Suppliers and business partners are an important and integral part of the total value chain of our products and services. Wärtsilä has an extensive supply base with around 23,000 active suppliers, most of whom are located in Europe, where we have our main production units.
We work in close co-operation with our suppliers to build strong relations, share information, and to help ensure market-conforming lead times for component supplies. In addition, as part of our R&D activities, we collaborate with key suppliers, universities and research institutes to form strategic partnerships and develop new and existing solutions.
We expect our suppliers to conduct their businesses in compliance with the same high legal and ethical standards and business practices as ours. We monitor the actions of our suppliers and business partners, and have a stringent pre-qualification and monitoring programme for all sales intermediaries, which is complemented with a tailored e-learning programme.
Wärtsilä has defined general supplier requirements for areas of compliance with legislation, environmental aspects, quality, occupational health and safety management, social performance, and cyber security. Compliance with these requirements are assessed, both in the selection and onboarding of new suppliers, as well as in the continuous supplier performance management process. Potential new suppliers must meet these requirements in order to receive approved supplier status. The general supplier requirements are also included in our standard supply agreements.
In addition to these general supplier requirements, we also have product and service-specific requirements, which are monitored as part of the above-mentioned continuous supplier performance management process.
Suppliers are assessed through our Supplier Relationship Management tool, which is used for both existing and potential new suppliers during the onboarding process.
The onboarding process for potential new suppliers considers the risks that the offering, location, and level of compliance with Wärtsilä’s supplier requirements pose. Companies interested in becoming suppliers for Wärtsilä can submit a self-evaluation through the Supplier Registration and Assessment link. Active, existing suppliers are equally evaluated as mentioned above. In addition, performance evaluations are conducted in the areas of quality, delivery reliability, and cost. In certain cases, we also evaluate the suppliers’ innovation level.
The supplier assessment comprises the following phases: basic assessment based on online questionnaires, detailed assessment with on-site audits, evaluation, and supplier rating. The Wärtsilä supply management team analyses the provided information and conducts further investigations where needed, identifying risks for which mitigation plans are made together with the supplier.
For low-risk suppliers, the basic assessment is typically sufficient to complete the supplier assessment. For medium and high-risk suppliers, a more detailed assessment with on-site audits is typically needed to determine and mitigate potential risks. The purpose of the detailed assessment is to complement the basic risk assessment, determine the supplier’s capabilities and capacity, and to collect further information about the supplier. For new and existing suppliers of higher criticality and risk, on-site audits are conducted. These focus on the supplier’s management system, offered scope and geographical location, and are led by a qualified lead auditor. An independent or specialized auditor can be used in specific focus areas, such as human rights or cyber security. For any deficiency to meet the requirements, corrective actions are agreed on and completed before the audit is accepted.
Wärtsilä assesses and upgrades its supplier management system as necessary on a regular basis. In 2019, we launched the Supplier Relationship Management tool, a risk-based supplier assessment and management system, for existing suppliers, following its launch for new suppliers in 2018. Development and deployment of the system continued during 2020 and will continue in 2021.
As a concluding part of the supplier evaluation, suppliers are rated. This rating is based on the result of the supplier assessment process and the supplier receives an approved, approved with remarks, or banned status. The rating is maintained regularly and reviewed based on changes in the supplier’s operations, organisation and performance. The performed supplier ratings are measured as coverage (%) of rated spend compared to total spend.
By the end of 2020, we had rated 717 out of our 1,199 global direct suppliers, which covers 94% of the related spend (with a target of 96%). The rating coverage of indirect suppliers’ spend was 74% (target 75%) and of other sourcing spend 62% (target 80%). For global direct suppliers and indirect suppliers, the rating coverage has remained firmly at or around the target levels. The coverage of other sourcing shows a strong increase over the past three years.
In 2020, 11 suppliers received banned status due to their failure to meet Wärtsilä’s requirements and for receiving a minimum score in one or more of the compliance, quality or sustainability areas.