Sustainability within the Supply Chain

Procurement within the KION Group is centrally managed by the Group’s global procurement organization, which covers both industrial trucks & services (ITS) and supply chain solutions (SCS). As part of the CTO function¹, this global procurement organization aims to create value through category expertise and optimized geographic sourcing as well as leverage global synergies and local flexibility to build up a sustainable, scalable procurement base. The goal is to ensure that supplier relationships are well managed and build productive partnerships with other areas of the KION business.

In order to achieve the best results, reduce risks within the supply chain, and promote strategic growth as well as cost savings, the KION Group is currently developing and introducing a series of measures to support its global procurement operations, including: tasks and areas of responsibility, targets, models, mandates, department KPIs, decision-making boards, committees, interfaces, and escalation models. Together, these provide the foundation for a targeted global procurement organization that serves the entire KION Group, including its subsidiaries.

Sustainable supply chain management requires an effective governance structure, high levels of process standardization, good quality data, and appropriate and workable policies that are intended to apply across all business units and legal entities within the KION Group.

It is the duty of the procurement organization to inform all individuals entrusted with procurement activities in the Group of the sustainability standards to be followed when selecting and evaluating suppliers. In order to underline the importance of sustainability across all Group organizations, the Group has put sustainability KPIs in place to measure the efficacy of its sustainability strategy. These KPIs also play an important role in supplier relationships and inform procurement decisions.

Supply chain management within the KION Group is about shaping and managing the flow of information and materials at all stages in the value chain, based on both business and sustainability criteria. This ensures that all important processes, from the procurement of the required materials to the completion of the end products and their delivery to the customer, are set up in a socially responsible and environmentally friendly way. However, the global procurement organization is exclusively concerned with the procurement of the required materials and the associated supplier management within the scope of these processes and procedures. Responsibility for manufacturing and the delivery of end products to the customers lies with other organizations within the KION Group and its subsidiaries.

In addition to procuring parts and services that make sustainable use of resources, the Group’s goal is to ensure that the various parts of the value chain live up to certain defined standards in terms of human dignity, working conditions, and environmental compatibility. To this end, the KION Group is currently setting up an information and analysis system to record relevant data and information to support the effective management of the supply chains for its key procurement items and materials.

Principles of Supplier Conduct

The Group has laid down specific requirements and rules of conduct for responsible procurement in the KION Group Code of Compliance and in the Principles of Supplier Conduct and obliges its suppliers to observe these requirements when entering into business agreements with KION Group companies. The Principles of Supplier Conduct, in particular, contain clear ecological and ethical guidelines in line with environmental, labor, and human rights standards and are available in the three main languages of KION’s most important procurement markets.

In addition, the KION Group’s General Purchasing Conditions—and individually agreed contracts—set out detailed requirements to ensure compliance with procurement obligations, applicable laws, and the KION Group Principles of Supplier Conduct, as well as for maintaining transparency throughout the supply chain. All these policies are binding for the entire KION Group and all its legal entities, and are regularly audited to ensure that they are up to date and complete.

Three-Phase ESG Evaluation

In order to objectively and robustly assess the sustainability risks and credentials of its key suppliers, the KION Group has introduced a three-phrase ESG (environmental, social, and governance) evaluation using the SaaS (software-as-a-service) platforms provided by EcoVadis and IntegrityNext. In 2022, KION started using the IQ platform from EcoVadis to conduct general sector and country risk analyses for all its direct procurement suppliers—i.e., those that manufacture materials for the Group’s production operations—where the annual KION Group spend is over 100,000 euros, in order to better understand their sustainability risk profile (phase 1).

In a next step, the company began using the IntegrityNext platform and its self-evaluation questionnaire to assess the extent to which these direct procurement suppliers comply with human rights, labor, and environmental standards. Alternatively, the evaluation is performed using the EcoVadis supplier assessment. For this level, suppliers are asked to undergo a sustainability assessment based on a check of their documentation (phase 2). This program was adapted in 2023 to align even more closely with the requirements of the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG), which led to the addition of an internal risk assessment (phase 3).

