Investing in sustainable supply chains

At ABB, we believe that the strong sustainability performance of our suppliers contributes to our success. The ABB Supplier Code of Conduct underpins these efforts, defining minimum standards for any company wishing to sell to ABB. The Code covers supplier performance in fair and legal labor conditions, occupational health and safety, environmental responsibility and business ethics. It also requires suppliers to be responsible for the sustainability efforts of subcontractors.

The ABB Supplier Sustainability Development Program (SSDP) helps suppliers to live up to the Code and is bringing real business benefits for participants.

Increasing productivity and enabling growth: Examples from India

Many suppliers in India have the potential to increase productivity through more effective workforce and production planning. Additionally, the growth of small and medium-sized enterprises is often hindered by inappropriate organizational structures. The SSDP can help suppliers tap productivity potential and enable growth, as is illustrated here in the case of two ABB suppliers in India, Excel Engineering and Suveshwaru Enterprises.

Excel Engineering Industries was selected for participation in the SSDP in 2013. One of the major challenges faced by Excel was extended working hours to meet production schedules. Extended working hours is a common practice across this region and considered by many to be “business as usual.”

However, to address ABB’s concerns about compliance with the ABB Supplier Code of Conduct and applicable labor laws, Mr.Prabhakar Pawar, the CEO of Excel Engineering, undertook a review of workforce scheduling and engagement practices. This revealed that 25-30 percent of the skilled, permanent workforce were involved in unskilled operations such as packing, material handling, material storage and sub-assemblies.

Mr. Pawar took action to realign work practices: unskilled contract workers were engaged for these activities, thereby freeing up the skilled workforce for production. This reallocation resulted in a 10 percent increase in the average monthly production output, while reducing the average monthly labor input by 17 percent. In the end, the work undertaken to solve a chronic overtime and labor compliance issue resulted in a productivity increase of over 30 percent.

Similar benefits were achieved in the case of Suveshwaru Enterprises, a supplier that also faced a long-term challenge related to extended working hours. Any previous attempt to limit overtime had been met with resistance by the workforce. However, ABB’s emphasis on the Supplier Code of Conduct requirements helped Mr. Srinivas, the Managing Director, to start addressing the issue with his workers.

With their support, Mr. Srinivas reviewed the processes deployed in various functions such as stores, deburring and grinding, and re-allocated manpower according to production activity. This led to an increased proportion of the workforce allocated to production, with only a minor increase of the total workforce. Contractual workers were engaged for the remaining unskilled activities. These changes resulted in compliance with labor law, reduced working hours to meet the production schedule and monthly savings of over $3,000.

Furthermore, as most of the workers in Suveshwaru had been associated with the company since its inception in 1991, they were accustomed to interacting directly with Mr. Srinivas for every aspect of their day-to-day job. The lack of a proper reporting structure made it increasingly difficult for the organization to grow. However, ABB’s emphasis on having designated managers for issues relating to the Supplier Code of Conduct enabled the establishment of a proper organizational structure. A worker committee was formed, providing a new platform for the resolution of issues which were previously brought up straight to the CEO’s notice, allowing senior management to focus more on strategic business issues.

Moving beyond compliance with Protecva SA de CV, Mexico

Edwin Ramirez has been a lead assessor in our Supplier Sustainability Development Program in Mexico since 2012. One of his challenges is to nurture the understanding and commitment of suppliers to move beyond compliance to develop their own sustainability programs. In this respect, Mr. Ramirez is particularly proud of his work with Protecva SA de CV, a supplier of metal fabrication materials for ABB’s Low Voltage Products business.

Following their first sustainability assessment by ABB, Protecva was presented with a wide range of environmental and health and safety findings requiring corrective actions. As a company focused on quality and on-time delivery, but lacking a safety or environment culture, this presented a significant challenge for the supplier. But with ABB’s support, change was initiated.

Over many months, Mr. Ramirez worked with Protecva to address the corrective actions that resulted from the initial assessment. Starting with fundamental issues such as safety awareness and risk identification, he noticed that with continued ABB support, attitudes started to change and the program accelerated.

Protecva appointed a health and safety specialist, trained employees in health and safety, performed risk analyses, improved waste storage and worked to comply with legislation regarding hazardous and non-hazardous waste management. Processes were documented and objectives and key performance indicators were developed.

As a result, Protecva has achieved sustainable growth, is consistently improving its processes and has become more attractive as a supplier to other international firms like ABB. Protecva is also hoping to obtain ISO 14001 certification during 2014.

“As a sustainability assessor, working with Protecva has been a tremendously gratifying experience.” says Mr. Ramirez. “When companies realize that we are there to support their efforts as a true partner in the enterprise, their attitudes change. We are making an investment in their company, and when the head of the firm believes in the change, then the employees start believing in it too.”

“When revisiting the suppliers we have previously assessed, it is rewarding to see the constructive changes regarding environment, and health and safety because they have adopted ABB’s sustainability principles as their own.”