UC RUSAL Sustainability report 2016


Supply chain

Supply chain

Supply chain structure

As one of the world's largest producers of aluminium, UC RUSAL works with a large number of suppliers of electricity and fuel products, raw materials and supplies, equipment and technology, as well as services, including contractors directly operating at Company's production facilities. G4-12

UC RUSAL suppliers include the largest Russian companies (RusHydro, Russian Railways, Vnesheconombank, EuroSibEnergo, etc.). Most of them publish regular sustainable development reports or have a formal position in key governance aspects.

In turn, UC RUSAL acts as supplier to companies working in such industries as engineering, metallurgy, chemical, transport, construction, electrical, food, packaging, etc. (please see the About the Company section).

The Company also interacts with organisations that provide intermediary services (distributors and wholesalers, commodity exchanges and electronic trading platforms).

New companies appear every year that become suppliers for UC RUSAL. In 2016, for example, the Company began working with a sea port in the Troitsa Bay (the Primorsky Territory).

System of relations with suppliers

The Company is open to cooperation on a long-term basis with organisations that share its commitment to high standards of business ethics, quality and production effectiveness as set out in the Business Partner Code.

The objective of the Company is to build a long-term relationship that allows all parties to meet each other's needs and expectations the highest possible extent, and to combine efforts to achieve sustainable development goals. The Business Partner Code adopted by UC RUSAL in 2016 contains principles of interaction with related parties that the Company intends to extend to the supply chain.

Implementation of the Business Partner Code HKEx Appendix 27 KPI B5

All partners with whom the Company has direct contracts have been sent a proposal to sign a Declaration of Accession to the Code on a voluntary basis. The content of the Code and the purpose of its signing were explained in direct communication with partners as well as during the audits of the suppliers. The producers of raw materials have raised the issue of the need to develop a similar document for their suppliers (Tier 2), which is seen by the Company as a positive signal showing that the principles set out in the Code can be proliferated along the supply chain. HKEx Appendix 27 KPI В5.2

Compliance with the principles of the Business Partner Code is verified during the review of the Supplier Questionnaire (completed by the partner prior to the supplier audit), as well as by observation during supplier audit.

Purchase of raw materials and supplies for the production of the main products

The specificity of UC RUSAL production entails that the quality of 80% of the final products depends on the suppliers. Therefore, the quality and timing of the supply of raw materials and supplies for the production of the main products are critical factors. All delivered products must comply with the requirements of the contracts and the regulatory documents. HKEx Appendix 27 KPI В6.4

In 2016, the Commercial Directorate of the Business Support Directorate (hereinafter the BSD) worked with 117 producers of raw materials and suppliers, the majority of which (95) were Russian and Chinese. Total purchases amounted to USD 650 mln.HKEx Appendix 27 KPI В5.1 (part)

In the procurement of raw materials satisfying the requirements of UC RUSAL, the Company prefers suppliers from Russia and the CIS, building relationships based on long-term contracts. If there is in sufficient supply, additional quantities are purchased abroad.

Procurement structure, % of total acquisition of raw materials and supplies for the production of the main products

 

 

Supplier procedures cover a full cycle of communication, from informing new and potential organisations to assessing the results of collaboration with long term suppliers of UC RUSAL.

 

 

The system of requirements of UC RUSAL to the suppliers of raw materials and supplies for the production of the main products and the procedures are documented in the following main documents:

          Unified UC RUSAL requirements to suppliers;

          Procurement procedure and procurement rules;

          Rules for the certification of suppliers;

          Procedure for supplier audits;

          Regulations on supplier accreditation;

          Supplier rating assessment method;

         Methods of organisation of accounting of raw materials and supplies with deviations from regulatory requirements (under revision). HKEx Appendix 27 KPI В6.1

The requirements in the area of health and safety are set out in the following documents:

          Regulations on contractor management in the area of health and safety, fire and environment safety;

          Regulation on Supplier Accreditation System.

Information and access to the procurement system

To ensure the sustainability of production processes, the Company is constantly looking for the best and most promising offers in the market, and tracks the emergence of new products and services. The Company adheres to an open purchasing information policy, giving potential suppliers equal access to information and orders.

