ASML is one of the world’s leading manufacturers of chip-making equipment. Headquartered in Veldhoven, the Netherlands, ASML employs more than 14,000 people.
During 2011, we spent 3.9 billion euros on goods and services from 730 product-related and 4,180 non product-related suppliers around the world, up from 3.4 billion euros in 2010. Of this, more than 69% of the total spend was with our top 50 suppliers. It is our ambition to be recognized as an environmentally and socially sound player in the market. We also want our suppliers to be champions of sustainability.
Historically ASML has sourced a considerable part of its total spend regionally. Of the 3.9 billion euros sourced by ASML during 2011, around 1.7 billion euros (equivalent to 43%) was sourced in the Netherlands, and about half of that came from local distance. Besides the historical reasons, ASML wants to keep the triangle R&D, supply chain and manufacturing close together so that we have short communication lines in the same time zone, which stimulates time-to-market and is also environmentally friendly.
Our relationship with suppliers is guided by our Value Sourcing strategy. This strategy focuses on improving the way we work with suppliers. We increasingly expect our suppliers to invest in design and innovation, as opposed to simply producing parts based on the technical designs we give them. They should understand our customers’ requirements. We want our suppliers to be flexible and take into account fluctuations in the semiconductor market. We also want them to share part of the risk involved in developing and marketing new generation lithography machines. In return, we let them use technology developed by us for other customers and market applications, as long as they don’t compete with us. In this way, we help them with their own business strategy.
|Sourcing spend 2011 per region (%)||Product-related||Non product-related||Total|
|Europe (excl. Netherlands) (%)||52||4||37|
Forging close partnerships with our suppliers is part of our efforts to promote ‘virtual integration’. This means bringing together partners from different segments in the value chain, and from different countries, and encouraging them to share knowledge and insights so that we can all innovate better and faster. As part of this, we might, for instance, train talented people through internships and scholarships who will eventually work for other companies in the industry and not directly for us (see the section ‘Attracting talented people’ in the chapter ‘Sustainable culture’). We believe this model of integration and cooperation is beneficial to ASML, our suppliers and other value chain partners (also see the section ‘Open innovation: a compelling model for growth’ in the chapter ‘Sustainable products’).
In line with this approach of virtual integration, and generally speaking, we tend to gradually reduce our supplier base, focus on a smaller number of critical suppliers, and develop closer ties with them.
Our annual Suppliers’ Day in Veldhoven is a good opportunity to collect suppliers’ feedback. The 2011 event was attended by the largest 100 suppliers and was chaired by our COO, who is responsible for sustainability. In four breakout sessions, we worked with our suppliers to find ways to improve their virtual integration into ASML, including several sustainability-related issues. The meeting led to several new insights and helped us fine-tune our priorities regarding supplier relationships.
An additional process in our supplier management approach is set by the yearly risk assessment, which we use to select them. Hereby, suppliers are grouped into four categories: strategic, high-risk, medium-risk and low-risk suppliers. Supplier audits are planned for strategic suppliers, high-risk suppliers and medium-risk suppliers every one to three years. Supplier audits are an integral part of our supplier management process and are the responsibility of the supplier audit team within the Quality and Process Improvement department. For several years we have monitored our suppliers quarterly (and at the same time their suppliers) and profile each one based on the following four categories: quality, logistics, technology and cost. Over time, we have increasingly emphasized sustainability aspects.
In 2011, we launched an updated Supplier Profile, which includes sustainability as a topic. Suppliers that fail to meet our standards in any of the profile categories (non compliance) are encouraged to take adequate measures. Our Supplier Account Team helps suppliers to anticipate and meet future requirements.
Also in 2011, we set more ambitious sustainability standards for our suppliers. We incorporated the sustainability criteria of the Electronics Industry Citizenship Coalition (EICC) into our supplier management systems. We expect to have full EICC membership confirmed by the end of 2012, in line with standard procedures. To become a full member we actively participate in the EICC and are deploying the EICC code of conduct throughout our supply chain.
To achieve this, we created a shorter version of the EICC self-assessment questionnaire, making it easier to understand and fill out. We also added a scoring system that allowed us to measure and compare the level at which suppliers meet sustainability standards on a scale of 1 to 5. The questionnaire, which covers environmental, health and safety, ethical, and management issues, was sent to 230 critical suppliers (both product-related and non product-related). In it, we asked them to acknowledge the EICC code of conduct. Our target for 2011 was to receive back 200 responses. By the end of 2011 we had 194. In addition, ASML started in 2011 to carry out full sustainability audits at selected suppliers, using the full EICC questionnaire as audit baseline. The Supplier Audit team also provided training on sustainability and EICC requirements to the purchasing account managers at the end of 2010.
In our contractual long-term supplier agreements we have also included clauses concerning sustainability and the code of conduct of the EICC.
We also want our second tier suppliers – the suppliers of our suppliers – to meet the latest sustainability standards. Through acknowledgment of the EICC code of conduct, ASML asks first tier suppliers to follow our example and to cascade this approach into the next level to cover the whole value chain.
Our monitoring strategy from 2012 onwards is as follows:
EICC compliance through ongoing checks that all suppliers who represent 80% of our supplier spend (both product-related and non product-related) have a signed EICC code of conduct and have completed the shortened EICC questionnaire;
Fully integrate sustainability in our supplier audits. In 2012, 100% of the supplier audits will incorporate sustainability, for which the shortened EICC questionnaire will be used a basis for identification of sustainability risks and final scoring. Identified risks will be communicated to suppliers via non-conformity reports and follow-up will be given to secure proper implementation of risk mitigation plans (monitored via ASML Issue Resolution system);
EICC compliance through sustainability theme audits (applying the full EICC questionnaire) for at least 25% of the suppliers that scored 'high risk' in the regular audit or have not yet acknowledged the EICC code of conduct.