How we manage our supplier chain
We spend approximately €24 billion a year with more than 10,500 direct suppliers around the world to meet our businesses’ and customers’ needs. We are working to ensure integrity in our supply chains by managing risk through robust systems, industry collaboration and building supplier capability.
Our businesses rely on complex and multi-layer global supply chains. For example, our direct suppliers often have many suppliers of their own who in turn rely on a large number of suppliers, and this dependency continues through several tiers. Intermediaries such as distributors and wholesalers are also involved at various points in our chains.
We work to ensure integrity in our supply chains by managing many different legal, social, ethical and environmental risks. We also encourage those who work with us, directly or indirectly, to adopt sustainable business practices.
a year with more than 10,500 direct suppliers around
A typical electronics supply chain for Vodafone
Our direct suppliers have a very large number of their own suppliers, each of which can have their own complex supply chain. This diagram gives a simplified example of a multi-tiered electronics supply chain.
Suppliers help to provide us with network infrastructure and related services and account for most of our external procurement spending. These are purchased from a small number of large suppliers with the investment, capability and scale required to invent, build, install and maintain network infrastructure equipment for us and our industry. The products we sell to customers (for example, devices such as phones, tablets, broadband routers and set-top boxes) account for the next most significant proportion of our external procurement spend. As a large multinational, we are also a significant purchaser of goods and services to support our general business and administrative functions such as marketing, travel, professional advisory services and catering.
Typical electronics supply chain flow chart
Tier 1: direct suppliers
Vodafone buys products and services from approximately 10,500 suppliers. The majority of our spend is with large multinational companies supplying finished products. We have a direct contractual relationship and work closely with our Tier 1 suppliers to develop innovative new products and services, engage their leadership and assess how they assure compliance across their operations.
Tier 2: such as electronics manufacturers and sub-assemblers
Vodafone buys products and services from approximately 10,500 suppliers. The Electronics manufacturers and suppliers of electronic equipment have many suppliers of their own. We work with our Tier 1 suppliers to gain insights into their suppliers – Tier 2 companies – particularly where we believe a supplier is high risk.
Tier 3: such as component suppliers
Components are sourced from a significant number of suppliers to form parts of the products being manufactured.
Tier 4 +
These products are made from materials sourced from many different commodity and raw material suppliers who can be found many layers further down the supply chain.
Levels of influence
The Vodafone Procurement Company (VPC) lead purchasing and supplier management. The VPC manages most of our spending with suppliers worldwide and supports the needs of our operating companies and group functions. This approach is designed to ensure objective and consistent supplier management across Vodafone’s businesses and makes it easier to monitor and improve supplier performance.
We also have relationships with local suppliers that work on behalf of our local country businesses, particularly those involved in service-related procurement, such as merchandising or field operations. Our support for these local businesses has a positive impact on communities, providing employment in our local operating countries.
Monitoring our suppliers’ compliance with our rules can be challenging because of the complexity of our supply chain with many businesses in different locations at different tiers or levels within our supply chain. Therefore, the level of influence we can exert over businesses in our supply chain varies significantly. We usually have the greatest level of influence over our Tier 1 suppliers, where we have direct contractual agreements. Many of these are substantial brands and businesses in their own right, with proven processes in place to ensure high standards and sustainable business practices. Where suppliers are dominant in the marketplace with a particular product or service, or where Vodafone is not a significant purchaser, we have less influence.
Our Code of Ethical Purchasing requires all our Tier 1 suppliers to ensure that their suppliers also have equivalent policies, processes and verification systems in place to manage risks and ensure compliance in their own supply chains. We collaborate with some of our Tier 1 suppliers to monitor their supplier bases directly and help them to improve standards. We also work with our peers and suppliers to share best practice and to strengthen compliance at the top tier of our supply chain.We also have influence over the infrastructure suppliers who supply, install and maintain our networks, as well as over suppliers that provide branded products and services. We have less influence over Tier 2 and other sub-suppliers operating further down our supply chains where the risks of non-compliance are higher. We work with our direct suppliers to monitor and manage the risks at this level.
