UC RUSAL Sustainability report 2015


Supply chain

Supply Chain G4-12

Work with Suppliers

The goal of UC RUSAL lies in creating long-term relationship in which all parties seek to meet to the greatest extent the needs and expectations of each other and share the same principles for the benefit of safe and happy future. The adoption of the Business Partner Code within the Year of Quality is a significant event that marked the long-term experience of the Company on the implementation of the approaches for sustainable development and stakeholder engagement.

Being the largest Russian aluminium company, UC RUSAL works with a great number of suppliers of electric energy, raw materials, equipment, technology, and services. The Company is open to long-term cooperation with suppliers that share the Company’s commitment to high standards of business ethics, quality, and production efficiency, stipulated in the Business Partner Code.

Purchase of raw materials for production of primary products

The production feature of UC RUSAL is that the quality of manufactured products depends on the suppliers. As such, the purchasing of raw materials and base materials for production of the key products is a critical factor.

All supplied products must meet the requirements of regulatory documents and contracts as well as the principles of continuous improvement in the area of quality management. As part of the QMS a new system of work with suppliers has been created.

In 2015 the Company worked with 75 suppliers of raw and base materials, the major part of which (more than 78%) were Russian and Chinese companies. The total amount of the purchases by the Company equalled USD 749,9 million.

Purchasing structure, % of the total amount of raw materials and base materials purchasing for the production of primary products

 

The procedures applicable to suppliers cover the full cycle of interaction from informing the new and potential organizations to assessing the outcome of cooperation with such organizations, creating a long term relationship with the suppliers.

 

The system of UC RUSAL’s requirements to suppliers of raw materials and base materials for the production of the key products and the procedures is established in the following documents:

·         the Uniform UC RUSAL Requirements for Suppliers;

·         Raw Materials Procurement Regulations;

·         Regulations for Supplier Certification;

·         Procedure for Supplier Audits;

·         Regulations for Supplier Accreditation;

·         Methods of Supplier Rating;

·         Methods of Accounting the Raw Materials with Deviations from Regulatory Requirements (in the process of revision).

The requirements in the area of Occupational Health and Industrial Safety are recorded in the following documents:

·         Regulations on Managing the Contractors in the Area of Occupational Health, Industrial, Fire and Ecological Safety;

·         Regulations "Supplier Accreditation System".

Informing process and access to purchasing system

To ensure stability of production processes, the Company is constantly searching for the best and most of suitable offers available on the market, consistently monitoring the emergence of new products and services. The Company adheres to an open information policy on procurement, thus providing equal access to potential suppliers to information and orders.

The main source of information is the "Suppliers" portal, which is visited daily by about 3,000 organizations. Here, UC RUSAL makes annual publications of its Sales Plan. An electronic trading platform has been created to increase the transparency of the tender procedures. The Company also continues to co-operate with the electronic trading platform "Fabrikant" which publishes the information on the ongoing trades.

UC RUSAL participates in the work of permanent platforms which provide an opportunity to interact with suppliers on a regular basis. For example, one of these platforms is the "Market Council", a non-profit partnership, whose goal is to unite participants of the energy market with large electricity consumers.

The monitoring of the procurement procedures transparency is carried out in the framework of online "Hot Line" monitoring and "Suppliers" portal on the corporate website.

Supplier certification

The certification of suppliers of raw and base materials for production of key products includes the following stages of testing: laboratory tests, pilot testing and industrial tests. The Certification procedure is conducted with the aim of proving the conformity of the material’s quality with the production technology requirements and the possibility of their use at the enterprises of the Company.

 

Stages of Certification

Audits

Audits of new suppliers are conducted at the stage preceding the decision of co-operation. Audits of existing suppliers are also conducted to ensure the delivery of the purchased products in conformity with the requirements of production. During the auditing, the following tasks are tackled:

·         assessment of production capacities, risk assessment (in terms of applied technology, quality, dates and volumes of delivery);

·         confirmation of the supplier’s ability to deliver products with parameters corresponding to the Company's requirements;

·         reduction of risks to deliver defective products;

·         raising the reliability of suppliers;

·         creation of a competitive environment in evaluating and selecting suppliers;

·         supplier development.

Audits are held by a multifunctional team: representatives of the Technical Directorate, the Department of Quality Assurance, the Commercial Directorate (the Business Assurance Directorate, the Aluminium Division), of the aluminium smelters and others.

Standardization of the auditing process involves using a Supplier Audit Checklist which contains more than 60 questions on the following areas:

·         raw and base materials management;

·         production organization;

·         production technology;

·         finished products management;

·         quality management system;

·         personnel: qualification and training, shifting;

Based on the audited results, suppliers are given a score, which serves as the basis for its approval of further co-operation, and it is taken into consideration when choosing a supplier for purchases.

