Managing Supplier Performance

Approximately 35,000 suppliers in more than 100 countries provide the goods, services and raw materials required by Baxter's operations worldwide. In 2010, Baxter's total supplier spending was approximately $5.5 billion. About 26% of this was on "direct" supplies - raw materials and components used in Baxter products. Baxter buys most of its direct supplies from companies located near its operations. All other supplies are considered "indirect" — goods and services that support other aspects of the company's operations.

Supplier Standards

Baxter’s Global Supplier Sustainability Program builds on several sustainability-related standards that govern Baxter's supplier relationships. Baxter's Supplier Quality Standard and Ethics and Compliance Standards for Baxter Suppliers provide a framework for consistent supplier-evaluation and selection, and define policies and expectations for ethical behavior when doing business with Baxter. Baxter evaluates and approves all suppliers before purchasing any materials, components, products or services.

The Supplier Quality Standard specifically addresses sustainability issues, including indentured child labor, employment standards, waste and energy reduction, and ethics. Baxter's Ethics and Compliance Standards for Baxter Suppliers, available in 19 languages, also cover child labor, as well as confidential information, intellectual property, gifts and entertainment, anti-corruption, conflicts of interest, trade compliance, fair employment opportunities, and environment, health and safety (EHS).

Baxter expects all suppliers to comply with both sets of standards as well as all laws governing purchasing, and may terminate agreements with suppliers that do not. Baxter also asks key suppliers to provide emergency response plans describing how they will continue to provide vital supplies in the event of a catastrophe or other business interruption.

Ethics training is mandatory for employees in Baxter's Purchasing and Supplier Management (PSM) organization. All PSM employees that interface with suppliers are required to take an online ethics and compliance course as well as a live session conducted by Baxter's Ethics and Compliance organization.

Annual Supplier Sustainability Survey

Baxter conducted its second annual survey of 100 select suppliers in 2010 to evaluate their performance against the company’s green criteria (see table). Suppliers’ responses do not affect whether Baxter will continue to work with the supplier. Rather, Baxter uses the surveys to learn more about suppliers’ sustainability programs and identify opportunities for best practice sharing and collaboration designed to improve the performance of both Baxter and its suppliers.

Baxter identifies 100 suppliers each year to survey based on spend, the supplier’s importance to business continuity, and their carbon footprint. In 2010, these suppliers represented approximately 18% of Baxter’s global supplier spend. This group includes suppliers from each of Baxter’s regions and all of its major commodity groups and purchasing categories. In 2010, 77% of the suppliers asked to complete the survey did so.

Based on supplier responses, 44% of the respondents in the 2010 survey were rated “green” based on Baxter’s criteria, compared to 34% of 70 respondents in 2009.

Baxter Annual Supplier Sustainability Survey Summary Results
Category	% Green*
	2009**	2010
Environmental / Sustainability Program Example Criteria: Measures and reports environmental information	34%	30%
Protection of Human Rights Example Criteria: Has goal and programs to prevent and reduce work-related injuries	(added in 2010)	88%
Reductions in Carbon Footprint Example Criteria: Has a goal and program to reduce GHG emissions	46%	61%
Reductions in Natural Resource Use Example Criteria: Has a goal and activities to reduce waste generation	61%	55%
Enhanced Product Stewardship Example Criteria: Uses a product stewardship/life cycle approach	24%	35%
Percentage of Responding Suppliers Considered "Green" Overall	34%	44%

*	Suppliers considered green in category when responding positively ("yes" or "in progress") to 90% of those questions in category.
**	2009 Results modified to include suppliers responding positively to programs "in progress."

While Baxter aims to the keep the supplier list consistent for comparability year over year, certain suppliers are added or removed from the survey set due to changes in business needs, contractual needs or other reasons. Percentage changes from 2009 to 2010 in some categories may be due partly to this variation.

Supplier Environmental, Health and Safety Audits

Baxter has a long history of conducting audits to verify that the company's facilities have EHS programs that meet Baxter's EHS requirements, goals and objectives (see EHS Audits). Increasingly, Baxter is extending this practice to its suppliers, to ensure that they also meet Baxter’s standards. Audits can improve supplier performance, support continuity of supply by identifying potential risk at supplier facilities, and strengthen supplier relationships with Baxter. This practice involves collaboration between Baxter's Ethics and Compliance, Global Purchasing Supplier Management, and Global Compliance Supplier Quality organizations.

Recognizing Supplier Sustainability Efforts

Baxter continued its e-Impact program in 2010 to document, communicate and recognize supplier environmental initiatives. Suppliers who implement projects that improve their sustainability performance, such as changing a manufacturing process in a way that reduces energy usage or waste generation, are recognized with an electronic certificate. Baxter employees who submit such stories are also recognized.

In 2010, Baxter’s e-Impact program recognized five supplier initiatives that produced the following benefits:

Combined Results of Recognized e-Impact Examples, 2010
Cost Savings	$231,000
CO2e Emissions Reduction	162 metric tons
Recycled Material	87 metric tons
Water Reduction	7,800 gallons
Corrugated Boxes Saved	2,100

See Case Study: Baxter Recognizes Suppliers through e-Impact Program and Case Study: Engaging Suppliers to Reduce Environmental Impact for additional information and examples from the e-Impact program.