Building communities and responsible partnerships

A global supply chain with a local touch

In 2018, Höganäs Group counted up to 535 suppliers of direct materials and approximately 6,500 suppliers of indirect materials, transportation and other services. We are dependent on a steady supply of raw materials and other goods and services to be efficient, and appreciate the importance of good business relations with our suppliers.

Ethical business behaviour rooted in a common value base builds mutual trust that enables smooth and uninterrupted supply. We choose our suppliers with care, based on their performance and their ability to comply with our demands. Compliance towards internationally agreed principles concerning business ethics, respect for human rights and fair labour standards, as well as environmental precautions, is fundamental.

During 2018, an approach to standardize the sourcing process for Direct Material was initiated by globally implementing common definitions and ways of working. (Direct material consists of raw materials, process consumables and packaging materials.)

Value creation in the supply chain

We source raw materials globally and coordinate our purchases when this is practical and beneficial, from both a financial and environmental perspective. To minimize transportation, we prioritize local or regional suppliers and try to avoid transcontinental sourcing whenever possible. Our largest direct material spends are iron scrap, nickel and iron ore.

Most external services are purchased locally or within the country of operation. Höganäs is a large and stable business partner to many small and medium sized companies close to our operations around the globe.

Our total spend on external suppliers in 2018 was 7,753 MSEK of which 52 percent was spent in Europe, 41 percent in the Americas and 7 percent in Asia.

Spend per continent

Challenges in the supply chain

Our supply chain consists of suppliers of raw materials located around the globe, ranging from upstream suppliers, like mining companies, to downstream suppliers, such as highly technical lubricant suppliers.

We have policies and procedures on how to mitigate risks connected to conflict minerals and artisanal mining in our supply chain. We have also taken a stance against the social challenges in the cobalt industry related to safety, labour standards and human rights. We systematically work to ensure that our suppliers follow internationally agreed principles and comply with our Code of Conduct. 

Conflict minerals are natural resources extracted in a conflict zone where armies or rebel groups sell the minerals to finance continued armed conflict. The four most commonly mined conflict minerals are tin, wolframite (for tungsten), coltan (for tantalum) and gold ore. These minerals are essential in the manufacture of a variety of devices, including consumer electronics such as mobile phones, laptops and MP3 players. The most prominent contemporary example has been the eastern provinces of the Democratic Republic of the Congo (DRC), where various armies, rebel groups and outside actors have profited from mining while contributing to violence and exploitation during wars in the region.

Artisanal mining is small-scale mining of metals, minerals or stones carried out independently by enterprises or individuals that employ workers for mining, but generally use manually-intensive methods, work with hand tools and without the necessary safety precautions and social responsibility.

As a result, artisanal mining is connected to human rights risks as well as substandard and unsafe working conditions. Child labour and a large number of fatal accidents have been reported in artisanal mines. 

Approximately 15 percent of our raw materials are sourced through distribution channels or traders, which is an increase of 3 percent in comparison to 2017.

Sourcing safe and sustainable transportation

We source transportation while well aware of this sector’s environmental impact, safety issues and even labour conditions that may not live up to standards. Suppliers of transporting services are contracted on at least an annual basis after an approval process where commercial, environmental, safety and social aspects are considered. Performance is evaluated annually and a new approval process takes place before contracts are renewed. 

We carry out monthly spot-checks on vehicles arriving to our sites, where for example quality and safety issues are inspected. The direct contact with the drivers gives us insights and sends a strong message about the importance of complying with our requirements. In 2018, no serious deviations were discovered. The few minor non-compliances found were mainly linked to vehicle maintenance and road safety.

Read more about how we work to minimize environmental impact from transportation in the section on Carbon footprint from transportation.

Supply chain development

We assess the risks of violation of human rights and unethical business behaviour in the supply chain. We do this by looking at inherited risks connected to the supply category and the country where the suppliers operate, and by evaluating the individual supplier according to criteria based on our Code of Conduct for suppliers. It is a challenge to evaluate and monitor supplier performance, but we see it as a long-term commitment where we continuously work together with our suppliers to achieve improvements.

To date we have communicated our Supplier Code of Conduct, including our statement against corruption, to approximately 16 percent of our direct material suppliers. Our objective is to communicate our Supplier Code of Conduct to all new suppliers and to existing suppliers in connection to renewed agreements. 8 new suppliers of direct materials and 4 new suppliers of indirect materials came on-board last year, and of those, 100 percent were evaluated using our Supplier Code of Conduct, which includes both environmental and social criteria.

 

We also reach out to a number of prioritized existing suppliers each year and ask them to fill in a self-assessment based on our Code of Conduct for suppliers. In 2018, 50 suppliers responded to this self-assessment. The objective is that 100 percent of our prioritized suppliers shall respond before year-end 2020.

Incidents, non-compliances and identified increased risks concerning for example child labour, forced labour or freedom of association are reported through the group-wide reporting system. During 2018, no such cases were reported.

When we find non-compliances of our Code of Conduct, or circumstances that indicate elevated risk for deviations, we carry out supplier audits. During 2018, we identified reasons to carry out further assessments on some suppliers, whereas there were no identified needs to carry out audits.