Third party guideline

Our Third Party Code of Conduct is supported internally by a Corporate Citizenship Guideline on Third Party Management, which sets out our management system and processes for managing ethical business practice along the supply chain. This guideline establishes the corporate citizenship criteria which Novartis takes into account in selecting and monitoring its suppliers and service providers. The aim of our guideline is to set high standards for ethical business conduct throughout the supply chain, while improving productivity.

The guideline is accompanied by a guidance note containing 'practical implementation recommendations for corporate citizenship in third party relations,' issued in 2003. The guidance note specifies how to:

• select evaluation criteria
• create a dialogue on corporate citizenship principles through the use of standard questionnaires perform assurance visits
• provide special support in certain situations that Novartis deems warranted

Novartis expects third parties to comply with minimum standard requirements concerning human rights, fair working conditions and health, safety and environmental protection. As with other guidelines issued by Novartis, the principles defined for third party management reflect - and should help to propagate - the principles enshrined in the UN Global Compact. We actively give preference to suppliers and service providers who share these values. As a measure of this commitment, our guideline states that, in selecting our business partners, compliance with our corporate citizenship principles must be accorded equal importance to price and quality.

 

Third Party Officers

The division heads and the head of the Novartis Institutes for BioMedical Research (NIBR) are responsible for proper implementation of the guideline within their division and business units. They nominate a Third Party Officer (3PO) who should preferably be the head of a purchasing department or supply chain function. The 3POs ensure that for all purchasing operations within their division or business unit a reliable third party management system is in place, covering purchasing operations in all affiliates and sites.

Responsibility for local coordination at the numerous sites worldwide lies with third party managers. They cooperate closely with local purchasers, who are in direct contact with suppliers. Together with the 3POs, the Chief Procurement Officer ensures that the Third Party Management guideline is applied consistently within Novartis.

 

Supplier classification

Third parties are classified according to their turnover with Novartis, their industry sector, the country where they operate, and the level of risk associated with their business. The amount of compliance information third parties are required to submit varies according to their classification, from Class 1 to Class 4.

In 2007, 1 300 suppliers were requested to complete a third party compliance questionnaire, while some 1 200 which had been classified as Class 3, were earmarked for assurance visits. These are carried out on behalf of Novartis by an independent certification and inspection company.

Third party assurance visits address four aspects of supplier performance highlighted in the Global Compact and our company third party standards:

• General business conduct and values
• Human Resources and labor practices
• Health, Safety and Environment (HSE) activities
• Animal welfare

In addition, suppliers deemed to be 'business critical' to Novartis may receive further audits by our internal Quality Assurance and HSE teams.

In 2007, a target was set to audit 25% of the suppliers selected for
on-site audit of HSE activities and labor practices. By end of year, 99 supplier audits had been performed, of which the majority were compliant or partly compliant. Where third parties were identified as being in partial compliance, short term corrective actions were stipulated. A very small number of suppliers - just four - were deemed to be non-compliant and improvement programs are currently underway.

As well as monitoring activities, several training and awareness workshops were delivered in seven countries across four continents on Third Party Management. Some 250 associates participated and were trained on the program.

 

2008 targets

Among the challenges we face in rolling out a comprehensive third party integrity and compliance program is the issue of scale. By early 2008, Novartis counted a supplier base of around 240 000 - and we bring onboard an additional 40 000 new suppliers each year.

Raising awareness of our standards and obtaining completed compliance questionnaires can be time-consuming and resource-intensive. Nevertheless, the benefits outweigh the costs. Through transparent and effective supply chain management, we mitigate risk and protect our reputation as a good corporate citizen. Moreover, awareness of corporate citizenship issues is raised and best practice is cascaded to suppliers in all the countries where we operate.

Among our targets for 2008 are to maintain classification of 95% of our growing supply base and to complete an additional 250 supplier audits. Self-assessment questionnaires will be issued to 1 400 suppliers with annual orders worth more than USD 1 million in OECD countries (or
USD 100 000 in non-OECD countries). By 2010, around 750 Class 3 suppliers should have undergone further assurance evaluations. In order to raise the profile of corporate citizenship issues throughout our supply chain, regional awareness workshops will be expanded. We also intend to develop an approach to assess suppliers who, in turn, may use suppliers in emerging economies.

 

Pharmaceutical Supply Chain Initiative

Novartis is playing an active role in the Pharmaceutical Supply Chain Initiative (PSCI). The PSCI is a group of major pharmaceutical companies who share a vision of better social, economic and environmental outcomes for all those involved in the pharmaceutical supply chain. This includes improved conditions for workers, economic development and a cleaner environment for local communities.

As a first step, the PSCI created the Pharmaceutical Industry Principles for Responsible Supply Chain Management. These principles address five areas of responsible business practices: ethics, labor, health and safety, environment and related management systems.

PSCI is designed to coordinate the activities of individual companies and expand their scope to include cooperation and training as well as auditing. It is meant to facilitate continuous improvements in the performance of the supply chain.