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KONE 2016 | SUSTAINABILITY REPORT
SUPPLY CHAIN
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Total 4,786 MEUR
Direct materials and supplies
Subcontracting
Other production costs*
Other indirect costs**
58.8%
(61.5%)
12.7%
(11.5%)
14.3%
(13.4%)
14.2%
(13.6%)
Breakdown of material
and service costs
* Mainly freight and packaging costs
as well as other variable costs such as
utilities, tools and operatives related
costs.
** Relate to for example administration
expenses, covering IT, marketing,
trainings, and insurances.
Figures for 2015 have been adjusted due
to a change in allocation of costs.
Our suppliers and their sub-tier suppliers are a
critical part of KONE’s supply chain. Without
them, we would not be able to provide high-
quality products and services to our customers.
Just as internal efficiency is essential, so is
working effectively with the approximately
20,000 suppliers who provide KONE with raw
materials, components, modules, and logistics
and installation services. Not to mention other
suppliers who deliver indirect materials and
services to KONE.
We only produce selected components in-house,
and our own production consists largely of the
assembly of sourced components. The main raw
materials used in our elevators, escalators, and
automatic building doors are various types of
steel and stainless steel as well as aluminum and
copper.
We purchase approximately 80% of our raw
materials, components, and systems supply for
new equipment production from approximately
120 suppliers, the majority of whom are
located in the same countries as KONE factories
or distribution centers (see Top 10 Supplier
Locations).
Managing relationships with our suppliers
We work closely with our suppliers to develop
our business, and our aim is to build long-
term relationships with them. We manage our
suppliers according to a tailored approach
that evaluates their importance to KONE.
This is done through the regular, critical
assessment of multiple factors such as the
business scope and spend with the supplier,
their innovation potential, the criticality of the
materials or services they provide, the supply
chain situation, and KONE’s investment or
integration level with the supplier.
Based on the supplier’s status, our
management and measurement techniques
include audits, assessment and mitigation
of supplier-related risk, the employment of
standardized contractual agreements that
include the KONE Supplier Code of Conduct,
the assessment of supplier performance, and
supplier certification.
Supplier Audits
All of the main suppliers of direct materials to
KONE distribution centers or factories undergo
regular audits. Of KONE’s strategic suppliers,
93% were audited in 2016. We review our audit
plan every year to prioritize and schedule audits
according to our business needs. The audits are
scheduled to check on changes in products or
production processes, to validate follow-through
on improvement initiatives, to assess quality and
environmental management systems – especially
when suppliers are not ISO certified; or to pre-
audit the suitability of potential suppliers.
Assessing supplier risks
KONE’s sourcing risk monitoring system is
based on a thorough assessment of suppliers,
including analyses of their financial and
business viability and their dependence on
business from KONE. We also work closely
with our strategic suppliers to find competitive
raw material price levels.
Supplier Code of Conduct
KONE expects all of its suppliers to commit to
KONE’s Supplier Code of Conduct. The Code sets
forth KONE’s global values. Suppliers are expected
to adhere to the Code in their dealings with
KONE, their employees, and suppliers, as well as
third parties. KONE may terminate its contracts
with suppliers if they fail to adhere to the Code.
The Supplier Code of Conduct includes the
following key elements:
Legal compliance
– Compliance with local
laws and regulations.
Business conduct
– Compliance with ethical
conduct with respect to human rights;
zero tolerance for bribery and corruption;
avoidance and active disclosure of conflicts
of interest; and fair conduct in business with
regard to competition laws and regulations.
Labor and human rights
– Fair and equal
treatment of employees; non-usage of child
or forced labor; ensuring a harassment-free
environment for employees; compliance
with any applicable wage-related laws and
regulations; and respect for employee’s rights
to freely associate and bargain collectively in
compliance with all applicable laws.
Health and Safety
– Provision of a safe and
healthy environment to employees; availability
of appropriate health and safety information,
training, and equipment for employees; active
pursuit of safety programs covering at least
TOP 10 SUPPLIER LOCATIONS
1)
China
Italy
United States
Austria
Finland
India
Czech Republic
Estonia
Mexico
Germany
1) Suppliers that provide products for
new equipment to KONE distribution
centers and factories.
DEVELOPING PARTNERSHIPS WITH OUR SUPPLIERS