Doing business responsibly goes beyond a company’s own four walls. The STIHL Group demands the same high standards from its over 10,000 suppliers as it does from itself. Responsible labor and business practices, as well as environmental protection and transparency, are core values throughout our supply chain. Together with our suppliers, we are creating a balance of quality, price, availability, and legal certainty – all while keeping an eye on efforts to reduce emissions and conserve resources.
Organization and responsibilities
In the reporting year, there were no material changes to the way procurement is organized at the STIHL Group. The STIHL founding company plays the leading role within the purchasing network and defines the purchasing strategy for the entire STIHL Group, which allows us to pool our needs while centrally and efficiently ensuring the supply of raw materials.
The purchasing strategy is translated into internal guidelines and standards to ensure standardized processes and procurement principles. The director of purchasing reports to the STIHL AG Executive Board member for Manufacturing and Materials and works with the responsible senior managers and the purchasing managers of the production companies to develop the global STIHL purchasing strategy. Procurement teams with representatives from Purchasing, Quality Assurance, and Procurement Logistics work hand in hand to ensure the efficient Group-wide implementation of the strategy and the procurement principles. Commodity managers oversee procurement and the activities for individual product groups. Leading buyers maintain contact with suppliers, work with the commodity managers to select suppliers for individual products from the product groups, and negotiate prices. The structure is rounded out by commodity buyers, who keep an eye on the regional markets and incorporate specific local requirements and criteria into the product group procurement strategies. As a global organization, the STIHL Group also buys goods and services around the world. Within our production networks, we strive to procure raw materials and upstream components for manufacturing on the continent where they are processed whenever possible to keep transport distances and CO₂ emissions to a minimum.
Local purchasing volume¹
of production materials
(production companies only)
Sustainable purchasing decisions
A significant portion of our purchased materials and components is attributable to steel, magnesium, plastic, and electronic modules. STIHL uses them to make many key components of our products ourselves. Our above-average vertical integration protects our expertise in key areas of technology and ensures our ability to manage the individual steps of the production process ourselves and meet our high STIHL quality standards. The operation, maintenance, and repair of our equipment, along with IT services and technical services, account for the lion’s share of our indirect purchasing needs.
Purchasing volume of essential production material by type of material¹
Because we want to ensure that our products are manufactured with the greatest possible conservation of resources in mind, we are developing a strategy for the use of raw materials that are critical from an environmental perspective. We initiated the strategy with a kickoff workshop in 2022. The goal is to either replace environmentally critical raw materials or procure them as sustainably as possible if they cannot be replaced. In addition, we want to reduce the use of potentially hazardous process chemicals in our own production and over the medium term in our supply chain.
Fiscal year 2022
2022 presented STIHL with major challenges. On the one hand, the Group faced continued high demand. On the other, it faced materials shortages and supply bottlenecks that were further exacerbated by the Russia–Ukraine war. Together, though, we were successful in keeping the impact on production and on supplying our customers to an absolute minimum. As in the previous year, components made of steel (such as punched and turned parts) and entire assemblies made out of steel were most affected by the shortages, as were electronics components and plastics. The Russian invasion of Ukraine also meant supply problems for cable harnesses, switching equipment, and rubber parts.
We are trying to mitigate the impact of the energy crisis through long-term contracts, and were able to cover most of our electricity and gas needs for 2022 and 2023 by relying on existing supply agreements. Additionally, we are in close contact with suppliers to come up with energy-supply alternatives early on in the event of a crisis. In the long term, STIHL supports efforts to enhance Germany’s energy independence.
The shortages of raw materials, components, and energy have driven up prices and resulted in a sharp rise in our procurement costs. As a result, we too have had to adjust our prices.