Supply chain risks
Some of the most material risks in the information and communications technology supply chains include injury to people working in field operations, the harmful effects of working long hours in electronics factories, corruption and human rights abuses in the mining of cobalt or other metals and minerals and the impact of carbon emissions on our planet.
Safety is a critical priority throughout our supply chain, and in particular during the installation, management and maintenance of our mobile and fixed-line networks. There are grave risks for our employees and suppliers when carrying out this work, including those related to driving, working at height or dealing with high-voltage equipment.
We have developed robust systems to seek to ensure that our suppliers meet our mandatory ethical, labour and environmental standards. We expect all our suppliers to follow our Code of Ethical Purchasing and uphold the principles in our Code of Conduct. We expect our suppliers to be accountable for managing risk in their operations and to understand that we expect them to hold their own suppliers accountable to the same high standards.
When choosing a new supplier or continuing to work with a current supplier, we assess the supplier’s compliance with our rules on health, safety and responsible behaviour, just as we assess commercial factors such as quality, cost and their ability to deliver on time.
Qualifying as a Vodafone supplier
To become a Vodafone supplier, a business must confirm that it understands, accepts and commits to comply with the standards and requirements set out in our Supplier Policies, which include our Code of Ethical Purchasing Policy and Health, Safety & Wellbeing Policy. This confirmation forms part of the standard terms and conditions included in all of our supplier contracts. These terms and conditions are non-negotiable.
We conduct pre-qualification due diligence on all new suppliers to ensure they meet our requirements. Our risk specialists assess suppliers for approval where there is a high risk to meeting our requirements. These specialists are typically policy owners of the risk in the business and operate completely separately from other Vodafone employees who may be involved in the commercial aspects of our relationship with a specific high-risk supplier. This separation ensures that the outcome of the due diligence process we implement remains as objective as possible.
Ensuring suppliers match our standards
Vodafone Code of Conduct & Ethical Purchasing
Contractural commitment to Code of Ethical Purchasing
Contractural commitment to Code of Ethical Purchasing
Based on country, industry and type of activity
Screening for reputational issues
Direct worker feedback
Improvements and capability building
Events and forums
Sharing best practices
Offer further work
Using blockchain verification
Vodafone has continued to promote Trust Your Supplier (TYS). This is a cross-industry initiative that utilises blockchain and external verifiers to evaluate assess and evaluate supplier compliance against a number of risk areas, thereby increasing the accuracy of vetting compliance for our supply base and also reducing the significant time and cost burden on small and medium suppliers having to repeat the process for different customers in only having to be vetted on a single solution. We have a target to onboard over 50% of suppliers by total spend onto the TYS solution by the end of FY22. We currently have 7% of suppliers by total spend on-boarded, with a further 25% already having confirmed they will on-board over the next year.
We expect our suppliers to continuously monitor their compliance with the standards set out in our Code of Ethical Purchasing. Any failures must be immediately addressed. We also require them to report serious breaches to Vodafone immediately so we may ensure that they take corrective action.
The Vodafone approach to monitoring compliance with the Code of Ethical Purchasing is determined by the nature of the risks and the kind of activity involved. High-risk suppliers, including those operating in industries, sectors or countries with a history of poor standards, are required to undergo a detailed evaluation process. Other suppliers who work in lower-risk areas may be required to complete self-assessment questionnaires.
Through our Supplier Performance Management Programme, Vodafone monitors our key suppliers’ health and safety and sustainable business performance standards, as well as their commercial, product and service performance. We define key suppliers in terms of the nature of their contribution to our business and the significance of our expenditure with them.
We require suppliers to complete an ethical, labour and environmental risk questionnaire – and provide evidence to validate their responses. Suppliers can use the questionnaire to highlight ways in which they have shared best practice in their own business or their supply chains.
