Extracting the power of One Philips

Transcription

1 Our suppiers The Company s mission for suppy management is to create vaue by extracting the power of One Phiips and transforming the transactiona purchasing function into strategic suppy management marks the fourth year of a comprehensive change program. Suppy Management pays a key roe in vaue creation, and 77% of Phiips spend is now centraized or center-ed. From 2003 unti 2007 the tota number of active suppiers was reduced from more than 50,000 to ess than 20, % of spend on Bi of Materia (BOM) is now concentrated on fewer than 300 suppiers, and in Non-Product-Reated (NPR) on ess than 800 suppiers word wide. Extracting the power of One Phiips Leveraging the company s spend and resources in key areas and negotiating as One Phiips improves time-tomarket, reduces tota cost of ownership and increases quaity. Strategic priorities are: NPR spend: Phiips has centraized its NPR spend management in Phiips Genera Purchasing. In addition to enhancing negotiating power, this organization initiates cost-savings projects together with operationa units and suppiers, in the areas of cost avoidance and efficiency enhancement. During 2007 the transactiona shared service centers for NPR purchasing were outsourced, together with the finance shared service activities, to Infosys. Cross-sector BOM opportunities: ownership of some EUR 3 biion cross-sector spend is concentrated centray. Cross-sector teams ed by sector Chief Purchasing Officers are active in 10 commodity areas, incuding metas and eectronic components. Centraized One Phiips everaging of this spend with fewer, more strategic suppiers has resuted in significant vaue creation. Outsourcing strategy and guidance: this initiative supports industria strategy decision-making, addressing the shift in resources required to manage 92 Phiips Sustainabiity Report 2007

2 Tota purchased products and services in 2007, by geographic area as a % of tota Tota purchased products and services in 2007, by type as a % of tota Asia Pacific 36 Western Europe 37 Other Bi of Materia 42% Non-product reated 33% Africa 1 Latin America 5 Eastern Europe 6 North America 15 BOM OEM/ODM 25% the change to an outsourcing reationship. Our tota OEM/ODM (Origina Equipment Manufacturer/ Origina Deveopment Manufacturer) outsourcing spend has amost doubed in the past three years to EUR 6.5 biion. To encourage deveopment of more strategic reationships, the number of preferred EMS (Eectronic Manufacturing Systems) suppiers has been reduced from 61 in 2004 to eight in Suppy Management has set an ambition in 2005 to achieve two-year cumuative savings of EUR 1 biion in the One Phiips spend categories. This target was met in the 2006/2007 timeframe and has heped to maintain and improve the competitiveness of the company. One Phiips approach to suppier sustainabiity Since we introduced our Suppier Sustainabiity Invovement Program in 2003, we have made considerabe progress. We have improved transparency in our suppy chain and reporting, strengthened our interna monitoring systems and have been embedding sustainabiity into our suppy management processes. Given the importance of this topic, sustainabiity is now a routine agenda item at our monthy business review meetings, incuding continuous monitoring of corrective action impementation. Achieving a sustainabe suppy base is an ongoing process that needs execution at a eves of the company. We firmy beieve that this is a matter of taking care of the environment and of workers ives. As a member company of the Eectronic Industry Code of Conduct (EICC) we share the organization s goa to improve conditions in the eectronics suppy chain. The EICC member companies are coaborating to hep ensure safe conditions, worker rights and environmenta responsibiity in the goba eectronics suppy chain. Suppier sustainabiity governance Based on our governance mode, each sector is responsibe for the compiance of its suppy base. A Senior Vice President, Suppier Deveopment and Sustainabiity, is responsibe for continuing to embed sustainabiity throughout the suppy chain. This position reports to the Chief Procurement Officer, who is a member of the Phiips Group Management Committee and Chair of both the Suppy Management Leadership Board and the Sustainabiity Board. The Suppy Management Leadership Board is responsibe for program depoyment and consists of the CPOs of each sector. Our Suppy Sustainabiity Patform is comprised of Suppy Sustainabiity Officers from each sector and Phiips Genera Purchasing, pus representatives from Corporate Lega, Corporate Sustainabiity Office and Interna Audit. Chaired by the Senior Vice President, this group eads our overa suppier sustainabiity program. Our suppy managers are obigated to seect suppiers that act with integrity and are in compiance with appicabe aws and the Phiips Suppier Sustainabiity Decaration, as aid out in the Phiips Genera Business Principes and Suppy Management Code of Ethics. Each sector s CPO must approve new suppiers after assessing, among other things, the critica competencies and the sustainabiity status of the proposed suppier. Lead buyers pay a pivota roe. They are responsibe for communicating requirements to suppiers, requesting and scheduing audits, ensuring audits are executed and that corrective actions are impemented. If necessary, the CPOs support the ead buyers as they work with suppiers to faciitate changes in a suppier s operations. In some instances issues are escaated to the CEO of the sector. Phiips Sustainabiity Report

