TIM’s Management System - Telecom Italia€¦ · performance . 4 Qualification Sustainable...

Sustainable Procurement TIM’s Management System

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Overview

Sustainable Procurement

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Integrating sustainability with traditional supplier management processes


Guaranteeing the continuity of the Supply Chain and reducing its risks by improving knowledge of the supplier base in terms of social responsibility.

VENDOR RATING INCOMING QUALITY QUALIFICATION

Qualifying low socio-environmental risk

suppliers

Measuring and improving the

sustainability of significant suppliers

Weighing-up the sustainability of

suppliers against their performance

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Qualification


The result of the qualification questionnaire is included in the supplier's profile and the overall results are fed into the KEY RISK INDICATOR statistical system.

The indicator evaluates various features of suppliers, from economical/financial ones to performance, and provides a synthetic risk indicator.

AIM: to qualify only sustainable suppliers and to have an up-to-date social responsibility assessment of all suppliers included in the register and in high risk markets .

Fill-in of a Social Responsibility Questionnaire by all suppliers during qualification.

Annual updating of the CSR assessment of the Register of Suppliers for highest risk markets through the administration of the questionnaire on Social Responsibility.

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Incoming quality


The results of the assessment will be included in the supplier's profile and may be used to select suppliers when awarding tenders and contracts.

Aim: to measure and improve the sustainability of significant suppliers.

Identification of "significant" suppliers and application of the most suitable assessment and improvement tool: • Third party audits • Internal audits

Application of the supplier classification method based on splitting the Procurement Market into Risk Categories and on the percentage of orders placed with the supplier in the Markets.

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Vendor rating


The results of the audits and checks made during the incoming quality stages will be considered, with the appropriate weighting, in calculating the Technical Index.

Aim: assessment of Social Responsibility aspects in Vendor Rating for the highest risk markets.

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Qualification:

The sustainability questionnaire


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Qualification • Following a pilot survey held in 2011, through a questionnaire to a significant sample of

suppliers, the questionnaire has been sistematically asked to all suppliers who ask for admission in our Register in markets which are considered to be are at high sustainability risk.

• Those markets has been defined after having classified all purchasing markets, through an assignment of level of social and environmental risk based on four components: geographical risk, social risk, environmental risk and reputational risk, Methodology is described in the following slides. The two classes of risk are: A=high, B=low.

• The questionnaire is asked to all suppliers who ask for admission in our Register in markets which are classifies as class A.


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Qualification


General feature of Survey

The questionnaire is made of 28 questions and it aims at evaluating the supplier’s sustainability, exploring the organization and conduct in four main areas: management system, social, environmental and supply chain management. • Management System: it evaluates the implementation of the management

system • Social: it evaluates aspects relative to ethics, H&S • Environmental: it evaluates aspects relative to management of environmental

impact • Supply Chain Management: it evaluates aspects of sustainability management

adopted by the supplier on its own supply chain. Each area is made of mainly binary questions (Yes, Not, not applicable) with weights which vary according to the relevance of the issue. The result of each area is based on on the average weight of the answers; the overall result is based on the average of the results of each area.

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Qualification


General feature of Survey

• Based on its answer, the supplier is classified as:

• score >= 90% Classe A (Excellent) • score < 90% e >= 60% Classe B (Good) • score < 60% e >= 40% Classe C (Acceptable) • score < 40% e >= 20% Classe D (Weak)

• score < 20% Classe E (Inadequate) • Questionnaire was administered through an automatic IT system, which handles

the qualification procedure, for all new suppliers. • A score below 40% does not allow to be qualified as TIM supplier.

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Incoming quality:

Analysis of the socio-environmental risks of procurement markets


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Incoming quality


Stages of analysis of ESG risks for procurement markets

• Identifying risks and establishing the appropriate metrics

• Defining significant risk thresholds for critical markets

• Assessing the risk of each procurement market

• Identifying the most risky procurement markets

• Identifying the most risky suppliers

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Incoming quality



Risks identification

Geographical Risk Social Risk - Company staff

Production sites in risky geographical areas Existence of/compliance with national labour laws. Compliance with international labour regulations and conventions

Suppliers/sub-suppliers located in risky geographical areas

Implementation of a Safety in the Workplace management system

Respect for/promotion of diversity, equal opportunities and inclusion Reputation Risk

Governance Opportunities for staff development, remuneration, retention

Corruption

Environmental Risk

Competitive practices Implementation of an Environmental Management System

Impacts on the TIM brand Use of natural resources

Social Risk - Community Energy consumption

Impacts on the community Emissions into air/water/soil; Waste management

Complaints/reports Respect for protected areas and biodiversity

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Incoming quality



Numerical risk value

Risk of procurement macro-categories*

Type of goods or service purchased in the analysed market

Environmental risk

Social risk Reputation risk

TLC equipment 3 2 1

HW 3 2 1

Network materials 2 2 2

Performance (MO only) 1 3 2

Performance (MAT + MO)

2 3 2

SW 1 3 2

Environmental services (Waste, ...)

3 2 3

User terminals (CPE, cordless, corded, mobile, pc, ...)