The main source of information is the suppliers’ portal, which is daily visited by about 3000 organisations. Here, the acquisition plan of UC RUSAL is annually published. An electronic trading platform of Transtrade.Rusal has been created to enhance the transparency of competitive procedures. The Company continues its cooperation with Fabrikant electronic trading platform, which also publishes information about UC RUSAL tenders.

UC RUSAL participates in permanent platforms that provide the possibility to interact with suppliers on a regular basis. For example, one such platform is the Market Council, a non-profit partnership aimed at bringing together the players in the energy market and large consumers of electrical power.

The transparency of procurement procedures is monitored through online monitoring of the Hotline and the Suppliers portal on the corporate site.

Supplier certification

The certification of suppliers of raw materials and supplies for the production of the main products includes the following test stages: laboratory tests, pilot tests and field tests. Certification is meant to confirm the compliance of the quality of raw materials and supplies with the requirements of production technology and the possibility of its use at the production facilities of the Company.

Certification stages

 

 

Audits

Audits of new/potential suppliers are carried out prior to the decision on the possibility of cooperation. Existing suppliers are also audited to ensure the compliance of the supply of the purchased products to the production requirements. The audits address the following tasks: HKEx Appendix 27 KPI В6.4

          assessment of production capacities, risk assessment (in terms of technologies used, quality, timing and volume of supply);

          confirmation of the ability of the supplier to supply products with parameters compliant with the Company's relevant requirements;

          reduction of the risks of supply of poor quality products;

          improvement of the reliability of suppliers;

          creation of a competitive environment for evaluating and selecting suppliers;

          supplier development.

A multifunctional team participates in audits: representatives of the technical service, quality assurance department, commercial service, aluminium smelters, etc. The audit process is standardised: a Supplier audit control chart containing over 60 questions in the following areas is used:

          management of raw materials and supplies;

          organisation of production;

          production technology;

          management of finished products;

          quality management system;

          HR – qualification and training, rotation.

The audits ensure a score that is the basis for the organisation's approval for further cooperation and is taken into account in the selection of the supplier for procurement.

Scoring zones

Green

>69

Future cooperation is recommended

Yellow

55–69

Review of supplies downwards, repeated evaluation after the implementation of corrective actions

Red

< 55

Search for alternative suppliers to cover the quantity purchased

If the supplier does not fully meet the requirements of UC RUSAL (55-70%), the Company can provide support in the development of such organisations.

As a result of the audit, the Company provides a list of inconsistencies and corrective actions. Audit results have a stimulating effect on supplier development: The Company helps to address the identified weaknesses and optimise processes that help them to certify their management systems and offer new perspectives. The partners may also be invited to participate in the Supplier Development Project within UC RUSAL Business System. After performing corrective-+ actions, the supplier can be reaudited: if the risks are eliminated, the company's score changes.

A total of 40 supplier audits were carried out by the Commercial Directorate of the BSD in 2016.

Supplier development in the framework of the Business System

One of the Company's priorities in the Business System is the development and training of suppliers. The project of 'Supplier Development Centre' is being implemented for this end aimed at:

          a comprehensive solution of the issues of poor quality supplies at the production facilities of UC RUSAL;

          improvement of the corporate certification system;

          improvement of the reliability of suppliers.

The Supplier Development Centre helps to introduce progressive tools and production methods through technology and raw material integration with the Company and the harmonisation of quality standards. The project also assists in the implementation of the principles and tools of the Toyota Production System (TPS), including training of specialists directly at the production facilities of the suppliers.

Key suppliers of raw materials and supplies for the production of the main products (coke, pitch, fluoride aluminium and ligatures) have joint projects to improve overall efficiency, reduce costs without losing final quality, shorten the time of performance of the works, etc.

Transportation and logistics

One of the areas of work is the improvement of the efficiency of transportation and transhipment services. As part of the logistics optimisation project, the supply chain is analysed from the time of acquisition of the raw materials to the receipt of the products by the final consumers.

Russian and foreign ports are audited to preserve the quality of the products in transit, to reduce the stocks of finished products in ports and the time of metal turnover from the smelter to the export from the Russian port. The conditions of storage and handling of the products during storage and loading are analysed, as well as the economic indicators that characterise these processes.