3 Toward standardization We endorsed the Eectronic Industry Code of Conduct (EICC) in 2006 and joined its Impementation Steering Committee. Working with EICC member companies to deveop standardized toos and processes, aows for increased efficiency, productivity and simpicity for our suppiers and ourseves. It s a practica exampe of deivering on our brand promise, sense and simpicity. Refecting our drive for consistency, we updated our Phiips Suppier Sustainabiity Decaration in 2006 to aign with the EICC standards. To safeguard the eve of standard set, we have incuded an appendix eaborating further on empoyees rights reated to freedom of association/coective bargaining. This is in keeping with our origina Suppier Sustainabiity Decaration. Where freedom of association/coective bargaining is restricted by aw, we ook to see if there are other means of open communication between the suppier s management and workers. During 2007 we participated in the EICC quartery meetings and in many working groups, conducted sessions with non-governmenta organizations and teamed up other companies to drive standardization and ensure a eve paying fied for our sector. Suppier Sustainabiity Program approach The Phiips Suppier Sustainabiity Program is buit on the foowing piars: Setting out our requirements Buiding understanding and agreement Monitoring suppiers Resoving issues Stakehoder engagement. To determine where to focus our efforts, we have deveoped an approach based on a risk profie reated to spend, country of production, business risk and type of suppier reationship. Setting out our requirements When we aunched our Suppier Sustainabiity Invovement Program in 2003, a first step was to raise awareness among our suppiers through training. This ed to the request for adherence to the Phiips Suppier Decaration on Sustainabiity, which outines our expectations of behavior in the areas of environment, heath and safety, and abor conditions. Our Suppier Sustainabiity Decaration appies to our suppiers with a spend above EUR 1,000. In 2007 we impemented our updated Decaration, which is being signed by a of our suppiers. The new Decaration is incuded in our updated Purchase Agreements. The Roya Phiips Eectronics List of Restricted Substances is aso part of our Purchase Agreements. The ist specifies those substances that are not aowed in products above our estabished threshod to ensure that a products put on the market do not contain substances restricted by aw and reguations, incuding RoHS (the European Union Directive on the restriction of the use of certain hazardous substances in eectrica and eectronic equipment). Our Heathcare sector incudes the Roya Phiips Eectronics List of Reevant Substances in its Purchase Agreements and Consumer Lifestye does so as appropriate. This is a ist is of substances to which we pay attention from a precautionary point of view. The principe states that in order to protect the environment, a precautionary approach shoud be widey appied, meaning that where there are threats of serious or irreversibe damage to the environment and/ or heath, ack of fu scientific certainty shoud not be used as a reason for postponing cost-effective preventive measures. Simpy put, our phiosophy is that prevention is better than cure. 94 Phiips Sustainabiity Report 2007

