Sustainability in the Supply Chain
The KION Group has consolidated procurement into a centrally managed global organization that supports the activities of both the Industrial Trucks and Services (ITS) and Supply Chain Solutions (SCS) segments. As part of the CTO function1, this global procurement organization aims to create value through category expertise and optimized geographic sourcing as well as leverage global synergies and local flexibility to build up a sustainable, scalable procurement base. The goal is to achieve excellent management of supplier relationships and a collaborative partnership with other KION divisions.
In order to achieve optimal results, reduce risks in the supply chain, and drive strategic growth as well as cost savings, KION is currently developing and implementing global tasks and responsibilities, objectives, models, mandates, KPIs, decision-making bodies, committees, interfaces, and escalation models in procurement. The result of these efforts is a targeted, global procurement organization that supports the entire KION Group and thus the subsidiaries.
Managing the supply chain in a sustainable way requires a suitable governance structure, a high level of process standardization, good data quality, and appropriate and implementable guidelines that are to apply to every business and legal entity in the KION Group.
It is the duty of the procurement organization to inform all individuals entrusted with procurement activities in the Group of the sustainability standards to be followed when selecting and evaluating suppliers. In order to underline the importance of sustainability across all Group organizations, the Group has put sustainability KPIs in place to measure the efficacy of its sustainability strategy. These KPIs also play an important role in supplier relationships and inform procurement decisions.
The KION Group’s supply chain management thus designs and manages the flow of materials and information throughout the entire value creation process based not only on business criteria but also in terms of sustainability. This ensures that all important processes, from the procurement of the required materials to the completion of the end products and their delivery to the customer, are set up in a socially responsible and environmentally friendly way. However, the global procurement organization is exclusively concerned with the procurement of the required materials and the associated supplier management within the scope of these processes and procedures. Other areas of the KION Group and its subsidiaries are responsible for the subsequent stages from completion of the end product through to delivery to the customer.
In addition to procuring parts and services that make sustainable use of resources, the Group’s goal is to ensure that the various parts of the value chain live up to certain defined standards in terms of human dignity, working conditions, and environmental compatibility. To this end, the KION Group is currently setting up an information and analysis system that records relevant data and information for effective supply chain management with regard to the main purchasing and material items.
Principles of supplier conduct
The Group has laid down specific requirements and rules of conduct for responsible procurement in the KION Group Code of Compliance and in the Principles of Supplier Conduct and obliges its suppliers to observe these requirements when entering into business agreements with KION Group companies. The Principles of Supplier Conduct contain clear environmental and ethical guidelines with regard to environmental, labor, and human rights standards and are available in three languages according to the most important procurement markets.
The KION Group’s General Terms and Conditions for Purchasing as well as individually agreed contracts also specify in detail how obligations, applicable laws, and the KION Group’s Principles of Supplier Conduct are to be complied with, and how transparency is to be ensured throughout the entire supply chain. All these regulations are binding for the entire KION Group with all its legal entities and are regularly checked to ensure that they are up-to-date and complete.
Three-level ESG Evaluation Program
For an objective and robust assessment of the sustainability risks and performance of its key suppliers, the KION Group has implemented a three-level ESG (environmental, social, and corporate governance) evaluation program utilizing the expert software-as-a-service (SaaS) platforms of EcoVadis and IntegrityNext. In 2022, KION started using the IQ platform from EcoVadis to conduct general sector and country risk analyses for all its direct procurement suppliers—i.e. those that manufacture materials for the Group’s production operations—where the annual KION Group spend is over 100,000 euros, in order to better understand their sustainability risk profile (phase 1).
In a next step, the company began using the IntegrityNext platform and its self-evaluation questionnaire to assess the extent to which these direct procurement suppliers comply with human rights, labor, and environmental standards. Alternatively, the evaluation is performed using the EcoVadis supplier assessment. For this level, suppliers are asked to undergo a sustainability assessment based on a check of their documentation (phase 2). This program was adapted in 2023 to align even more closely with the requirements of the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG), which led to the addition of an internal risk assessment (phase 3).