Score ranges

Green

70 and more

Further cooperation is recommended.

Yellow

55 - 69

Revision of the scope of supplies to the downside, reevaluation after the implementation of corrective actions.

Red

< 55

Finding alternative suppliers for purchase volumes.

 

If the supplier does not wholly meet the requirements of UC RUSAL (50%–70%), then the Company provides support to the development of such suppliers.

Based on the audited results, the Company provides a list of nonconformities and corrective actions. The audited results have a stimulating effect on the development of suppliers: the Company assists in addressing the identified deficiencies and optimization of the processes, which helps them in passing certification of their management systems whilst opening new perspectives. Partners can also be invited to participate in the Project for supplier development within the business system of RUSAL. After performing the corrective actions by the supplier, a re-audit may be conducted and if the risks are eliminated its score gets changed.

In 2015 a total of 35 audits of suppliers were performed.

Supplier development within the Business System

One of the Company’s priorities within the Business System is the development and training of suppliers. The Project “Center of Supplier Development” is intended to:

·         find a complex solution to the problem of low quality supplies to the enterprises of RUSAL;

·         improve the corporate certification system;

·         increase reliability of suppliers.

The Center of Supplier Development helps to introduce advanced tools and methods of production using the technology and raw material together with the Company. Within the framework of this project the Company renders assistance to implement the principles and tools of the Toyota Production System (TPS), including specialists training directly at the enterprises of supplying companies.

Joint projects are formed with the key suppliers of raw and base materials for production of main products (coke, pitch, aluminium fluoride and alloys) in order to increase the general performance efficiency, reduce costs without affecting the end quality of the products, and reduce terms of works execution, etc.

In total, 22 employees working at the suppliers’ enterprises were trained in 2015 and five joint projects for the development of the key suppliers were implemented.

One of the areas of work is to improve the efficiency of transport services and the handling of products. As part of the project for logistics, the optimization of the supply chain is analyzed from the moment of purchase of the raw materials up to delivering it to customers.

Russian and foreign ports are being audited for such aspects as preservation of the quality of products, reduction of finished products stocks in ports and reduction of the turn-around time of metal from the factory to exportation from the Russian port, thus optimization of the supply chain). Various researches cover conditions of storage of products and the ways to handle them during storing and loading, as well as all economic indicators characterizing these processes.

In 2015 there were analyzed supply chains of products to the largest customers. Three ports passed the auditing procedures.

Supplier rating

Rating evaluation of suppliers is carried out as part of the QMS and it is an assessment of operation of the existing partners for co-operation with UC RUSAL. The evaluation is made according to the designed methodology using a 100 score system and is based on application of six basic criteria:

·         quality of delivered products;

·         compliance with the agreed delivery dates;

·         compliances with the agreed delivery volumes;

·         availability of the certified quality management system;

·         absence of consumers’ claims which appear through the fault of suppliers.

According to the number of scores each organization is assigned a category which must be taken into account when selecting suppliers for procurement. All partners are sent a letter explaining the results.

 

Score

Category

Recommended actions

85-100

Excellent

Possible continuation of co-operation; the supplier is considered as one of the high-priority suppliers when placing new orders

50-84

Satisfactory

Possible opening of a project for supplier development.

Supplier audit

30-49

Relatively satisfactory

Possible co-operation in the absence of alternatives on the market

Up to 30

Not satisfactory

Co-operation with the supplier is not allowed

 

Requirements to suppliers in terms of occupational health and industrial safety G4-LA14

Occupational health and industrial safety represent a specific area of co-operation with suppliers. The presence of any risks in this sphere at the supplying enterprises of the Company is considered one of the essential factors affecting the success of co-operation.

The requirements related to the compliance with the standards of occupational health and safety are established in contracts for services. They are similar to the requirements set to the own enterprises and employees of UC RUSAL. In case of violation by contracting organizations of their contract conditions, they will be subject to penalties or even termination of their respective contracts.

The evaluation of contractors is made according to the following criteria: qualification, availability of personal protective equipment and skills of safe work performance.

The Company investigates all incidents: the recording of injuries among employees of contractors is carried out on the basis of the requirements of the Uniform Occupational Health, Industrial and Fire Safety Reporting Regulations.