4 Tota Phiips suppier sustainabiity audits Tota nr. of conducted audits = New NPRreated audits BOM-reated re-audits New BOMreated audits BOM-reated audits NPR-reated audits Buiding understanding and agreement We work with our suppiers to raise awareness about the importance of operating in a sustainabe manner and provide guidance on how to do so. Our sectors conduct training sessions, suppier day events or specific briefings. Regardess of the venue, suppiers are encouraged to share their experience. As an integra part of how we do business, sustainabiity was an important agenda item at our briefings with suppiers. In 2007 Consumer Eectronics organized meetings in Shenzhen and Shanghai for a tota of 160 suppiers, whie Lighting hosted 60 suppiers in Shanghai. At nine DAP suppy centers around the word invited key suppiers (typicay 20) to attend briefings on sustainabiity. We aso continued to conduct training on the Phiips Suppier Sustainabiity Program for our empoyees in 2007, incuding interna auditors, HR, Quaity, site management, business groups and purchasers. Training was hed at Phiips sites around the word, incuding China, Singapore and the Netherands. In December we focused on the change of our audit checkist to that of the EICC, when it is finaized. By February 2008 a ead auditors wi have attended this refresher course. Our suppiers are advised to do the sef-assessment and we make cear our audit checkist. They are required to sign the Suppier Sustainabiity Decaration to testify their commitment and identified risk suppiers are required to pass our sustainabiity audit. The audit checkist divided issues into zero-toerance, imited toerance and minor. Zero-toerance issues are, for exampe: chid abor, continua seven-day work weeks, immediate ife threatening situations, save abor conditions and banned substance found in the suppier suppy chain. Monitoring suppiers Our suppier sef-assessment too and audits have been used to enabe our sectors to monitor compiance with our requirements throughout our suppy base. Sef-assessment too If the perceived risk goes above a certain eve, suppiers are asked to perform a sef-assessment. This further buids awareness, giving suppiers the opportunity to resove issues internay. This too is used as part of our contro structure. Whie we had panned to eiminate this for a specific category of identified risk suppiers, a sef assessments done reveaed the need for audits to take pace. Sustainabiity audit approach For 2007 we set a target to achieve fu transparency by auditing 100% of our identified risk suppier sites. This gives us a cear picture of the sustainabiity risks we may be facing with those suppiers. (Since then we have been auditing a potentia suppiers that are identified as risk suppiers.) To hep us determine our criteria, we identified risk countries based on independent sources and aso determined a threshod based on spend. As a resut, suppiers who provide us with goods and services from manufacturing sites in Brazi, China, India, Indonesia, Mexico, Pakistan, the Phiippines, Thaiand and Vietnam, and with whom we aso spend more than EUR 100,000, were identified as risk suppiers. In addition, if suppiers are identified as risk suppiers outside this scope, they are aso audited. Likewise, as mentioned above, a potentia suppiers that are identified as risk suppiers automaticay undergo audits as part of the suppier seection and approva process. Our 2007 audits were conducted by interna Phiips auditors and by the externa auditor, SGS Group. Going forward, the use of externa auditors wi Phiips Sustainabiity Report

5 increase, aowing our interna resources to focus on resoving issues, as we as initiating CO 2 reduction projects with our suppiers and fu suppier certification. During 2007 a auditors used the Phiips audit too, which has been aigned with the EICC where possibe on chapters Labor, Heath & Safety, Environment and Management Systems. The current beta version of the EICC audit too is supporting us in our efforts to strengthen the scope and depths of our audits. In the spirit of continuous improvement, we have been fine-tuning the audit process and are working with the EICC to enhance the beta version of the audit too, which we wi depoy when the fina version is reeased. The quaity of the auditing process is maintained through the review of each audit report. Periodic review of the audit program with SGS incudes a Phiips speciaist joining an audit as an observer and asking suppiers about the service received. In addition, individua SGS auditors are asked about their audit experience. As is the case with any form of outsourcing, maintaining expertise and contro the overa process is paramount. We are buiding experience with the periodic doube checking of deiveries regarding banned substances. The check is carried out by suppier quaity contro personne and if issues are found they are escaated to sustainabiity officers and other responsibe persons. A thorough check of the reated processes at the site is then started. Resoving issues We take non-compiances seriousy and continuousy monitor and support the impementation of corrective actions at our suppiers manufacturing sites. In order to manage issues identified during an audit, we have categorized non-compiances into zero-toerance, imited-toerance (formery referred to as major). This categorization determines both the appropriate timeine in which the suppier shoud compete corrective action and what interna escaation procedures we need to take if issues are not being adequatey addressed by the suppier. Timeines are defined by severity or time needed to resove the issue. For exampe, heath and safety issues can be resoved reativey quicky with considerabe positive impact on the empoyees invoved. After audits, the ead buyer works with suppiers to ensure that the suppier acts upon the required corrective action in the agreed timeine. In genera, we prefer to resove issues at operationa eve whenever possibe, further embedding sustainabiity into the purchasing function. The impementation of soutions is monitored at reguar meetings with suppiers. The resoution of zero-toerance and imited-toerance non-compiance issues is monitored internay using a cross-sector escaation process. This process of monitoring issues resoution invoves sector CPOs and business management, and is needed if business interests are vunerabe, incuding issues with singe-source suppiers where we have few or no aternatives. Our sector Genera Business Principes (GBP) compiance officers are invoved in monitoring this reporting process and interna audit has added the topic to its overa risk assessment with the sectors. A report of a issues and their resoution is aso an integra part of the GBP non-compiance reporting. If a suppier does not make progress in impementing corrective actions, or if they continue to use unacceptabe practices, we wi end our reationship with them as a ast resort. This decision may have an impact on our business and if so we carefuy prepare a contingency pan. 96 Phiips Sustainabiity Report 2007

