Sustainable Value Towards Supplier
For SCG, sustainability in the supply chain from upstream to downstream is essential to its sustainable business operations. Therefore, it creates Sustainable Value towards suppliers. SCG intends to the selection process of suppliers with the capacity to conduct business ethically, with professionalism and preparedness to adapt to changes that impact sustainability under the risk management plan. We also value co-generation of opportunity with our suppliers, under an efficient assessment program.
- 95% of the procurement spend comes from suppliers who commit to comply with Supplier Code of Conduct by 2023.
- 100% suppliers of the procurement spend pass the annual environmental, social and governance (ESG) risk assessment every year.
- 100% of operation contractors certified under SCG Contractor Safety Certification every year from 2012 onwards.
1. Select and assess suppliers with the capability for sustainable business
Select suppliers on the basis of commitment to comply with SCG Supplier Code of Conduct, and capacity for sustainable business. Conduct for assessment and certification of suppliers annually and continuously in order to mitigate risk in the supply chain.
2. Assess risks and classify suppliers into groups
Conduct spend analysis and business risk assessment, taking into account Environmental, Social and Governance (ESG) factors. Prioritize risks that may affect SCG business. The results are then used to classify suppliers and frame a strategy and supplier development plan corresponding with the risk.
3. Develop supplier’s capability towards sustainability
Organize and plan a development program aligned with the risk, while seeking to strengthen the supplier’s competitiveness to facilitate their grow alongside SCG.
4. Raise awareness, knowledge and people’s competency
Establish a Procurement Sub Academy Steering Committee to enhance the knowledge and competency of employees. Share knowledge, information, operational guidelines with procurement entities in both public and private sectors with an emphasis on procurement and sustainability. This is to ensure that our people work effectively in line with targets.
Supplier Risk Assessment and Segmentation
SCG conducts assessment of supply chain risk management on an annual basis. The supplier segmentation is align with risk and significance by applying an enterprise risk management framework and spend analysis with increase clarity in considering factors impact to business to classify Critical Supplier and incorporating details on Environmental, Social and Governance (ESG) risk factors to identify High Potential Sustainability Risk Supplier. To ensure effectiveness of supplier management, SCG conducts various approaches such as Diversified Source of Supply, Supplier Assessment, Corrective Action by providing supplier advice to improve their work processes to in line with Green Industry standards (Go Green Together) as well as Supplier Development for Sustainability Program with Focused Suppliers or potential suppliers who have capacity and commit to work and grow sustainably with SCG.
Supplier Segmentation 4 Groups
Critical suppliers refer to manufacturers and distributors of products and services that are significant to SCG’s business operations, such as high purchasing volume, critical component, or non-subsumable products.
Critical Supplier is considered on the basis of:
- High Volume. (High Volume purchase classification is defined by individual business unit/company) and/or
- Critical Component. The supplier sells products/services that are critical to the production processes or business and/or
- Non-Substitutable/ Oligopoly/ OEM
- Non-Substitutable: Any suppliers that sell products/services that cannot be sourced elsewhere/other suppliers cannot substitute
- Oligopoly: suppliers deal in products/services where there are very few players
- OEM (Original Equipment Manufacturer): suppliers are commissioned to make products labelled House Brand/Private Brand
High Potential Sustainability (ESG) Risk Suppliers refer to manufacturers and distributors that are likely to cause negative impacts from their improper operations in the social (e.g. human rights, employee and labor care), environment (e.g. waste management) and governance (e.g. legal compliance) aspects.
High Potential Sustainability (ESG) Risk Supplier is considered on the basis of:
- Severity Rating ranks severity of supplier’s impact in three levels: low, medium and high risk, in tandem with ESG criteria.
- Environmental Risk. For instance, on water management, waste, energy, chemicals, air pollution, Green House Gas emission, efficient resource use
- Social Risk. These include labor practice (use of child labor, forced labor), human rights, health, safety, complaints, non-compliance with relevant laws and regulation.
- Business/Governance Risk. Legal compliance, corporate image, and compliance with permit/license.
- Likelihood Rating. This will consider likelihood at three levels: low, medium and high while taking into consideration risk control measures.
Example of Risk Assessment Metric
Apply the result of Spend Analysis and Supplier Assessment for Supplier Segmentation, to manage suppliers efficiently, and aligned with materiality and risk.