Because our choice of suppliers has an impact on how sustainable our supply chain is, STIHL has expanded the main purchasing criteria (price, quality, and logistics) to include sustainability-oriented aspects. To this end, Quality Management launched the Sustainable Supply Chains project in 2020. In 2022, we rolled out various processes and tools that we had developed in the previous year. The milestones include the completion of the first risk exposure analysis of all suppliers as a basis for deriving necessary preventive measures. As part of the analysis, we classified them into four risk categories: low, medium, high, and extreme. In addition, we introduced a cloud-based platform that Group companies can use to check and monitor their suppliers’ conformity with the relevant sustainability and compliance standards. The platform is designed to increase our suppliers’ transparency. By the end of 2022, we had already invited over 700 suppliers to join the platform. The decision to extend an invitation is based on a variety of factors, including the results of the risk exposure analysis. We also developed a concept for the further development of a global sustainable supply chain network at STIHL starting in 2023, once the Sustainable Supply Chains project is complete.
Sustainability already plays an important role when (pre)selecting and onboarding a potential supplier. Our code of conduct for business partners is an obligatory element of any supply contract (see “Code of conduct for suppliers,” p. 63). An international reporting system that takes into account input such as the information on our internal platform is in place to monitor and audit existing suppliers. It also helps us support them in stepping up their commitment to sustainability if need be. We demand corrective measures if the annual risk analysis indicates that suppliers have failed to implement the STIHL Group’s sustainability standards. As a last resort, STIHL can terminate the relationship with a supplier if it still does not change its behavior. There were no material violations on the part of suppliers in 2022.
For greater transparency and sustainability, we started analyzing potentially critical supply chains as a whole in 2021. Our three pilot projects for magnesium, cobalt, and textiles started in 2022 with an intensive analysis and are set to continue in 2023. To analyze its cobalt supply chain, STIHL is working with the Responsible Minerals Initiative (RMI). We joined the initiative in 2021 in order to make the procurement of minerals more sustainable. The RMI is a cross-sector organization with over 400 company members that is dedicated to promoting the responsible mining, handling, and purchasing of minerals around the world. We recently became a member of the Cobalt for Development (C4D) initiative. Its goal is to improve the living and working standards for artisanal cobalt miners and their communities in the Democratic Republic of Congo. C4D is exclusively funded by a cross-industry partnership including BASF, BMW, Samsung Electronics, Samsung SDI, and the Volkswagen Group and implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).
The advancement of our supply chain management approach is helping us contribute to the goal “Decent work and economic growth” (United Nations Sustainable Development Goal, SDG 8) by promoting minimum social standards in our supply chains and enforcing respect for human rights requirements, including the ban on child labor, as well as fair and safe working conditions.
Working together is the key to achieving more, especially when it comes to complex issues like sustainability. That is why STIHL has joined SustaiNet, a platform for sharing and exchange that focuses on sustainability in the supply chain. Since July 2021, the six member companies from various industries have met regularly to discuss their experiences and share knowledge and recommendations. In 2022, the teams took a closer look at preventive measures, corrective actions, and reporting, as well as strategies to protect human rights.
Code of conduct for suppliers
We expect our suppliers to actively support us in developing a sustainable supply chain. Back in 2015, we introduced a code of conduct for suppliers, in which we described our vision of sustainable and responsible business practices. In 2021, we reworked the code of conduct with regard to social, environmental, and governance aspects to define even clearer criteria that our partners have to meet. The code of conduct has been adopted by the Executive Board and is based on the principles of the United Nations Global Compact and the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work.
In addition to compliance with human rights standards while providing fair and safe working conditions, STIHL requires its suppliers to exhibit a commitment to protecting the environment. The focus lies on an approach to doing business that conserves resources, the recording and reduction of greenhouse gas emissions, and the sustainable procurement of (raw) materials. The code of conduct also contains provisions that require suppliers to prevent discrimination and corruption and ensure data protection. By the end of 2022, around 67 percent* of our largest suppliers had already signed the code of conduct. The aim is to roll out the new code of conduct to all STIHL Group suppliers by the end of 2023, with purchasing staff throughout the Group to receive training to this end over the course the year. We will use mechanisms such as disclosures and audits to measure compliance with the code of conduct.
* Production companies only, not including ZAMA Group.