In 2016, seven ports were audited: St. Petersburg, Novorossiysk, Vanino, Baltimore, Houston, Rotterdam and Kaohsiung. The audits have resulted in improved loading patterns. For example, the port of Novorossiysk has changed the location of storage of slabs, thereby reducing the risk of their damage by the passing equipment and reducing the pollution. As a result of the audits, work is also being done to improve the reliability of the packaging of finished products.

Supplier rating

The rating of suppliers is performed within the QMS and represents an assessment of the work of existing partners during the period of cooperation with UC RUSAL. The assessment is carried out according to the methodology of the 100-point system and is based on the application of the criteria:

          quality of products delivered;

          compliance with agreed delivery dates;

          compliance with agreed delivery volumes;

          existence of certified quality management system;

          no claims arising from the supplier's fault from the Company's customers.

According to the number of points earned, the organisation is assigned a category that must be considered when selecting suppliers for procurement. The partner is sent a letter explaining the results.

Score

Category

Recommended actions

85–100

Excellent

Work can be continued, the supplier is considered as priority when placing new orders

50–84

Acceptable

A supplier development project can be opened and an audit of the supplier performed.

30–49

Conditionally acceptable

Work is possible if there are no market alternatives

Up to 30

Unacceptable

Work with supplier impossible

Major events in 2016

In 2016, in the framework of the QMS and the Business System 40 audits of the suppliers of raw materials were completed and the rating assessment of the suppliers of master alloys for the main products. Three joint projects have also been opened with existing suppliers of raw materials (anode blocks, aluminium fluoride, master alloy) aimed at eliminating losses and reducing the cost of purchased products.

A primary visit to the four suppliers with existing contracts (pitch, anode blocks, aluminium fluoride, master alloy) is planned for 2017 to teach the principles and philosophy of the Business System, to identify losses, and to develop plans with partners to address them. Joint projects may be opened in the future.

During the reporting period, 10 audits were conducted.

Plans for 2017

         In the framework of QMS and the Business System it is planned to:

          conduct 45 audits of suppliers of raw materials (Commercial Directorate of BSD);

          as part of the implementation of ISO 9001:2015:

          to formalise the requirements for the suppliers of transportation services;

          to implement the standard Quality section in procurement contracts;

          to update supplier rating and supplier audits;

          to form the PPAP base (production part approval process) for the suppliers of UC RUSAL.

Requirements for suppliers in the area of health and safety G4-LA14

A special area of interaction with the providers of services and works is health and industrial safety. The existence of risks in this area at the production facilities of the suppliers is considered by the Company a critical factor influencing successful cooperation.

Compliance with health and industrial safety standards is enshrined in service contracts. They are similar to the requirements for their own production facilities and for UC RUSAL employees. In case of violation by contracting organisations of the terms of the contract, they shall be subject to penalties up to termination. HKEx Appendix 27 KPI В5.2

The main criteria for the assessment of contractors are as follows: qualification, provision of personal protective equipment, availability of skills for safe conduct of work.

The Company is conducting an investigation into all of the incidents. The injury rate among contractors' employees is based on the requirements of the corporate regulation on single reporting of health, industrial and fire safety. HKEx Appendix 27 KPIВ5.2

Health and safety services of UC RUSAL provide assistance to suppliers in order to improve compliance with Company requirements. To this end, the following activities are carried out:

          training in health, industrial and fire safety, first aid;

          regular and preliminary medical inspections;

          conducting production monitoring of working conditions;

          conducting of special assessment of working conditions;

          repair and construction works (as part of control of HSE compliance);

          transport;

          development of internal HSE regulatory documents;

          performance expert reviews of industrial safety;

          provision of personal protective equipment and working cloths, washing and mending.

In 2016, there were two fatal accidents involving contracted workers.

The increased control of the safe performance of works by contracting organisations is part of the corporate Plan for the reduction of injuries in 2016-2017. For more information, please see Work Safety section.

To this end, the instruction has been issued 'On the strengthening of supervision of the work of contracting organizations in the area of health and industrial safety', in accordance with which routine checks of the compliance with labour protection requirements of contractors are carried out. HKEx Appendix 27 KPI В5.2

Interaction with consumers

UC RUSAL mainly produces aluminium and alloys from which the customers are producing the final products. The main consumers of UC RUSAL are companies from Russia, Europe and America.

