Group Policies

The Health, Safety, Environment and Social Responsibility Group Policy expressly states the company’s commitment “to establish and actively maintain the procedures to evaluate and select suppliers and subcontractors based on their commitment in the field of social and environmental responsibility.”

Sustainability has been integrated into both the General Conditions for Purchase of Goods and Services, applied by the company to its suppliers, and the phases of Vendor Approval and Vendor Rating, described in more detail below.

The purchasing processes are described in the Purchasing Manual, which sets out guidelines and procedures aimed at ensuring both transparency in internal processes and honesty in business dealings, and also integrity and contractual impartiality in relations between the company and its suppliers. These processes have been strengthened by the development of new technologies (e.g. electronic auctions) that by their nature help to enforce the measures for contractual transparency put in place by Pirelli.

For the most important suppliers, the purchasing policies allow for long-term contracts, partnership contracts and, in some cases, shared growth strategies.

General Conditions for purchase of goods and services

In 2006, Pirelli drew up its new General Conditions for Purchase of Goods and Services, which were to be introduced to all orders/tender contracts stipulated by the Group. Specific clauses - applied to Italian suppliers at the end of 2006 and extended to foreign suppliers in 2007 - provide for the implementation of the policies adopted on sustainability, i.e. the Ethical Code, Code of Conduct, and the “Health, Safety, Environment and Social Responsibility” policy. The contracts concluded give Pirelli the right to carry out audits of the suppliers to assess compliance with the principles and the commitments shared through the signing of the General Conditions.

Distribution of purchases by geographic area

The table below shows the geographical distribution of purchases, distinguishing between OECD and non-OECD countries, with the “weight” of the various areas on the totals.

DISTRIBUTION OF GROUP PURCHASES BY GEOGRAPHIC AREA

% on total number of suppliers

% on total value of purchases

2007

2006

2007

2006

OECD countries

Europe

69.9%

73.1%

67%

63%

 

North America

2.1%

4.0%

3%

6%

 

Others (1)

0.2%

0.2%

1%

2%

Non OECD countries

Latin America

19.0%

19.3%

13%

15%

 

Asia

7.3%

1.6%

15%

12%

 

Africa

1.5%

1.8%

1%

2%

1 Australia, New Zealand, Japan, and Korea

DISTRIBUTION BY TYPE OF GOODS AND SERVICES PURCHASED BY THE GROUP - 2007

% of total number of suppliers

% of total value of purchases

Raw materials

6%

48%

Consumables

7%

5%

Services

80%

39%

Plant and equipment

7%

8%

Over 80% of all purchases made by the entire Group consist of goods and services purchased by the Tyre Sector. For this reason, we have decided to focus again in 2007 on Pirelli Tyre’s relationships with its suppliers.

Focus on Pirelli Tyre

The table below shows the distribution by type of goods and services purchased by Pirelli Tyre from 2005 to-2007. The table also gives the percentage weight of purchases made in each area over the total number of suppliers and over the total value of all purchases made.

DISTRIBUTION BY TYPE OF GOODS AND SERVICES PURCHASED BY THE TYRE SECTOR

Number of suppliers

Value of purchases

2007

2006

2005

2007

2006

2005

Raw materials

7%

7%

8%

53%

56%

37%

Consumables

5%

5%

5%

6%

4%

4%

Services

80%

80%

78%

32%

32%

30%

Plant and equipment

8%

8%

9%

9%

8%

29%

Interaction between Pirelli Tyre and its suppliers

Relations with suppliers are defined and enforced by specific company processes. There are two fundamental underlying phases to supplier management:

  1. Approval of new suppliers (or Vendor Approval), where the interdepartmental process based on specific “Quality standards” leads to the addition of the approved material/vendor to the Vendor List, namely the Company’s list of approved suppliers for each individual product. In 2007, the Pirelli CSR policies were integrated into this phase.
  2. Vendor Rating, assessed on the basis of the quality of the product supplied or service provided (monitored using the specialist CARMAC software), the quality of the commercial relations, the technical/scientific cooperation, performance in terms of safety in the workplace, environmental responsibility and corporate social responsibility.

The procedures described above are followed by the entire sector and are supported by a special website available on line via the Purchasing Portal. This website supports the Regulations (including the Purchasing Manual, Ethical Code, and General Conditions to be applied by the Suppliers), the Vendor List, the surveys, and the Vendor Rating with feedback and the definition of support actions. This portal provides both an assurance of process uniformity and a guarantee of transparency, in addition to being a communications, ongoing training, and knowledge sharing tool.

Dialogue

The processes of dialogue and interaction with suppliers are the object of continual process improvement, both in qualitative terms and in terms of tools. Specifically, the Vendor Rating results are regularly reviewed and commented on by the Sector Purchasing Department. This process involves meetings organised with the suppliers, aimed at identifying any corrective actions or measures to improve results.

In 2007, specific training courses were provided on buyer professionalism and buyer-supplier relations.

Each purchase contract includes the name of the Buying contact, to provide the supplier with a company channel that is always available for any feedback.

Measures and processes adopted by Pirelli Tyre in 2007

In 2007, the objectives set out in the 2006 Report, aimed at improving the purchasing process and at providing total support for buyer-supplier relations, were successfully achieved. In particular:

  • Training courses on buyer professionalism (EIMP) and buyer-supplier relations;
  • Purchasing Portal;
  • “MRP project” for raw materials requirements planning;
  • “PTE S’pore project” to support the entire process governing requirements and supply of natural rubber, from the individual units to the purchasing centre in Singapore.

In addition, the Vendor Rating coverage was extended in 2007 and it now encompasses all the product and geographical areas.

Lastly, the “RNC Project”, developed in 2007, plays an extremely important role in terms of effectiveness. The order/delivery/invoice flow between Pirelli and its suppliers has been automated by means of WEB or HUB platforms, via EDI documents and document scanning.

The coverage has been enhanced to cover the major raw material suppliers and in 2008 it is due to be extended to MRO suppliers.