ADDING BUSINESS VALUE
Our global supply chain is central to our ability to provide high-quality, life-improving products and services. Our supply chain management systems advance responsible business practices and minimize disruptions and quality failures.
OUR GLOBAL SUPPLY CHAIN
The capabilities, expertise, and talent of Medtronic suppliers are key to our business success, helping us advance our Mission and protect our reputation. We select suppliers that share our values, as well as our focus on quality, integrity, and responsible business practices. We procure materials and services from 68,162 suppliers across 138 countries, spending more than $12.8 billion with suppliers globally.
Across sectors, supply chains are facing significant disruption during the COVID-19 pandemic. The measures that governments are taking to slow the spread of the disease, including workplace closures, present significant challenges to already complex global supply chains. It is imperative that we continue to manufacture and distribute lifesaving products — including those that can improve the health of COVID-19 patients — and we are working with our suppliers to anticipate and overcome barriers.
Our supplier collaborations include securing permission from government officials to operate as essential businesses, supporting investments in equipment and infrastructure, adapting logistics, and increasing production to meet demand. Working with partners, we are preserving the continuity of our supply chain so patients can continue to receive the medical supplies and devices that are critical to their health.
EMBEDDING SUSTAINABILITY AND RESPONSIBILITY IN OUR SUPPLY CHAIN
As Medtronic grows, so does the scale and complexity of our global supply chain. The Global Supply Management function is responsible for extending our high standards for excellence and citizenship to our suppliers. This includes our Responsible Supply Management program, which integrates responsible business practices that protect workers and the environment into supplier relationships, as well as our Supplier Diversity program.
We ensure our top suppliers and employees who manage our supply chain understand our requirements through ongoing communication and training initiatives. Through formal company policies, we communicate our expectation that suppliers demonstrate respect for human rights, labor standards, and the environment. Now in its second year, our Global Supplier Standards Compliance program is our mechanism for identifying and mitigating the potential risks in our supply chain. This approach helps us meet regulatory requirements and ensure our supply chain conforms with customer expectations.
In certain regions, we are required to meet regulations for supply chain transparency and due diligence. See our disclosures on the U.K. Modern Slavery Act and the California Transparency in Supply Chains Act.
Training and collaboration
We provide comprehensive, responsible supply management training for employees in procurement, sourcing, and supplier quality roles. The training focuses on labor and human rights issues, including human trafficking and slavery, and addresses environmental topics.
Our social, ethical, and environmental requirements for suppliers are described in our Global Supplier Standards, referenced in our supplier agreements. We communicate the standards as part of the supplier selection process, and new suppliers must commit to comply before we conduct business with them. We also expect suppliers to implement their own human rights and labor standards. We are active participants in the Sustainable Purchasing Leadership Council and the Conference Board. These groups allow us opportunities for learning, benchmarking, and collaboration with our peers on issues that impact our industry.
Monitoring compliance and performance
We launched our global standards compliance program in FY19 to identify and remediate social and environmental risks in our supply chain. The program focuses on a portion of our supply chain comprising top-spend46 or inherent high-risk47 suppliers and contract manufacturers.
To determine an initial baseline for supplier performance against our standards, we asked suppliers to participate in self-assessment questionnaires. In the first two years of the program, 320 suppliers completed our questionnaire.
We review supplier survey responses to identify instances of noncompliance and assign each supplier a risk score. Of the suppliers assessed, 116 suppliers with high- or medium-risk scores were issued improvement request forms (also known as corrective actions) that outline performance gaps and opportunities for improvements. The majority of performance gaps identified were related to lack of policies and best practices. We held one-on-one training sessions with a significant number of suppliers to educate them on Medtronic expectations and provide samples of policies they can incorporate within their own operations. This work resulted in 34 suppliers improving their risk ratings in FY20.
If a supplier receives a high-risk rating, we require them to repeat the assessment the following year. Medium- and low-risk suppliers must repeat the assessment every two and three years, respectively.