6 Resoving zero-toerance non-compiances as a % of tota new BOM audits 2005 cases 2006 cases cases 13% of new issues were resoved during Issues found in Sti open end Sti open end 2007 Issues found in Sti open end Cosing issues identified during 2006 audits At the end of 2006 we had audited 98% of our suppiers. The issues found were described in the Phiips Sustainabiity Report During the course of 2007 we resoved 92% of the remaining zero-toerance issues identified during our 2006 audits. That incuded monitoring to verify whether corrective actions had been propery impemented. However progress on resoution, specificay in cosing zero-toerance issues, was sower than expected. The most frequent sustainabiity non-compiances identified in 2006 were in the areas of working hours, emergency preparedness, occupationa safety, and environmenta management systems. Looking at specific findings, non-compiances associated with working hours were most common in China and Thaiand. This is frequenty reated to overtime not conforming to ega imits or where empoyees routiney work seven-day work weeks. Possibe soutions are set out on page 99. was the absence of environmenta management systems (EMS) at the sites audited. We support suppiers with inks to experts to support projects to impement such systems, but this is something that takes time. Impementing an EMS typicay takes 9-15 months and we foow the suppiers progress unti fuy certified. In terms of humane treatment, the main noncompiances found were of suppiers that did not have poicies or procedures against harassment or describing discipinary measures, and have been soved. We have earned that it often took onger to resove issues that we had anticipated. When we began our Suppier Sustainabiity Invovement Program in 2003, we set ambitious targets for ourseves. Experience has proven that some issues coud not be resoved in the aggressive timetabe we estabished. However, now that most of the zero-toerance issues identified in our 2006 audits have been resoved, and we are continuing to monitor the changes that have been impemented, we have gained the necessary experience to hande issues in a shorter timeframe. As the suppier s customer, we work with our customers to optimize demand management to avoid unanticipated spikes in production. Emergency preparedness was found acking at many suppier sites. We noted unawareness about the need to have fire safety procedures and measures in pace. The same appies for the use of persona protective equipment, which is the main finding in the area of occupationa safety. These issues have been reativey easy and quick to resove. It s a matter of raising awareness and providing basic safety measures ike fire-prevention and signage to identify escape routes. With respect to poution prevention and resource reduction, the most frequenty seen non-compiance Phiips Sustainabiity Report

7 Distribution of identified risk suppier audits, 2007 as a % of tota BOM-reated audits in risk countries Indonesia Phiippines India 1 1 Thaiand 7 2 Mexico 4 Brasi 11 China 74 Summary suppier sustainabiity BOM-reated audit resuts 2007 % of new audited BOM sites in risk countries where the foowing types of non-compiance were found Labor Freey Chosen Empoyment Zero toerance Chid abor avoidance Working hours Wages & benefits Humane Treatment Non-discrimination Overview of 2007 audit resuts We extended our audit approach to incude NPR in We competed 257 sustainabiity audits of identified risk suppier sites, achieving our target of 100% transparency. Of that tota, 210 were BOMreated and 47 were NPR-reated. New suppiers accounted for 57% of BOM-reated audits, whie 43% were audits of BOM suppiers with open issues from the 2006 audits. Limited toerance Freedom of association Coective Bargaining Heath and safety Occupationa Safety Emergency Preparedness Occupationa Injury and Iness Industria Hygiene Dormitory and canteen Environmenta Environmenta permits and reporting Poution prevention and resource reduction Hazardous substances Product content restrictions Management system Company Commitment Lega and customer requirements <5% 5<15% 15<25% 25<50% >50% Suppiers of new ventures are incuded to the extent that the integration process has been finaized, during the transition process and divestments are incuded unti purchasing responsibiity ends. A took pace at suppier sites with a spend above EUR 100,000, in Brazi, China, India, Indonesia, Mexico, the Phiippines and Thaiand. This incudes some strategic second-tier identified risk suppier sites (those we seected for our first-tier suppiers). SGS Group conducted 159 audits, or two-thirds of a audits, an increase of one-third compared with The tabe provides a summary of the zero-toerance and imited-toerance non-compiances found during BOM audits. Minor non-compiances are handed at sector eve and are no onger reported into our centra database. Bi of Materia suppier audit resuts Compared with 2006, we found a higher number of imited-toerance non-compiances per audit hed, possiby due to the experience gained by our interna and externa auditors. Roughy haf of the non-compiances were due to abor issues, with a quarter due to heath and safety and the remaining quarter due to environmenta issues. The most frequent abor issue continues to be reated to working hours. This is ceary a fundamenta issue, and we beieve that cooperation with the EICC and oca governments is the ony way to truy achieve sustainabe change. A first exampe is a project estabished in Dongguan, China, that brings together oca government, entrepreneurs and abor representatives to buid a program to ensure compiance to oca aw. 98 Phiips Sustainabiity Report 2007