The Occupational Health, Industrial and Fire Safety services of UC RUSAL render assistance to suppliers in order to improve their compliance with the requirements of the Company on the following issues:

·         training employers and employees in occupational health, industrial, fire safety and in first aid;

·         performing periodic and preliminary medical examinations;

·         in-process monitoring of working conditions;

·         special assessment of working conditions;

·         performing repair and construction works (to monitor compliance with OHIFS requirements);

·         transport;

·         developing the internal regulatory documents on fire safety;

·         performing expert appraisals of industrial safety;

·         supplying personal protection equipment and work clothes as well as their cleaning and repair;

In 2015, in all enterprises of the Company a total of 22 incidents (injuries) involving the employees of contracting organizations was recorded, including one case resulting in death (in 2014 these figures were equal to 16 and 3 respectively).

The increased control of safe performance of works by contracting organizations is one of the areas of the corporate Plan for Injuries Reduction for 2016-2017. For this purpose, the Company has adopted a decree "On strengthening control over the work of contractors in the field of occupational health and safety" under which scheduled inspections of contractors are conducted for compliance with labor protection requirements.

Plans for 2016

Within the QMS and the Business System:

·         audits of 91 suppliers.

·         rating assessment of all suppliers of raw materials for production of the key products.

·         continuation of the projects on supplier development (4 companies);

·         audits of 15 ports and 2 railway stations;

·         benchmarking on all types of products (aluminium and alloys).

Consumer relations

UC RUSAL mainly produces semi-finished products from which customers produce end-use products. Basic consumers of UC RUSAL are the companies from Russian Europe, Asia and America. The largest end customers include Glencore, Toyota, Mechem SA, LG International, ALCOA SMZ, Enkei, Novelis, Hydro, Constellium and others.

Approach

The Company tends to maximize customer satisfaction and reduce the number of claims, applying different tools and techniques.

The team including employees of a number of directorates of UC RUSAL visit the customers’ factories to be aware of their needs and capabilities, characteristics of their industries and areas of development. The customers, in their turn, also come with audits to the factories of RUSAL, assess manufacturing processes and make recommendations. The key customers are involved in joint trials.

International conferences and exhibitions, which bring together buyers of metal products, machinery manufacturers and suppliers of various materials, are also considered as useful platforms for sharing one’s knowledge.

Main areas of activity in 2015

The main objectives in 2015 in the area of interaction with consumers were the reduction of the production cycle of finished products and their delivery to consumers. Within the QMS and the Business System, UC RUSAL works continually in this area, which in 2015 involved the following:

·         implementation of the system of comparing the products of UC RUSAL enterprises with the best products of foreign companies and based on the analysis results the targets have been determined;

·         analysis of the claims related to the quality in cooperation with specialists of UC RUSAL.

During the reporting period the Company obtained 283 claims related to the quality of finished products which is by 8% higher than in 2014.

Consumer satisfaction survey

The main indicator of the quality of the Company's interaction with customers is the level of consumers’ satisfaction with the production. The survey is carried out on an annual basis since 2010. Clients are sent questionnaires that contain 57 questions covering six areas of interaction. The survey results help to see opportunities for improvements and influence the development of future action plans.

221 clients were questioned in 2015 (vs. 218 clients – in 2014). The share of clients who responded to the questionnaire was 85% (vs. 79% in 2014). The outcomes of survey has demonstrated an increase in satisfaction as compared to the previous two years, and a positive trend was observed for each of the areas of interaction.

Overall level of UC RUSAL client satisfaction in 2013-2015, by area of assessment

 

2013

2014

2015

Total

8.1

8.0

8.4

Relationship

8.3

8.2

8.7

Technical support

7.4

7.4

7.9

Product quality

8.1

8.2

8.5

Commercial agreements

8.1

8.1

8.6

Delivery performance

7.9

7.9

8.3

Business partnership

8.1

8.0

8.5

Note: maximal value in each area is 10 points.

The overall level of client satisfaction with the Company’s work has risen from 86% in 2014 up to 90% in 2015 and the number of not satisfied clients has decreased by 1%. An upward trend is observed in all key markets of the Company’s presence – CIS, Asia and Europe. According to customers, UC RUSAL retains advantages over competitors. At the same time the issues have appeared to require special attention; among them are efficiency of supplies and quality of certain types of products in certain plants. Recommendations were also made to enhance co-operation within the framework of technical support.

Plans for 2016:

·         Continuation of the practice of co-operating with customers in the form of visiting production sites: visiting the customers enterprises by UC RUSAL specialists, as well as visiting UC RUSAL enterprises by customers’ representatives;

·         Development of a focus program involving improvements for a certain consumers (one enterprise – one focus program);

·         Organization of the direct Company-Consumer contacting on the problems of technology and quality;

·         Re-designing the claim investigation process, changes in KPIs based on the claims, introduction of an escalation scheme for problems related to the claims.