment with supporting evidence (30% of total score) and our validation (70% of total score).
Depending on results of assessment, we categorize suppliers into four classes: BiC (Best in Class), SSIP (Supplier Sustainability Improvement Plan), DIY (Do it Yourself) and PZT (Potential Zero Tolerance). The PZT is a temporary status, if any Potential Zero Tolerances – which refer to unacceptable violations of Philips Sustainability Agreement – is identified.
Philips defines six Zero Tolerances:
Tailor-made improvement plan
Depending on supplier classification, we develop a tailor-made approach that supports continuous improvements through training and sharing best practices. For example, suppliers assigned to the status of BIC only need to complete a self-assessment on an annual basis. Suppliers classified as SSIP are subject to an on-site assessment in addition to desk-based validation to verify their actual situation and develop an improvement plan.
For PZT suppliers, Philips takes immediate action to verify whether there is structural Zero Tolerance. If the conclusion gives rise to a structural Zero Tolerance, the supplier will be required to propose a mitigation and/or resolution plan and provide regular updates and evidence. Zero Tolerances will be internally reported to the procurement commodity leads, procurement leadership team and corresponding business units.
Impact on supplier performance
Each year, more than 200 suppliers actively participate in the SSP program and additional suppliers are added to the program each year. In 2020, approximately 302,000 workers were impacted through the program as labor conditions improved, the risk of serious injury was reduced, and the negative environmental impact of suppliers brought down. Philips measure and monitor the impact of the SSP engagement through a year-on-year improvement rate.
Apart from the inclusion of additional suppliers annually into the award-winning SSP program, Philips is actively working to make the program more efficient and effective through its research consortium with Eindhoven University of Technology and the Jheronimus Academy of Data Science (JADS). The focus of this consortium is on applying the latest insights in data science and machine learning methods in order to make the SSP program more efficient in determining the sustainability maturity of suppliers, while also increasing the effectiveness of our supplier improvement approach.
From the consortium, a machine learning tool was developed that is able to predict the sustainability performance of suppliers, based on a set of generic indicators. Moreover, we are able to predict the year-on-year improvements of suppliers that are part of the SSP program, allowing further specification of the engagement intensity towards individual supplier needs.
In 2020, a different machine learning tool was developed, which is able to predict expert scorings on detailed pieces of evidence, thereby reducing the time spent on assessments. This leaves more room for experts to support suppliers in their capability building, by sharing best practices and creating business cases that enable improvements.
In addition, Philips launched its newly developed SSP IT platform, which fully supports the entire engagement process, from onboarding to data analysis. It is set up in such a way that other companies can easily start using the system for their own supplier engagements. The program design also enables various codes.
In addition, Philips has ramped up its cross-industry engagement, advocating for further adoption of the SSP approach. The SSP program design enables various codes of conduct to be included. Through public speaking and 1-on-1 conversions, Philips is making the SSP approach available to other companies that want to make a sustainable impact in their supply chains.