8 Distribution of non-compiances by country, 2007 as a % of tota BOM-reated audits in risk countries Thaiand 0.4 Mexico 0.6 Brazi 9.1 India 9.5 Phiippines 0.4 Distribution of non-compiances by grouping, 2007 as a % of tota BOM-reated audits in risk countries Environmenta 23 Management system 1 Labor 53 China 80 Heath and safety 23 This project was carefuy constructed as a mutistakehoder initiative to be supported by the government, civi society, industry associations and customers. The partners that are working on this project incude FIAS (Word Bank Group), Business for Socia Responsibiity, Shenzhen Eectronics Industries Association, the EICC and the Goba esustainabiity Initiative. Additionay, research and input were provided by a wider set of stakehoders incuding suppiers and NGOs, and eadership companies in other sectors. Meanwhie, we continue to drive compiance reated to working hours with our suppiers. This can be resoved by hiring additiona persona, purchasing equipment, buiding a dormitory or impementing sustainabe demand management. Some 17% of the suppier sites with this non-compiance are being phased out, however, contingency panning is required before phase-out can occur. Because many of these issues were identified in audits conducted toward the end of 2007, corrective action pans wi be impemented in eary The second most frequent non-compiance was regarding wages and benefits. Corrective action pans are running. As with working hours, this abor issue requires broad pubic-private cooperation to create sustained improvement. Regarding occupationa heath and safety, ack of persona protective gear and ife threatening eectrica open contacts were found as we as non-preparedness for fires. Most of these improvements are running and wi be monitored to ensure continued compiance. We found that 45% of initia audits require Environmenta Management Systems. As previousy stated, we wi foow their progress unti they are certified. One suppier, for exampe, engaged in a socia project with an occupationa schoo, which invoved pacing a student in a working environment. The schoo s ega obigation was to provide ony students aged 16 and above, but the schoo did not meet this requirement and the suppier had not doube-checked. In future a students wi have to go through the suppiers standard new empoyee screening program. This issue was resoved within a month, with the fu cooperation of the suppier. In 2007 we phased out some 30 suppiers due to sustainabiity reasons. Our overa approach is one of finding soutions through open and honest discussions with the suppier, but if no satisfactory soution can be found, suppiers can expect that this wi affect the business reationship. Whie some issues took onger to resove than we had anticipated, we gained speed and resoved 13% of the zero-toerance issues identified in 2007 during the course of the year. We wi work to further reduce throughput time in NPR suppier audit resuts Our non-product reated (or non-sector reated) spend incudes about 800 key suppiers managed by seven NPR commodity teams. For each commodity, a risk profie was estabished and suppiers mapped. A tota of 47 risk suppiers was identified and audited in Key risk commodities were identified in the areas of waste disposa and recycing services, food services, temporary abor, business gifts, printed materia and road transport. Ocean transport was aso assessed but was not identified as a key risk. The issues found through these audits differ from Bi of Materia suppiers. Temporary abor for exampe, has been identified as an area of focus. Issues reated to Phiips Sustainabiity Report

