KONE 2017 | SUSTAINABILITY REPORT Enabling our partners and societies to prosper 42 Total 4,812.6 MEUR Direct materials and supplies 58.8% (58.8%) Subcontracting 13.0% (12.7%) Other production costs* 14.4% (14.3%) Selling, administrative and other expenses** 14.1% (14.2%) * Mainly freight and packaging costs as well as other variable costs such as utilities, tools and operatives related costs. ** Related to for example administration expenses, covering IT, marketing, trainings, and insurances. Breakdown of material and service purchases from our suppliers Managing relationships with our suppliers 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. Our aim is to build long-term relation- ships with our suppliers. We manage them according to a tailored approach that eval- uates their importance to KONE. This is done through the regular, critical assess- ment of multiple factors such as the busi- ness 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 invest- ment or integration level with the supplier. Based on the supplier’s status, our management and measurement tech- niques include audits, assessment and mitigation of supplier-related risk, the use of standardized contractual agreements that include the KONE Supplier Code of Conduct, the assessment of supplier per- formance, and supplier certification. Read more about KONE’s Supplier Code of Conduct on page 40. Supplier audits All of the main suppliers of direct materials to KONE distribution centers or factories undergo regular audits. Of KONE’s strate- gic suppliers, 93% were audited in 2017. We review our audit plan every year to prioritize and schedule audits according to our business needs. The audits are sched- uled to check on changes in products or production processes, to validate fol- low-through on improvement initiatives, to assess quality and environmental man- agement systems – especially when suppli- ers are not ISO certified; or to preaudit the suitability of potential suppliers. Assessing supplier risks KONE’s sourcing risk monitoring system is based on a thorough assessment of sup- pliers, including analyses of their financial and business viability and their depend- ence on business from KONE. We also work closely with our strategic suppliers to find competitive raw material price levels. PROSPERING THROUGH A STRATEGIC COLLABORATION The key to KONE’s successful logis- tics operations is having accurate and timely information available at all phases of the delivery chain. Reducing the environmental impact of transpor- tation through route and shipment optimization – and through careful analysis of eco-efficient transpor- tation modes – is also an important focus area. This is made possible by utilizing the internal expertise as well as support from our key logistics ser- vice providers, such as DHL, who have similar ambitious targets. Our products and components need to be delivered effectively to more than 450,000 customers across the globe. While these journeys can be extensive and complicated, we do our best to minimize the carbon footprint of our operations and services. To carry this out, KONE has been collaborating with DHL for nearly a decade, working together to solve a wide range of logistics challenges. This co-operation involves KONE’s new equipment business and service busi- ness areas. Working smarter together "The foundation for the collabora- tion around sustainability and oper- ational improvement starts with the monthly performance report that all of Read the whole story at www.kone.com/sustainability KONE’s key logistics service providers are required to provide, covering all modes of transport, including also the carbon footprint for each shipment," says Timo Skötsch, KONE’s global customer manager at DHL Customer Solution & Innovation.