3 2 3

Energy/gas 2 0 1

Leases 0 0 0

Services 0 0 0

Other Materials 3 2 2

Risk = 0 Nil

Risk = 1 Minimum

Risk = 2 Medium

Risk = 3 Maximum

Geographical Risk

AFRICA 3

Central America 3

North America 0

South America 2

ASIA (excl. JAPAN) 3

Eastern Europe 2

Western Europe 0

Japan 0

ITALY 0

Middle East 3

Oceania 0

Others 3

* The 12 procurement macro-categories include 190 procurement markets

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Incoming quality


Defining significant risk thresholds and critical markets

The criticality of procurement markets is defined according to the expenditure by TIM (SP): a market is critical if the percentage of expenditure by TIM in that market is greater than the average percentage of expenditure in all procurement markets. A procurement market is considered "socio-environmentally risky" if the average of its socio-environmental scores (RSA) is greater than the average of all the socio-environmental scores of all the markets. The following classification is therefore obtained: • Class AA: Higher than average RSA and SP • Class AB: RSA higher than average and SP lower • Class BA: RSA lower than average and SP higher • Class BB: RSA and SP lower than average A class has been assigned to each of the Procurement Markets.

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Incoming quality



Results of the purchasing sectors risk analysis

PROCUREMENT MARKETS’ CLASSIFICATION 2017

CLASS QUANTITY % QUANTITY

AA 20 11

AB 97 51

BA 17 9

BB 56 29

190

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Incoming quality


Further analysis of procurement class AA

In order to handle the large amount of data, a decision was taken initially to consider suppliers who, within each procurement class classified as AA, had a percentage of expenditure (SP) in the relevant market of more than 5%. This allowed the 661 suppliers in class AA to be reduced to 51 suppliers.

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Incoming quality


Socio-environmental audits

The following activities were carried out within this group of 51 identified suppliers: • 56 third party Socio-Environmental Audits as part of the Joint Audit Committee's

programme • 12 socio-environmental audits by the Health, Safety & Environment (HSE) function. Furthermore, the following were also carried out: • 28 socio-environmental audits by HSE in other network companies and

maintenance services • 102 third party Socio-Environmental Audits as part of the Joint Audit Committee's

programme.

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Vendor rating:

The weighting of sustainability


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The weighting of sustainability

Vendor rating


Sustainability in the vendor rating

Currently, the vendor rating is applied according to markets at higher risk and spending volume. The vendor rating is the result of applying an algorithm that includes various kinds of indicators: for some sectors, the indicators include sustainability indicators. For some sectors at risk checks on health&safety, compliance with labour and environment legislation checks on environmental and social requirements. Checks are regulated in the contracts.

The vendor rating has an effect on penalties (an insufficient vendor rating results in penalties defined by contract), changes in quantity of volumes, impact on qualification ‘status’.

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Key risk indicator


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Key risk indicator


TIM’s KEY RISK INDICATOR is a tool which provides an exhaustive picture of risk factors of suppliers during purchasing processes, with a view to the markets in which they operate, through the use of KPIs, keeping in mind both the supplier’s features and its relation with TIM.

Risks which have a strong strategic impact and which must be watched in order to avoid problems with the normal running of business (e.g. fragile organization, limited customer portfolio, problems with ownership and governance).

Risks linked to the normal running of business of suppliers, which must be watched in order to avoid problems during delivery processes (e. g. productive capacity, contract breaches, personnel safety, accuracy of supply, legal pendings).

Risks linked to economic and financial parameters, which must be watched in order to reduce the chance of losing suppliers (e.g. solvency, economic strength, debt, redditivity).

Risk factors

Strategic

Operative

Economic-financial

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Key risk indicator


For each supplier, SQM (System Quality Management – the company’s system for qualifyong suppliers) contains the following macro-indicators:

• Basic KRI an indicator which can be used for comparing TIM’s current and potential suppliers. It assesses only one part of the KRI’s indicators since it is based mainly on data available on databanks (e.g. legal entity, annual relation, detrimental events/bankruptacy, certifications, etc)

• Integrated KRI an indicator which relates all the KPIs contained in the Basic macro-indicator to those coming from the information owned by TIM (e.g. Qualification, Vendor Rating, Quality of purchases, Spent, Dipendence, Credit swaps, Penalties, etc).

• Supplier/Market KRI: the risk of the single supplier is related to the risk of the markets in which it operates (at both levels, Basic and Integrated).

The most important indicator is the Integrated KRI (when available). For each indicator, there is a “Confidence Level” which shows its reliability on the basis of the data which have been considered.

KRI’s Macro-indicators

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Key risk indicator

Risk and assessment table

Result of supplier risk Risk segment Assessment segment Explanation

from 90 to 100 very low very reliable The company has an excellent financial, operative and strategic equilibrium. Default risk is very low.

from 80 to 89,99 low reliable The company has a good financial, operative and strategic equilibrium. Default risk is low.

from 70 to 79,99

moderate good The financial, operative and strategic equilibrium is adequate. The survival of the firm can be jeopardized by serious economical or organizational events. Default risk is average

from 60 to 69,99 average adequate The firm has some financial or operative or strategic problems (each indicator must be serously evaluated) . Default risk is slightly higher than average.

from 40 to 59,99: high low The firm has real financial or operative or strategic problems. Other suppliers must be evaluated when doing new purchasing orders- Default risk is higher than average

from 30 to 39,99: very high insufficient The firm has serious financial or operative or strategic problems. Other suppliers must be used when doing new purchasing orders- Default risk is quite high

from 0 to 29,99 extremely high default The firm has extremely high financial or operative or strategic problems. Default risk is very high and solvency is almost null. The firm must not be used as a supplier


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