Case Study: Philips

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Case Study: Philips

Company Background

Royal Philips is a leading health technology company focused on improving people's health and enabling better outcomes across the health continuum from healthy living and prevention, to diagnosis, treatment and home care. Headquartered in the Netherlands, the company employs approximately 78,000 employees with sales and services in more than 100 countries.

 

Context to OECD DDG implementation

Philips’ supply chains for minerals are long and complex. Philips does not source minerals directly from mines – there are typically seven or more tiers in the chain between end-user companies like Philips and the companies that extract minerals.

Each year, Philips investigates its supply chain to identify smelters of tin, tantalum, tungsten, and gold (3TG), following the OECD’s five-step approach to due diligence.

Step 1: Establish strong company management systems

Philips established an internal due diligence team and made responsible sourcing of minerals a supplier contract requirement. The company publishes a Supplier Sustainability Declaration (SSD), which includes a provision for the responsible sourcing of minerals, and which suppliers are expected to adhere to. The SSD is part of Philips’ general conditions of purchase, and of the purchasing agreements it signs with suppliers. The document requires suppliers to have a policy to reasonably assure that their 3TG does not directly or indirectly finance or benefit armed groups that are perpetrators of serious human rights abuses in the DRC or an adjoining country, and to exercise due diligence on the source and chain of custody of these minerals.

In addition, Philips established a system of control and transparency over its 3TG supply chains, by prioritising suppliers for engagement then requesting that high priority first-tier suppliers submit supply chain information to Philips using the Conflict Minerals Reporting Template – a freely available tool published by the Responsible Minerals Initiative and included in this Portal [LINK]. In its latest internal study, Philips achieved a 100% response rate in its supply chain investigation and 86% of the submitted CMRTs met or exceeded the Philips minimum acceptance criteria upon first submission.

Step 2: Identify and assess risks in the supply chain

Given the large number and diversity of Philips’ suppliers, the company focuses its efforts on a group of first tier priority suppliers and works with them to identify the smelters in their supply chain. Priority suppliers are selected based on two main factors: 1) value of purchases, and 2) their usage of 3TG. 

A Philips conflict minerals team works with priority suppliers to increase issue awareness and to help them meet Philips’ requirements, for disclosure of risks and in other areas. Various contextual materials and training materials are made available to suppliers, as are email templates that they can use to engage their own suppliers on supply chain due diligence.  

Through its membership of the Responsible Minerals Initiative, Philips has access to the Reasonable Country of Origin Inquiry database, which it uses to identify the minerals country of origin and conflict-free status of smelters.

Step 3: Design and implement a strategy to respond to identified risks

The outcomes of supply chain risk assessments are regularly reviewed by senior management. The risk management plan adopted by Philips is in accordance with its policy to ultimately discontinue doing business with any supplier found to be purchasing 3TG material that directly or indirectly finances or benefits armed groups in the DRC or adjoining countries, if attempts at corrective actions are not successful.

Step 4: Independent third-party audit of smelter/refiner due diligence practices

As a “downstream” company, Philips’ role at this step is to support refiners’ audit processes. Philips is a member of the Responsible Minerals Initiative (RMI) and encourages smelters to participate in the RMI’s Responsible Minerals Assurance Program (an audit scheme based on the OECD DD) through direct communication and smelter outreach communication.

Step 5: Report annually on supply chain due diligence

Philips files a Conflict Minerals Report annually to the U.S. Securities and Exchange Commission (SEC). It describes the company’s due diligence framework, the measures it has undertaken, and the outcomes achieved. Philips has this report voluntarily audited by an independent third party. The Conflict Minerals Report is also publicly available on Philips’ website.  

Additionally, Philips has adopted a position paper on responsible sourcing in relation to conflict minerals. The position paper is also publicly available on Philips’ website. 

Philips places a lot of importance on transparency, so that other companies can benefit from its experiences. The company believes that through collective transparency, and companies combining efforts to create leverage, the chance of positive impacts is increased.

 

Challenges, lessons learned and key partners

A key challenge faced by many companies that implement OECD due diligence processes is responsiveness from suppliers. Philips overcame this challenge successfully: as noted above, the company recently recorded a 100% response rate from suppliers to its due diligence assessments, and 86% of the submitted CMRTs met or exceeded the Philips minimum acceptance criteria upon first submission. 

Philips identifies the following factors as contributing significantly to its success: 

  • Responsible sourcing of minerals is a supplier contract requirement
  • An internal team provides training and templates to suppliers, to help them meet the company’s requirements
  • Vision, strategy and underlying processes for Philips’ due diligence programme are reviewed periodically to help ensure alignment
  • Through membership of the RMI, Philips has access to knowledge, resources, and third-party audit results.
  • Philips is transparent with the outcomes of the company’s due diligence, so that other actors can learn from the results and efforts toward positive change can be coordinated.

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