Supplier Innovation: Partnering in Sustainability


From DCAT Value Chain Insights (VCI)

By Patricia Van Arnum posted 10-20-2015 12:57

  

Supplier-led innovation is an important part of building strategic partnerships. GlaxoSmithKline is among the companies partnering with suppliers to find ways to meet sustainability goals.

The GSK Supplier Exchange is a private online forum, where suppliers are collaborating with each other and GSK to share practical ideas about improving resource and energy efficiency. This is one example of how pharmaceutical companies are partnering with suppliers to improve performance in sustainability and reach overall business and corporate goals.

GSK’s Supplier Exchange
Suppliers play an important role for pharmaceutical companies in meeting their sustainability goals. For example, GSK has set a long-term goal to be carbon-neutral across its value chain by 2050 by reducing operational emissions and engaging with suppliers and consumers to cut emissions associated with sourcing raw materials and using its products. This means not only managing emissions in the value chain, but also looking at more resource-efficient technologies to make its products. In evaluating its carbon footprint, the company estimates that it generated approximately 15 million metric tons of carbon emissions annually, according to the company’s 2014 Responsible Business Supplement. Approximately 40% of its annual carbon dioxide emissions came from raw materials or 5.6 million metric tons annually, and another 46% or 6.4 million metric tons come from product uses, such as propellant-based inhalers, which account for 5.4 million metric tons of carbon emissions annually with other products accounting for the remaining 1.0 million metric tons of emissions. Eleven percent or 1.6 million metric tons of its carbon dioxide emissions come operations. Logistics/transportation account for 2% or 200,000 metric tons of carbon emissions annually, and 1% or 200,000 metric tons of carbon emissions come from disposal method, according to the report.

In 2014, the company collected carbon, water, and waste data from more than 200 of its largest materials suppliers, covering over £1 billion ($1.55 billion) of its spending on raw materials used in manufacturing and R&D. Also in 2014, GSK launched the GSK Supplier Exchange, an online forum in which GSK suppliers collaborate to share practical ideas about improving energy efficiency and reducing water use. Through this online forum, approximately 100 suppliers collaborated to share practical ideas about improving energy efficiency and reducing water use. Suppliers have used this insight to make improvements in their operations. GSK also offered to run workshops for select suppliers at their own sites to help them identify ways of reducing energy use. The company recognizes suppliers’ efforts to reduce their environmental impacts through its GSK Supplier Environmental Sustainability Award. In 2014, packaging supplier Albéa, which supplies GSK with tubes for its toothpaste, won the award for its energy efficiency program.

With respect to water use, in 2014, GSK cut its operational water use by a further 5%, which represented a 20% reduction from its 2010 baseline, which enabled the company to meet its 2015 target to cut operational water use by 20% a year early. Measuring and reducing its wider water impact across the value chain, not just the amount it uses, is more challenging. In 2014, the company completed an assessment to identify the activities that have the highest water impact across its value chain to prioritize its efforts. Over the past two years, the company has been working with external experts and nongovernmental organizations (NGOs) to identify the factors that contribute to its total water impact. These include: water scarcity (the amount of freshwater available in the basin in relation to demand); local water quality (the level of pollution in freshwater sources and the threats to biodiversity as a result, including from the release of pharmaceuticals from its operations; health and social risks (people’s access to clean water and improved sanitation); regulatory and reputational risks (the level of water governance and regulatory risk related to water). The company combined these indicators with water consumption and data from the World Wide Fund for Nature Water Risk Filter and developed a global water impact tool to identify key areas across its value chain.

GSK uses just under 15 million cubic meters of water per year in its operations, which includes research laboratories, manufacturing sites and offices. It audits its sites to identify opportunities to cut water use. In 2014, it audited four of it highest water use sites in India, Italy, and Singapore, three of which are in areas of water scarcity. It cut water use by an average of 10% at each of these sites by, for example, introducing more water-efficient cleaning procedures, identifying and repairing leaks, and investing in efficient equipment. The company has also developed a tool with the Carbon Trust to determine its wider water impact at all of its sites. In 2014, the company began piloting the tool at eight sites globally, including a site in India with a significant water impact. By generating a water impact score, the tool identifies each site’s main impacts and offers guidance to help them put improvement plans in place.

In its supply chain, GSK uses an estimated 1.2 billion cubic meters of water. Raw materials for Horlicks, a nutritional malt milk in the company’s consumer healthcare business, account for 75% of its water impact through carbohydrates (sugars), wood-derived products, and eggs account for 75% of the water impact. GSK has partnered with TERI, an NGO in India, to develop a diagnostic water impact tool. In 2014, the company used this to identify opportunities for its 10 largest suppliers to reduce water impacts. In 2015, the company is working with its suppliers and TERI to extend this process to a further 20 suppliers.

Evaluating supplier performance
For GSK, supplier evaluation on environmental, health and safety (EHS) standards is one part of an overall supplier audit program. The company’s audit teams manage and regularly assess the performance of more than 6,000 suppliers that support the company’s manufacturing supply chain, according to the company’s 2014 Responsible Business Supplement. In 2014, more than 1,400 suppliers were assessed for quality in compliance with GSK’s Quality Management System. The company also audits suppliers on ethical and EHS management systems and performance. In 2014, the company increased the number of EHS audits of its higher-risk supplier facilities from 32 to 43 and created a new team to support more extensive EHS risk-based auditing across its supplier base. This includes six EHS, human rights and labor practices audits, conducted in collaboration with other pharmaceutical companies, as part of the Pharmaceutical Supply Chain Initiative (PSCI).

On completion of every audit, the company works with suppliers to develop an improvement plan to address any areas of concern and check that these plans are implemented satisfactorily in an agreed time frame. If significant gaps are identified, the company may suspend or terminate its work with an existing supplier, or decide not to work with a potential new supplier. In addition to EHS audits, a specialist commercial insurance company conducted seven assessments to review risks to supply. The company is using a company-wide third-party oversight risk management program to build on established standards and systems that had been delivered in a decentralized way, according to the company’s 2014 Responsible Business Supplement. It streamlines the company’s work with third parties and creates a standardized approach to addressing third-party risk across the business.

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