For Luxottica, the supply chain is fundamental for guaranteeing the high quality of its products and services and contributes to maintaining and enhancing the reputation of the Group.
With particular regard to Operations, the Group works with around 1,200 suppliers with approximately 130 of these representing 80% of its purchases. Raw materials and components together are known as direct materials.
|The supply chain by supplier type in 2017|
|Finished products (e.g. Oakley’s Apparel, Footwear and Accessories - AFA)||12%|
|Third parties’ brands sold in the Group retail network||17%|
In particular, suppliers of direct materials and finished products represent around 50% of purchases and are mostly located in Europe and China, areas where the Group produces over 80% of its eyewear collections.
|Geographical distribution of suppliers of direct materials and fi nished products in 2017|
When selecting these suppliers, Luxottica prioritizes developing linked industry in the areas in which it has manufacturing facilities, working with numerous local supplier companies.
Purchases of direct materials and finished products from suppliers
(% Group’s production)
|Incidence of local suppliers|
|Incidence of local suppliers|
|Unites States (9%)||40%||51%|
LUXOTTICA RESPONSIBLE SOURCING AND MANUFACTURING PROGRAM
Suppliers of direct materials and finished products represent an important link in the Group’s supply chain. The monitoring of the reliability and quality of the products and services acquired represents the core of the Luxottica Responsible Sourcing and Manufacturing (LRSM) program. Launched in 2013 at global level, its aim is to achieve full alignment with Luxottica’s principles and international standards in the areas of ethics, labor, health, safety and the environment.
It applies to the Group’s sites and its suppliers and must:
- guarantee respect for the Code of Ethics, which must be adopted by all suppliers;
- respect global commercial laws; guarantee the compliance of its suppliers with local laws and regulations;
- avoid the risk of serious cases of non-compliance with the application of a “zero tolerance” mechanism27 in the evaluation of aspects of key relevance (e.g.: the use of child labor) both when selecting and monitoring suppliers. As part of this mechanism those who do not comply with the Group’s procurement system are excluded from it;
- mitigating business continuity risks.
Given its inter-departmental nature, the program brings together representatives of the Operations Sourcing, Internal Audit, Manufacturing, Quality, Risk Management, Compliance & Asset Protection departments in a steering committee tasked with:
- periodically assessing the state of progress of the program and the results of the checks carried out on-site by Luxottica and the licenses;
- approving risk mitigation plans for suppliers identified as critical;
- discussing the adoption of new measures to guarantee the achievement of the program’s goals;
- promoting dedicated training activities at manufacturing facilities and at supplier premises.
RESPECT FOR HUMAN RIGHTS IN THE SUPPLY CHAIN
The principles of Luxottica Responsible Sourcing and Manufacturing which define the standards to which suppliers must adhere include respect for human rights in the workplace, which takes the form of:
- the banning of child labor. No worker must be of compulsory school age or under the legal working age. In no case may workers of under 16 years of age be employed;
- the right of workers to organize themselves and join associations of their choosing and to collective bargaining must be acknowledged and respected;
- the banning of enforced labor;
- the banning of discrimination in the process of recruiting, training, and awarding bonuses and promotions, or the interruption of employment relationships on the basis of factors such as race, nationality, caste, gender, religion, age, disability, family status, membership of associations, sexual orientation, family responsibilities, trade union memberships and political opinions.
THE AUDITING OF SUPPLIERS
The Luxottica Responsible Sourcing and Manufacturing program mainly regards the suppliers of direct materials and finished products which have higher risk profiles according to the risk assessment.
The monitoring of respect for ethical principles and environmental and social responsibilities takes place through an audit system managed by a qualified third party and comprises two phases:
- self-assessment in terms of respect for human rights in the workplace, health and safety and environmental protection (HS&E);
- on-site audits aimed at verifying the consistency of the declarations made and the compliance with Luxottica standards.
The program includes a “zero tolerance” mechanism that pays particular attention to human rights, health and safety in the workplace, and environmental protection. In 2017, additional ethical criteria (presence of a code of ethics and a whistleblowing system) and anti-corruption criteria were added during both the supplier selection and monitoring phases.
In the event of non-compliance with the Group Code of Ethics and/or local regulations, Luxottica requests its suppliers to implement corrective actions. If the supplier is unwilling to implement corrective actions or in the event of particularly serious findings, Luxottica has the right to interrupt the relationship.
In 2016 and 2017, all Luxottica’s new suppliers were selected according to their compliance with job protection, human rights and socio-environmental regulations.
On the basis of the risk profile analysis carried out at the start of the year and the results of the audits of previous years, 28 suppliers of direct materials for the eyewear business located in Asia-Pacific, and in particular China, Japan and Cambodia, were subject to audits in 2017.
For six suppliers these represented follow-up audits following the identification of a number of serious problems the previous year that went above the minimum threshold defined by the LRSM steering committee. The outcome of the audits showed that improvements had been made with regard to critical issues.
For ten suppliers, meanwhile, incidences of non-compliance were identified with regards to social equirements in terms of total number of working hours and of consecutive working days. For these suppliers a follow-up audit will be performed in 2018.
No cases of environmental non-compliance were identified.
Number of suppliers audited for their social and environmental impacts
|Number of suppliers subject to auditing||28||20||20|
|Incidence versus total purchases for the eyewear business covered by the LRSM program||39%||22%||21%|
For the first time audits were also carried out on 14 suppliers from the Apparel, Footwear & Accessories (AFA) business. This was a result of the procurement centralization process following the integration of Oakley’s activities in the Group.
Finally, in 2017 a number of preventive audits were launched in order to qualify Group suppliers. These were carried out in order to establish a number of alternative suppliers in the event of particularly critical situations.
For further information see the “Luxottica Responsible Sourcing & Manufacturing principles”
27. The Group’s “zero tolerance” criteria relates to: 1) the use of child labor (under 16 years of age); 2) conditions that seriously endanger health and safety; 3) particularly harmful environmental impact; 4) use of forced or undeclared labor or imprisonment; 5) access to sites denied to auditors for the second time; 6) acts of corruption, money laundering and illicit trade; 7) persistence of non-compliance or failure to meet requests to take immediate action to comply with rules