Thanks to this three-phase evaluation process, the KION Group can now verify that its suppliers comply with specific standards in the areas of HSE, anti-corruption and anti-bribery, product-related environmental protection, and upstream supply chain monitoring. Based on this, suppliers’ compliance with human rights, employee rights, and employment standards can be checked first and foremost.

New suppliers are asked about their sustainability credentials as part of the supplier onboarding process and must undergo the three-phase ESG evaluation described above. Existing suppliers are checked annually. These approaches give the KION Group a transparent way of tracking the sustainability performance of its suppliers and managing risks and opportunities related to the sustainability of the supply chain in a targeted way.

In July 2023, KION announced its official commitment to the Science Based Targets initiative (SBTi). This means that continually reducing CO₂ emissions within the KION supply chains is now a binding target. Since taking this step, CO₂ reduction and net-zero requirements have been incorporated into supplier relationships and the tactical design of the supply chain. The global procurement organization works on an ongoing basis to develop and implement the methods, processes, and strategies required to achieve this target.

German Supply Chain Due Diligence Act (LkSG)

The KION Group took the requirements of the 2021 German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG) as an opportunity to closely examine its supplier evaluation and assessment program across all regions for direct and indirect procurement categories. The three-phase ESG evaluation system described earlier is the result of this review. Additional sustainability requirements supplement the new supplier evaluation processes.

A key element of the LkSG legislation introduced in 2021 is that companies must provide their own staff with training on the topics of human and environmental rights within the supply chain. To this end, more than 80% of employees working in procurement completed training on the related initiatives in 2023. By carrying out this training, the KION Group wants to ensure that suppliers comply with human rights, labor rights, employment standards, and environmental protection requirements. Further training and monitoring are planned for 2024 as part of the comprehensive three-phase ESG evaluation system and other proactive sustainability initiatives.

Conflict Minerals and Conflict Zones

In devising its corporate strategy, the KION Group balances economic, environmental, and social factors. The key priority for the global procurement organization is to ensure compliance with all international laws and regulations, and at the same time exceed customer expectations by going beyond the minimum requirements. The KION Group is not required to report on conflict minerals under European Union regulations; however the Group acknowledges this legislation and is working to include conflict minerals and conflict zones as part of its system for assessing and improving the sustainability of its supply chain. In order to improve transparency around these issues in the supply chain, the KION Group’s General Terms and Conditions of Purchase require that suppliers submit the standardized Conflict Minerals Reporting Template (CMRT). KION has also decided to work with the SaaS platform provider Assent. Its compliance portal is used by more than 800 companies, and enables KION to analyze product-specific supplier data as well as identify smelters or refiners in its supply chain based on the submitted CMRTs, which must be communicated to KION annually by the suppliers.

Since 2022, the KION Group has participated in an annual industry initiative coordinated by Assent that specifically encourages smelters and refiners to undergo evaluations under industry-recognized audit programs. Over 200 companies have joined this initiative as signatories to a joint letter—which includes links to the auditing institutes. This accentuates the significance of auditing to companies that have yet to undergo an assessment.

The Group-wide Conflict Minerals Standard entered into force in 2023 in accordance with the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas published by the OECD, the European Conflict Minerals Regulation (EU) 2017/821, and the US Dodd-Frank Act. This standard sets out the KION Group’s own commitments with respect to conflict minerals and also defines its expectations for its suppliers around the world in line with the KION Principles of Supplier Conduct. It applies to all KION Group companies worldwide and to all employees, in particular those involved in the development and procurement of goods and services.

Footnotes:
[1] The KION Group’s cross-brand and cross-regional approach to product development is designed to maintain universal standards and ensure international coordination of its technical operations around the globe. Functions such as research and development, procurement, and quality and sustainability management all fall under the remit of the KION Group’s Chief Technology Officer (CTO).
[2] ESG evaluation (phases 1 and 2) only available since 2022
[3] EcoVadis assessment introduced in 2019