We cannot achieve this alone, therefore it is important that we collaborate and partner with suppliers to make a positive business impact over the long term. We spent £11.5bn with more than 21,000 directly contracted suppliers worldwide.
Our supply chain management starts with our Global Procurement Policy which defines the requirements to be implemented by each of our sectors for the establishment of procurement control and the management of supplierrelated risk. Our Global Procurement Policy requires our sectors to communicate our ‘Supplier Principles – Guidance for Responsible Business’ to our suppliers (see page 70). During the second half of the year, we commenced an annual risk-based assurance activity to test our suppliers’ adoption of these principles and to identify any risk areas that required investigation and/or mitigation. We completed this assurance activity with suppliers representing more than 30% of our global spend.
Additionally, our standard terms and conditions require suppliers to comply with all applicable laws and regulations, including those related to human rights, anti-slavery and the environment.
Supplier due diligence
Risk-based due diligence and audit activity is undertaken for all third parties with whom we engage, whether supplier, adviser, potential joint venture partner, acquisition opportunity or other third party. Where required, this may include establishing the identity of the third party in terms of beneficial ownership and gathering of sufficient information to assess relevant bribery and corruption risks. At the contracting stage, we stipulate our expectation that suppliers embrace our standards on ethical behaviour, including those set out in our Supplier Principles.
Once a supplier has been approved and a contract has been executed we continue to actively manage and monitor that supplier. This includes managing any significant changes in our relationship with the supplier. A global Supply Chain Central Risk Intelligence hub has been established to collect and share new risk intelligence associated with suppliers, as well as category, cyber security, political and ethical information that may affect our business. Weekly global supply chain disruption meetings are held with senior procurement leaders to ensure the latest risk data is appropriately shared. Proactively managing suppliers and sharing appropriate data allows procurement to develop risk-mitigating strategies, helping to reduce the risk of supply chain disruptions.
We conduct supply chain risk assessments and work with suppliers to address any identified key risks to their businesses and supply to our programmes which would include risk associated with the supply of critical materials. Therefore, critical materials are considered as part of a broader corporate approach to monitoring supply chain risk. The challenge of limited or sole source supplies of raw materials remains, due to the nature of some of the products manufactured by the Group, which are often of a unique specification, and frequently supplied at low volumes. To address this, we have a multi-faceted risk management programme that seeks to: aggregate risk across the enterprise using proactive intelligence; manage continuity of supply; and illuminate lower-level supply chain tiers to help us to understand the relationships within our supply chain.
We pay specific attention to single- and sole-source critical goods and services procured through the supply chain, to ensure that the risk is fully understood and adequate contingency and risk mitigation plans are in place and can be enacted if required to manage programme delivery. For example, after identifying a category risk associated with semiconductor chip shortages and increasing semiconductor chip demands, we developed and implemented a risk mitigation plan that has reduced the supply chain risk across our Group programmes.
The external supply chain environment is very dynamic, with both lead-time and availability challenges, but also pricing pressures, including from inflationary increases in labour, energy and other key materials. We continue to monitor these risks. In many cases, the Group benefits from long-term programme positions and incumbencies with more stable forward visibility for long-lead items allowing us to continue to actively manage supplier lead times against demand requirements.