In FY20 we focused on incorporating responsible supply management best practices into the existing new supplier selection policies and procedures and assisting businesses with adoption of such practices. We continued to provide best practice guidance to sourcing and category managers through individual and group training sessions. In FY21, we will launch a formal responsible supply management training program delivered via an e-learning platform that will reach 1,150 employees. In FY20, we planned to conduct onsite audits of suppliers that were rated high-risk for two years in a row, but were unable to do so due to COVID-19. We intend to resume our in-person auditing as soon as it is deemed safe for our employees and supply chain workers. Alternatively, we will implement virtual audits. We encourage our suppliers to report publicly on their social and environmental goals and performance. Every two years, we assess the sustainability reporting of our suppliers. In our FY19 review, we assessed 202 suppliers and confirmed that 35% of those publish sustainability reports, 10% have sustainability goals published online, and 29% had information relating to sustainability on their website.
Some of our products contain tin, tungsten, tantalum, or gold. In the Democratic Republic of Congo and neighboring countries, mining and processing these metals have been linked to funding for armed conflict. To promote the use of responsibly sourced minerals, we continue to:
- Support the U.S. Dodd-Frank Act, which requires companies to disclose the use of any such conflict minerals
- Require suppliers to comply with the law and uphold responsible sourcing practices
- Reference conflict minerals in supplier agreements and purchase orders
- Participate in the Responsible Minerals Initiative
- Follow the Organization for Economic Cooperation and Development (OECD) guidance on conflict minerals — including surveying suppliers to collect data on the smelters in their supply chains
We report the results of our supplier survey to the U.S. Securities and Exchange Commission annually in a dedicated Conflict Minerals Report. In FY20, 15% of suppliers surveyed reported a relationship with a “red flag” smelter, representing a 50% decrease in the last four years. We will continue to uphold our Conflict Minerals Policy and work with suppliers to further reduce the risk of conflict minerals in our supply chain. In FY20, Medtronic earned recognition as a medical device industry leader in the Responsible Sourcing Network’s Mining the Disclosure Report. In addition to conflict minerals, we also monitor materials of concern in our products and packaging.
SUPPLIER QUALITY MANAGEMENT
Our ability to improve lives depends on the quality of our products. We share this responsibility for quality with our suppliers, communicating our expectations through our Supplier Quality Excellence Manual.
We support suppliers in meeting our standards through:
- Regular quality audits based on product and supplier lists
- Continuous improvement programs facilitated onsite at supplier manufacturing locations
- Collaboration with suppliers to improve the design, reliability, and manufacturability of components and products
- Support of supplier business-continuity management planning initiatives — building their capability to proactively identify and mitigate global operational risks
In FY20, we focused on minimizing product quality risk, improving our monitoring processes, finding efficiencies in our IT and data systems, and optimizing our receiving inspection methods. Due to COVID-19, audits that we would typically conduct onsite were completed virtually.
Diversity and community intersect in our supply chain, where we spend billions of dollars with historically underrepresented business owners. We diversify our supply chain by providing equal opportunities for businesses owned by women, ethnically diverse groups, people with disabilities, LGBTQ+ individuals, and veterans, among others. Our Supplier Diversity team, Supplier Diversity Steering Committee, and Executive Management team oversee this program, guiding our strategy and establishing goals.
Supplier diversity provides shared value for Medtronic and our communities. We gain excellent partners and access a broader pool of talent, unique perspectives, and community connections. By expanding the breadth of our supplier base and partnering with small businesses, our supply chain becomes more innovative, resilient, and agile. In FY20, we directed about $627 million of our U.S. supplier spend to diverse-owned companies, an increase of more than 10% compared to the prior year.
We recognize the opportunity to expand our Supplier Diversity program beyond the United States. In FY20, we began laying the groundwork for a global expansion by building systems to identify and track our spend with diverse suppliers internationally. In FY21, we will formally launch an International Diverse Supplier program. An early objective is to increase our procurement with women-owned businesses, and we are working with an experienced third party to identify potential suppliers. This initiative aligns with UN Sustainable Development Goal (SDG) 8, to foster the full participation of women in the economy, including as business owners.
We also aim to support the economies in which we operate by using local suppliers where possible. For example, in FY20, our U.S. corporate office in Minneapolis spent $796 million with suppliers within the state of Minnesota. Of this total spend, 31% was with small and diverse suppliers.
KEYWORDS: NYSE:MDT, Medtronic