HP's audits deliver supplier improvements

BusinessGreen: What are you looking for on a supplier audit?
Karl Daumueller: The basis for HP's auditing is the electronic industry code of conduct, which was introduced in 2004. It covers four areas: labour, including provisions on wages, overtime, child labour and discrimination; the environment, including pollution prevention, resource reduction, how suppliers are dealing with waste, water and chemicals and content restriction policies that ensure they are adhering to our list of banned substances; health and safety rules; and ethical guidelines that tackle corruption. All four of these elements have to be managed properly by the supplier through a formal management system.

How do these audits work?
The audit is a key element of our supplier engagement model. We have done 400 audits in the past three years. The audits last at least two days and require of a minimum of two auditors. We typically have one auditor looking at ethics and labour conditions and another focused on the environment and health and safety. We start with an opening conference with the supplier, then we take a tour of the factory floor, interview management and staff, undertake a document review and finally assess specific issues, such as the handling of hazardous substances. We then undertake a closing meeting where we make plain our findings with a full audit report that includes any recommendations for improvements.

What happens then?
The company has to respond to the audit within four weeks explaining their corrective actions and then we undertake a follow up audit after one year to check those have been adequately undertaken.

Does the supplier have any notice that you are coming?
We give the suppliers two weeks' notice. We haven't done spot checks.

But doesn't that give suppliers the opportunity to only put in place environmental and work place best practices when they know you are coming?
We have 40 well-trained auditors globally who know how to look for evidence that the supplier may have just temporarily changed things for their benefit. The approach is not one of policing. The aim is to share best practice and help improve and promote sustainability across the supply chain. Because it is difficult to switch from one supplier to another in the electronics industry, the focus is very much on working together to deliver improvements in standards.

Is this co-operative approach delivering quantifiable improvements?
It is definitely working. I have recently worked on around 12 follow-up audits in central Europe and in every case you can see significant improvements. We have been looking closely at areas like reducing energy use and waste and we are now seeing that these companies have formal programmes in place to tackle these problems.

What do you do when you find a supplier who does not meet HP's standards?
We differentiate between major non-conformers and minor non-conformers. Major non-conformers have to fix the problem within 60 days and if we then go back and still find a problem they will get one last warning. We have had very few cases where they don’t rectify the problem.

It must happen in some cases though. What happens when suppliers won’t improve, do they get axed?
Well, I believe that we've had three cases in the past three years where we have terminated a supplier's contract because of their failure to improve standards.

How do you plan to improve the auditing process?
We are continuing to invest in supplier capability building, particularly among smaller second-tier suppliers. For example, we currently have 30 suppliers in China in a one-year training programme focused on developing strong management systems, and we are going to launch a supplier capability programme in India.

About Karl Daumueller

Karl Daumueller is a programme manager within Hewlett-Packard’s Global Procurement Services organisation and lead auditor on the Supply Chain Social and Environmental (SC SER) programme.

Karl joined HP in 1979 and has subsequently worked in a number of roles across the company, including product development and design, production and sourcing. Over the past three years he has been involved in the SC SER programme and has conducted more than 40 audits.