This year we evaluated 35 key suppliers through this approach. Our supply chain team then validates and uses the information provided to assign each supplier an overall sustainability score and grade. These scores are also used to grant two Vodafone Supplier Awards, one for health and safety and the other for sustainability.
We regularly undertake intensive on-site supplier audits, which include an examination of written policies and procedures, site inspections and discussions with managers and employees. These provide us with a detailed insight into how suppliers’ policies translate into action.
Vodafone is one of 17 telecoms operators who belong to the Joint Audit Cooperation (JAC) initiative where we share our on-site assessments, given that our industry peers share the same suppliers and supply chain risks. Through the JAC process, each supplier undergoes a single audit. The results of these audits are shared between JAC members, and one member leads any required follow-up with the supplier.
Between January and December 2020, there were 76 JAC audits, of which over 80% were within Vodafone’s supply chain. Of the audits in Vodafone’s supply chain, 37% were Tier 1 direct suppliers, 46% were Tier 2 suppliers, and 17% were Tier 3 suppliers.
Direct employee feedback
While the assessment of working hours and working conditions of our suppliers is important, it can be difficult because supervisors and managers may attempt to falsify timesheets and other workplace records. This year we continued to obtain direct feedback from our suppliers’ employees in order to identify modern-day slavery risks and identify areas for improvement.
We use an independent third-party company to gather confidential and unbiased feedback directly from our suppliers’ employees. Anonymous worker surveys using a simple mobile phone-based worker survey enable employees to reply anonymously to pre-recorded questions in their local language at any time and from any location. We require participating suppliers to allow their employees to respond to questions freely and privately. The responses provide us with important insights into our suppliers’ employees’ working hours and conditions so we can work with suppliers to put in place appropriate remedial measures if required.
During 2020, our approach to using worker surveys was adopted by JAC member companies. This year JAC members collectively surveyed common factories employing over 22,000 workers across 13 factories in Asia.
Number of assessments conducted:
Improving performance and building capability
Engaging directly with suppliers through follow-up discussions and briefings using our monitoring processes is one of the most effective ways of improving performance in our supply chain. If there is evidence of non-compliance through Joint Audit Cooperation (JAC) audits, our own on-site assessments or worker surveys, we work with suppliers to develop corrective actions, to improve their policies and/or strengthen the processes they use to manage key risks.
This year, most of the recommendations made following Vodafone or JAC audits related to health and safety, excessive working hours and business ethics. Regarding health and safety, there was an increase in those related to fire evacuation signage, evacuation lighting and fire exits. There was also an increase in environmental recommendations, mainly regarding unsatisfactory management systems or emissions monitoring. We work directly and through the JAC governance process to ensure all recommendations are implemented.
Health and safety
Emergency preparedness (e.g. missing building safety plans or missing equipment).
Lack of safety management policies and processes.
Inadequate safeguards to prevent exposure to hazardous substances.
Poor resource planning and forecasting, which leads to excessive working hours by supplier employees.
Lack of effective ethics policies.
Lack of ethics requirements towards their suppliers.
Lack of whistle-blowing mechanism.
Lack of environmental performance targets.
Missing environmental permits to conduct certain activities.
Poor control on disposal of hazardous substances.
Improper or unclear overtime payments.
Failure to comply with minimum wage requirements.
Failure to keep accurate records on social insurance payments.
Inadequate policies to ensure equality.
Instances of young workers 16–18, found to be doing dangerous or night work.
Inadequate records kept on verifying worker age.
Freedom of association
Workers denied the opportunity to join representative bodies.
Worker representatives not elected freely.
Excessive use of agency or temporary labour.
Employees not receiving copies of their employment contract.
Wage deductions used as a disciplinary measure.
Vodafone will terminate a contract if any supplier persistently fails to resolve compliance failures or if issues of gross misbehaviour occur.