9 heath and safety outnumbered abor issues. Nonconformances are being addressed in a corrective action pan. Sustainabe NPR procurement As part of our ongoing efforts to minimize our environmenta impacts, as we as meet our EcoVision4 targets, our commodity teams have a number of projects underway in the areas of marketing and saes and carbon footprint reduction. Marketing and saes: Paper To fufi our quaity and sustainabiity needs, we work with South Africa-based Sappi, the word s argest producer of coated fine paper. The company is active more than 100 countries, manages its own sustainabe forests in South Africa and is committed to initiatives such as the Sustainabe Forestry Initiative and the Program for the Endorsement of Forest Certification Systems. The papers are produced in mis accredited with ISO 9001, and EMAS certification and Sappi is the first paper company in Europe to hod group chain-ofcustody certification for its entire European operations under both the Forest Stewardship Counci (FSC) and the Programme for the Endorsement of Forest Certification (PEFC) schemes. Because paper is usuay sod through merchants and printing companies typicay purchase paper for their cients, we address the entire suppy chain. We have reduced the number of printers we use wordwide to ensure ony Sappi s Magno is used for our printed materias. In addition, we have extended the process of seecting sustainabe suppiers to cover inks and coatings to ensure we use sustainabe materias for a printing requirements. Professiona and personne: Leased cars In 2007 we sharpened our existing green ease car poicy to further decrease emissions. In addition to the standards that were aready in pace on emissions, engines and carbon fiters, we incude the cost of fue into the ease price. This wi raise user s awareness and provide incentive to ease smaer vehices. Trave For many years, of course, our empoyees around the word have been making their trave arrangements onine. We use both paperess tickets and credit card statements. In 2007 we added a new functionaity when empoyees book their trave a pop-up window that suggests video-conferencing as an aternative to raise awareness and encourage peope to consider this option. Or car renta poicy aready stipuated the use of sma vehices. Working with our renta car provider, we added the option of renting a hybrid in Faciity management and energy In 2007, 11 of our industria sites purchased green eectricity, generated from renewabe energy sources. As a resut, CO 2 emissions from industria sites were 3% ower than they woud otherwise have been, reducing our operationa carbon footprint by 1%. We are ooking to extend this program during the course of Forwarding and distribution Our poicy is to use the method of transportation that has the owest CO 2 impact per kiometer, baancing business needs and environmenta impact. This ceary requires mature demand panning. We are aso running a program on freight consoidation/deconsoidation to eiminate empty kiometers by ensuring maximum oads per kiogram on both outbound and return trips. We are promoting e-biing and are working with freight companies that use cean engines. 100 Phiips Sustainabiity Report 2007

10 Industria In Europe we work with carbon neutra suppiers for wood paets used at our manufacturing sites. This incudes a paet poo (renta) program and the suppier aso pants trees to compensate for the resources used to make the paets. During 2008 we wi work to extend this program into other regions. We have a program caed eak seek to prevent inefficient eakage in compressed air systems. Our office suppies program incudes the use of ecoogicay friendy paper for copiers, note pads, etc. Stakehoder engagement Together with the EICC, we have been in contact with severa goba NGOs that focus on abor conditions. We have istened to their comments on the EICC code. As mentioned previousy, to safeguard the eve of standard set by Phiips, we have incuded an appendix eaborating further on empoyees rights reated to freedom of association/coective bargaining in our Suppier Sustainabiity Decaration. We aso have taken comments asking for soid improvement seriousy, and have made an effort to provide a cear view on issues resoution in this report. During the course of 2007, we were asked to share our expertise on suppier sustainabiity in various countries where governments have the stated objective of sustainabe purchasing. Other companies have aso requested that we share information about our suppier sustainabiity program and universities are now aso focusing on this important topic. Our goa is to not ony share our approach, but to isten to these stakehoders and earn from them. We ook forward to further constructive diaogue with a reevant stakehoders in the chain. Recognition Responsibe Suppy Chain Management Award We are proud to have earned the Responsibe Suppy Chain Management Award in the Netherands, ahead of 31 other mutinationa companies, isted on the AEX. According to a survey by the Association of Investors for Sustainabe Deveopment (VBDO), Phiips achieved the highest score and aso made the strongest improvement. The survey aso noted that Phiips provides the most comprehensive reporting on the sustainabe business practices of its suppiers wordwide activities in suppy sustainabiity (BOM and NPR) We wi continue to strengthen our Suppier Sustainabiity Program, further embedding it throughout our suppy management organization. Pans for 2008 incude: Resoving new zero toerance issues identified in our audits within the specified time. This wi be supported by depoyment of reated scoring in the business baanced scorecard within Suppy Management a through the company. Ensuring sustainabe resoutions. This incudes conducting additiona surprise audits for seected topics to monitor whether corrective actions have been propery impemented. Impementing the fu EICC audit checkist of January 1, 2008, adding management systems and ethics. Working with a in the chain to ensure sustainabe demand management. Working with suppiers to improve their energy efficiency and reduce their carbon footprint. Continuing to aign for next steps in the impementation of the EU REACH Reguation (registration, evauation and authorization of chemicas). Phiips Sustainabiity Report