- Critical Supplier. Perform audit and plan risk management
- High Potential Sustainability (ESG) Risk Supplier. Conduct Supplier Assessment, along with planning of long-term collaboration to enhance the suppliers’ capability.
- General Supplier. Supplier is a signatory to SCG Supplier Code of Conduct. Or the supplier has an existing business code of conduct/regulations/business guideline that is compatible with SCG Supplier Code of Conduct.
- Focused or High Opportunity Supplier. One should weigh in opportunity to collaborate in developing products or services, by co-planning with the supplier for co-generation of new business opportunity
Segmentation and Strategic Approach
SCG Sustainable Procurement Framework
SCG prioritizes supply chain management, by considering and managing risk across the entire supply chain- starting from the process of sourcing of raw materials, material and equipment used in production, transport, trading, delivery of products and services in order to respond to the customer’s needs and to prevent any impact upon the trust of customer and stakeholder.
The Sustainable Procurement Framework has been established and applied by all companies under SCG operation. It consists of 4 components which are commitment, procurement process, measurement, reporting and communication. Critical Supplier, High Potential Sustainability (ESG) Risk Supplier, General Supplier, Focused or High Opportunity Supplier, and *Critical Non-tier1 Supplier shall adapt the Sustainable Procurement Framework in place in their own supply chain management to ensure supply chain security and risk mitigation.
*Critical Non-tier 1 Supplier means suppliers who do not directly produce and distribute goods and services to SCG. However, they deal with products and services that are important to critical suppliers of SCG.
Environmental engagement and Co-creation with industry peers in supply chain
Waste Reduction Effort Yields Substitute Material for Natural Gypsum PURAC (Thailand) Ltd. manufactures lactic acid that is used as precursor in industrial processes. Making lactic acid generates high-acidity waste which requires de-acidification prior to disposal by landfilling. This makes waste management cost prohibitive. Cement-Building Materials Business has been working with the supplier to study waste recovery possibility as material to substitute natural gypsum in cement production processes. The study led to a pilot in Q3 of 2021. The undertaking enabled supplier to cut management cost of 100% -acid waste, yielding substitute material for 12,400 tons of natural gypsum. Volume ramp-up is planned for the following year to achieve up to 108,000 tons by entering into long-term contract with supplier
Develop supplier’s capability towards ESG-focused sustainability
- Promote and support supplier to participate in the assessment of external certification Green Industry certificate from Ministry of Industry (MOI) of Thailand. In 2021, 481 suppliers or 100% of critical suppliers achieved the Green Industry Level 2 or higher certification
- Purchase products and services according to the Green Procurement list following Guideline for Green Procurement. 92 products included office supply products were approved in Green Procurement list
- Environmental Safety and labor rights audit & training following supplier code of conduct. In 2021, 43 High potential risk suppliers of SCG Logistics were audited 100% by yearly and we found that suppliers improve their management system from audit findings on timeline
Management during Pandemic
COVID-19 has disrupted the business world and challenged supply chain in both sourcing and procurement functions. We coped with the uncertain reliability of delivery that causes an increase in supplier risk. In the midst of supply chain volatility require flexibility and additional focus on supplier assessment to mitigate supply chain risks and sustain operations. Digital tools are important for making procurement and supplier management processes more effective, and consistent.
In order to apply digital tools for procurement and supplier management processes to facilitate our suppliers and to enhance the efficiency of assessment during COVID-19, we have to develop and implement the process from offline to online. To build such processes, firstly we applied the online assessment checklist that identifies key performance indexes and how-to guide step by step to help suppliers able to start with self-assessment and prepare supporting evidence before SCG staff’s assessment via online tools such as Microsoft Team.
Secondly, we encouraged suppliers to submit ESG supported documents in soft files both documents and video clips which easily to share with us. As a result of suppliers’ readiness, now we can assess suppliers more frequently than ever to ensure the security of supply from existing suppliers. For example, setting up a KPI tracking meeting every two months by enabling suppliers to present Leading Lacking KPI data. To build such capabilities to react flexibly in new proactive way of working, we give priority to achieving supply chain visibility. We need to keep close with our suppliers to identify changing supply patterns to build resilience by investing in risk management capabilities and digital procurement tools.