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The responsible management of the supply chain

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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 2,000 suppliers.

Of these, suppliers of direct materials and finished products are an important link in the Group’s supply chain and represent around 50% of purchases. They are mostly located in Europe and China, areas where the Group produces over 80% of its eyewear collections. When selecting these suppliers, Luxottica indeed prioritizes developing linked industry in the areas in which it has manufacturing facilities, working with numerous local supplier companies.

The supply chain by supplier type20182017
Raw materials and components (direct materials) 36% 37%
Finished products (e.g. Oakley’s Apparel, Footwear and Accessories - AFA) 12% 12%
Third parties’ brands sold in the Group retail network including contact lenses 22% 17%
Logistics 12% 12%
Other 18% 22%

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 finished products20182017
Europe 48% 45%
China 40% 39%
Asia-Pacific 7% 8%
Unites States 4% 5%
Latin America 1% 3%

When selecting these suppliers, Luxottica prioritizes developing linked industry in the areas in which it has manufacturing facilities, working with numerous local supplier companies.

LUXOTTICA RESPONSIBLE SOURCING AND MANUFACTURING PROGRAM

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” mechanism10 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.

THE AUDITING OF SUPPLIERS

Luxottica engages a qualified third party to monitor the suppliers’ compliance with ethical principles and environmental and social responsibilities, as well as to implement corrective actions in the event of non-compliance with the Group Code of Ethics and/or local regulations.

In line with its commitment to sustainability, the Luxottica Responsible Sourcing and Manufacturing program focuses on the suppliers of direct materials and finished products and has progressively extended its geographic coverage to Europe, in addition to Asia-Pacific and Latin America.

The number of current and potential suppliers of direct materials for the eyewear business that were subject to audits increased from 28 in 2017 to 45 in 2018 as follows:

  • 10 follow-up audits due to the unsatisfactory results of the audits of the previous year;
  • 9 preventive audits, in order to establish a number of alternative suppliers in the event of particularly critical situations;
  • 26 maintenance audits, in order to continue to be qualified as Group suppliers.

For ten suppliers, incidences of non-compliance with LRSM requirements were identified in terms of total number of working hours and of consecutive working days. For eight of these suppliers a follow-up audit has been deemed necessary (three performed at the end of 2018 and five planned in 2019). For two suppliers Luxottica decided to discontinue the relationship.

No cases of environmental non-compliance were identified.

Number of suppliers audited for their social and environmental impacts 2018201720162015
Number of suppliers subject to auditing 45 28 20 20
Incidence versus total purchases for the eyewear business covered by the LRSM program 55% 39% 22% 21%

The audit process on AFA suppliers, which was introduced in 2017, continued in 2018, as a result of the procurement centralization process following the integration of Oakley’s activities in the Group. In 2018, 21 audits were carried out on production plants of suppliers located in Asia-Pacific, Latin America and Europe.

Finally, in 2018 Luxottica assessed the opportunity to extend the LRSM program to suppliers of indirect materials (materials used in the production process) and maintenance services inside the Operations. A pilot test was conducted in China in order to verify the immediate application of LRSM audit system to this type of suppliers.

Training of suppliers

In 2018, Luxottica launched a training workshop on responsible sourcing for strategic suppliers. China was the first geographic area to be involved due to its high-risk profile and the amount of purchases made by the Group, which in China produces over 40% of its frames and sunglasses.

The workshop involved the Company’s 50 strategic suppliers in China, for a total of 100 people in three days, and covered topics that are usually verified during the on-site audits: labor and human rights, business ethics, health and safety and the environment, in addition to LRMS principles and Luxottica’s Code of Ethics. Luxottica used a third party to perform the training in the local language, assuring that all attendees could actively participate and understand the topics.

Other training initiatives for suppliers are planned for 2019.

For further information see the “Luxottica Responsible Sourcing & Manufacturing Principles” document.

10 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