One of the Company's strategic objectives is to develop a long-term relationship with consumers by actively participating in the development of their new products, offering a wide variety of alloys tailored to the specific needs of each client.

Management approach

UC RUSAL seeks to maximally comply with customer needs and reduce the number of claims by using various tools and techniques. HKEx Appendix 27 KPI В6

In order to identify customer needs, the characteristics of their production and development priorities, the Company sends teams of representatives of production and service units to the production facilities of its customers. The production facilities of the Company regularly undergo on-site audits by customers to evaluate production processes and obtain recommendations. Key customers participate in joint trials.

In order to disseminate information about their approaches and results in the application of advanced production and environmental technologies and to interact with stakeholders and business partners, including buyers of metal products, equipment manufacturers and suppliers of various materials, the Company sends its representatives to key international congress and exhibition events.

The Company is developing the Customer Support Centre project to improve the customer claim management system and to accelerate the market entry of the most demanded products.

In 2016, targeted programmes for customer-specific improvement have been developed (one targeted programme for one production facility), with direct contacts with a number of key customers. In 2017, this tool will continue to be distributed and regulated and contacts with customers will continue to be extended.

In the reporting year, the project of "Reduction of the duration of design and approval of specifications" was launched to reduce the time of response to the customers.

Initiatives to support and increase customer satisfaction are being developed. A redesign of the process of investigation of claims has been carried out, KPI of claim investigation have been changed, and a pattern of escalation of claim-related issues has been introduced. These changes are reflected in the updated corporate standard 'Customer Claim Management'. As a result of the work, the duration of claim investigation has been reduced to 20 business days.

In 2016, a decision was made to introduce the indicator of 'Promptness of review of customer applications' as a key indicator for achieving the Company's objectives under the Quality Management System.

In 2016, the Company did not receive any product safety-related feedback or claims. G4-PR2, HKEx Appendix 27 KPI В6.1

Analysis of customer satisfaction G4-PR5

The main indicator of quality of Company's interaction with customers is the level of customer satisfaction. Studies have been conducted annually since 2004. A questionnaire is sent to the Customers containing 69 questions in 7 areas of interaction. The results of the study help to see opportunities for improvement and are taken into account in the development of future action plans.

As of 2016, the Customer Satisfaction Index has increased from 90% to 94% compared to the previous year's indicator. There is a positive trend in the level of customer satisfaction assessment in all areas, including satisfaction with the quality of the metal and alloys supplied. Among the questions raised by customers during the questionnaire, the most important are the following:

product quality;

packaging;

delivery performance (time, early warning about delivery problems, timeliness, delivery of shipping documents, etc.);

communications on technical issues/technical support;

creation/development of new alloys.

General customer satisfaction level of UC RUSAL in 2013-2016

 

 

Period

 

2013

2014

2015

2016

Overall rating

8.1

8.0

8.4

8.8

Relations

8.3

8.2

8.7

9.0

Technical support

7.4

7.4

7.9

8.4

Product quality

8.1

8.2

8.5

8.7

Commercial arrangements

8.1

8.1

8.6

8.8

Delivery performance

7.9

7.9

8.3

8.5

Business cooperation

8.1

8.0

8.5

8.9

Note: The maximum value for each area is 10 points.

 

Labelling products HKEx Appendix 27 KPI B6 (a) и (b):

The finished products produced at the company's enterprises are automatically labelled in accordance with the requirements of the state. The label includes a trademark or name of the manufacturer, aluminium grade or alloy brand, melting number and other information. In 2016, there were no significant claims in connection with the labelling of the products. There were 11 notifications of non-compliance of labelling:

the information in the certificate does not correspond to the information on the sticker – 5 notifications

- Labelling errors - incorrectly specified width/grade of alloy (execution error) - 3 notifications

other issues related to marking/identification - 3 notifications

 

 

Plans for 2017

          creation/development of the CRM system;

          customer audits and technical visits of the specialists to the customers;

          improvement of technical communications with customers;

          creation of quality standards for high value-added products.