This multi-level assessment approach verifies suppliers’ compliance with specific standards in the areas of HSE, anti-corruption and anti-bribery, product-related environmental protection, and upstream supply chain monitoring. Based on this, suppliers’ compliance with human rights, employee rights, and employment standards can be checked first and foremost.
New suppliers are asked about their sustainability assessment as part of the supplier onboarding process and go through the above three-level ESG evaluation program. Existing suppliers are checked annually. These approaches give the KION Group a transparent way of tracking the sustainability performance of its suppliers and managing risks and opportunities related to the sustainability of the supply chain in a targeted way.
| 2023 | 20222 | 2021 |
|---|---|---|
| 90% | 87% |
| 2023 | 2022 | 2021 |
|---|---|---|
| 69% | 55% | 25% |
In July 2023, the KION Group made a commitment to the targets of the SBTi (Science Based Target initiative). This means that continually reducing CO2 emissions within the KION supply chains is now a binding target. Since taking this step, CO2 reduction and net-zero requirements are incorporated into supplier relationships and the tactical design of the supply chain. The global procurement organization works on an ongoing basis to develop and implement the methods, processes, and strategies required to achieve this target.
German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG)
The KION Group took the requirements of the 2021 German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) as an opportunity to closely examine its supplier evaluation and assessment program across all regions for direct and indirect procurement categories. The result of this examination is the three-level ESG evaluation program described above. Additional sustainability requirements supplement the new supplier evaluation processes.
A key element of the 2021 German Act on Corporate Due Diligence Obligations in Supply Chains is the training of in-house employees on the subjects of human and environmental rights in the supply chain. To this end, more than 80% of employees working in procurement completed training on the related initiatives in 2023. By carrying out this training, the KION Group wants to ensure that suppliers comply with human rights, labor rights, employment standards, and environmental protection requirements. Further training and coverage tracking are planned for 2024 as part of the comprehensive, three-level ESG evaluation program and other proactive sustainability initiatives.
Conflict Minerals and Conflict Areas
The KION Group’s strategy aligns economic, environmental, and social aspects. The global procurement organization’s top priority is to comply with all international laws and regulations while exceeding customer expectations. While not required to report on conflict minerals under the relevant European Union regulations, the Group recognizes the regulations and is working to include conflict minerals and conflict areas in the model for assessing and improving aspects of the sustainable supply chain. In order to improve transparency around these issues in the supply chain, the KION Group’s General Terms and Conditions of Purchase require that suppliers submit the standardized Conflict Minerals Reporting Template (CMRT). KION has also decided to work with the SaaS platform provider Assent. Its compliance portal is used by more than 800 companies, and enables KION to analyze product-specific supplier data as well as identify smelters or refiners in its supply chain based on the submitted CMRTs, which must be communicated to KION annually by the suppliers.
Since 2022, the KION Group has participated in an annual industry initiative coordinated by Assent that specifically encourages smelters and refiners to undergo evaluations under industry-recognized audit programs. Over 200 companies have joined this initiative as signatories to a joint letter—which includes links to the auditing institutes. This accentuates the significance of auditing to companies that have yet to undergo an assessment.
The Group-wide Conflict Minerals Standard entered into force in 2023 in accordance with the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas published by the OECD, the European Conflict Minerals Regulation (EU) 2017/821, and the US Dodd-Frank Act. The KION Group has clearly formulated its own commitment with this standard. Its expectations of its global suppliers with regard to conflict minerals are set out in the KION Principles of Supplier Conduct. This standard applies to all KION Group companies worldwide and to all employees, in particular those involved in the development and procurement of goods and services.
Footnotes:
[1] In pursuing a cross-brand and cross-regional development approach, the KION Group is aiming to achieve uniform standards and global coordination of technical activities. Functions such as research and development, procurement, quality, and sustainability management have been bundled and are part of the KION GROUP AG Executive Board portfolio of the Chief Technology Officer (CTO).
[2] ESG evaluation (phase 1 and 2) only in place since 2022.
[3] EcoVadis was introduced back in 2019.