Raw material procurement
The main raw material groups in tire manufacturing are synthetic rubbers, fillers, chemicals, reinforcing materials and natural rubber, which makes up for approximately one fourth of a tire’s raw materials.
We have more than 200 active raw material suppliers from more than 30 different countries that all follow the same rules. The raw materials for tires come from all over the world, and all of our raw material suppliers are committed to our Supplier Code of Conduct, which requires compliance with international human rights, labour rights and anti-corruption measures. All raw material suppliers must, at a minimum, have an ISO 9001 certified quality management system in place. We also prefer suppliers with an ISO 14001certified environmental management system.
SUSTAINABLE PROCUREMENT – FROM RAW MATERIALS TO PREMIUM TYRES
The long and complex journey from raw materials to finished premium tyres involves the effort and quality assurance of thousands of professionals. It is, therefore, justified to say that all of our personnel are linked to product responsibility.
The work of Nokian Tyres’ own procurement unit is guided by the internal purchasing policy, which establishes the general principles of sustainable procurement. As a participant in the UN Global Compact initiative, we follow the UNGC’s ethical principles as well as our own, which also address the issues of responsibility in the supply chain.
Furthermore, we require all of our raw material suppliers to adhere to our Supplier Code of Conduct. Nokian Tyres has just published its new totally updated Supplier Code of Conduct in 2021 and all new suppliers proposing themselves as a supplier for Nokian Tyres must accept the Supplier Code of Conduct before approval. In addition, suppliers are strongly advised to have in place a code of conduct of their own that covers their own operations as well as their suppliers.
All raw material suppliers must, at a minimum, have an ISO 9001 certified quality management system in place. We also prefer suppliers with an ISO 14001 certified environmental management system. In 2018, 72% of our raw material suppliers had the ISO 14001 certification. The target was that at least 75% of the suppliers are ISO 14001 certified by the end of 2020. Due to supplier structure and reporting system changes in 2020, it is not possible to measure the share of 14001 certified raw material suppliers in a similar and comparable way as before. Therefore, this KPI will not be followed anymore and this aspect is integrated as one input into other KPIs.
We evaluate the supply chain risks in order to understand where improvements are needed the most and for the purposes of allocating resources for audits and other evaluation measures.
In 2019, Nokian Tyres’ procurement team developed a new classification model for assessing the risks possibly attached to our suppliers globally, including raw material suppliers. The new model was implemented in the fall of 2019 and it included all the new suppliers. During 2020, all the suppliers were risk assessed according to the new classification model. The assessment has four different categories: quality, sustainability, business/ strategic criticality and safety at work. In 2021, we will create a risk mitigation plan for all new suppliers that are classified as critical or medium critical in any of the four categories in the classification model. The plan can include actions like sustainability on-site audits, requesting a management system certification in terms of quality, environment or safety, responding to different topics self-assessments, etc. The procurement category managers are also starting to create risk mitigation plans for the existing suppliers, where risks have been identified. The backgrounds of all new suppliers are checked according to Nokian Tyres’ Know Your Counterparty process before the supplier approval.
EXTERNAL AUDITS HELP PARTNERS IMPROVE THEIR SUSTAINABILITY
One of the basic raw materials of tyres is natural rubber. As an agricultural product, it is the livelihood of many families living in countries where the local legislation and working conditions have not been fully developed. We only purchase natural rubber from processors approved by Nokian Tyres. We supervise their activities through audits, among other things.
In order to improve supply chain sustainability, we started a partnership with an external auditor in 2016. Our separate sustainability auditing process has been developed together with a consulting company and it is based, among other things, on Nokian Tyres’ Supplier Code of Conduct and principles that comply with the UN Global Compact goals. For our company, the audits guarantee that our requirements are followed in the best possible way, and they provide an opportunity for the audited companies to improve their activities and occupational safety.
The audits enable the processor companies to improve their occupational safety and develop their operations further. In 2017, we audited four locations and initiated comprehensive corrective action programmes to address the shortcomings identified in the process. Among other things, the programmes include providing first aid training and revising employment contracts as well as the repair and cleaning of accommodation facilities.
In 2018, we audited 4 more locations and initiated corrective programs to address the shortcomings identified in the process. Four reaudited producers have made significant improvements on weaknesses highlighted during our first sustainability audits.
In 2019, we performed in total 9 audits. 5 new sites and 4 follow-up audits to verify the implemented improvement actions. We set a goal to audit all of our major rubber processor partners by 2020, comprising at least 80% of our natural rubber purchasing volume and this target was exceeded as 90% of our natural rubber purchasing volume was audited.
Unfortunately, all the planned sustainability audits for 2020 and 2021 were cancelled due to COVID situation globally.
SELF-ASSESSMENTS AND QUALITY AUDITS FOCUS THE ATTENTION ON OCCUPATIONAL SAFETY, QUALITY AND HUMAN RIGHTS
In addition to the audits by external parties, we track the sustainability of our raw material suppliers in connection with quality audits and site visits by our procurement professionals and raw material suppliers’ self-assessments.
During the quality audits, we review the supplier’s production and evaluate the company’s quality management system. The audits specifically focus on the quality of the activities and raw materials. Furthermore, our purchasing personnel conduct supplier site visits that include an assessment of the working conditions, among other things.