We work with numerous suppliers around the globe; they play a key role in our value creation. We have a shared goal: to work together as partners to achieve sustainable production. As a basis for this collaboration, we have defined the environmental and social criteria that are important to us.
The value added of an MTU product includes important pre-production stages at external suppliers. We seek to create reliable relationships with those suppliers based on mutual trust. In keeping with our claim of sustainable value creation and the expectations of our stakeholders, we uphold certain standards in purchasing. For us, the pursuit of sustainable supplier management (responsible sourcing) encompasses environmental and social aspects as well as transparency along the supply chain. Key sustainability requirements are mandatory for suppliers. We place the same standards as regards sustainability on the collaboration with our suppliers that we do on our own business activities. To a large extent, the same standards apply to both of MTU’s business segments: new and spare parts (original equipment manufacturer: OEM) and commercial maintenance (maintenance, repair and overhaul: MRO). However, they each have their own organizational units for sourcing production material.
Because today’s supply chains are so global, extensive and complex, we concentrate our efforts regarding sustainability aspects on the supply step immediately upstream (tier 1). However, our direct suppliers are contractually obliged to ensure that their subcontractors also abide by our defined standards. In 2019, our sites worked with 6,253 suppliers around the world; our supplier base was smaller than in the previous year (2018: 6,983), especially regarding OEM suppliers from Germany. Europe is home to 82.9% of the suppliers, with 63.9% of the total number of suppliers located in Germany.
MTU suppliers 2019 by region (production and non-production material)
The purchasing volume for production material in the OEM business in 2019 ran to some EUR 611 million for the OEM business (2018: EUR 516 million) and to just under EUR 2.4 billion for MRO (2018: EUR 1.9 billion). In 2019, we purchased non-production material to the tune of EUR 720 million for OEM and MRO combined (2018: EUR 510 million). By and large, we were able to source production and non-production material for the OEM business at our own discretion. By contrast, MRO purchasing volume for spare parts and repair work is subject to strict requirements imposed by the relevant OEMs. As a result, MTU Maintenance has less room for maneuver in selecting suppliers. The sole exception is MTU Maintenance Lease Services (MLS) in Amsterdam.
Measured by purchasing volume, the Western Europe and North American markets, which are so important generally for the aviation industry, account for the lion’s share of MTU’s procurement. In the business for new and spare parts, we procure across the entire breadth of the supply chain, from blanks to finished parts. We always source castings and forgings externally, and the same goes for special materials for which MTU has not built up manufacturing expertise, such as electronic control systems. If possible, we source our supplies directly from the manufacturers of blanks or finished parts, whereby the company procures raw materials itself only to a small extent ( → The measures we take regarding conflict minerals in raw material purchasing). For commercial engine modules, the average proportion of sourced parts lies between 52% (Poland) and 69% (Germany).
Purchasing volume 2019 by region (in EUR m)
Local value creation is particularly important when purchasing non-production material and services, as is the wide variety of goods and services. We procure non-production materials predominantly in the countries in which we operate. The local proportion of the purchasing budget (production and non-production material) was 19.6% in Germany and 44.3% in Poland. Overall, MTU sourced 18.7% of its entire purchasing volume from local suppliers.
Our contribution to the SDGs
Through responsible supplier management, we can help achieve a number of the global Sustainable Development Goals. In particular, we view our commitment to fair, global supply chains for our products through compulsory social standards as a contribution to SDG 8 on “Decent work and economic growth,” and also as an expression of our corporate social responsibility outside our factory walls. Through compliance requirements for suppliers, we support, for instance, SDG 16 on “Peace, justice and strong institutions,” a secondary objective of which calls for reducing corruption and bribery worldwide.
Setting sustainable standards in purchasing
We have established a binding Code of Conduct for Suppliers that is a fixed component of the contracts. The code is informed by the ten principles of the UN Global Compact and contains the following social and environmental standards: respecting internationally recognized human rights, observing the International Labour Organization’s (ILO’s) core labor standards, protecting the environment and combating corruption. Each contract signed by a supplier includes the commitment to abide by these principles and to communicate them to subcontractors. The Code of Conduct applies to suppliers of the European manufacturing sites and of MTU Maintenance Canada and MTU Aero Engines North America, and therefore to 75% of the Group reporting entity. Moreover, MTU’s General Terms and Conditions of Purchase also contain environmental, social and compliance stipulations. In our General Terms and Conditions of Purchase for our European sites, we also insist on compliance with the EU’s REACh chemicals regulation. When managing our suppliers, we place a particularly strong focus on safeguarding the respect of human rights. This topic is presented separately in the chapter on corporate governance. → Human rights and conflict minerals in the supply chain
To raise awareness of sustainability standards in the supply chain, we regularly provide purchasers with training on professional compliance matters and on the MTU Code of Conduct, which applies to all the company’s employees and prohibits corruption, bribery, the granting of undue advantage, and anti-competitive behavior. Our purchasers are also trained on the Code of Conduct for Suppliers. In addition, we offer special corporate responsibility training, including bespoke training for purchasers.
Suspicions that the Code of Conduct for Suppliers may have been breached can be reported confidentially to MTU’s Compliance Officer. Reports can also be submitted anonymously via the web-based iTrust system, which is available in several languages. Should a supplier be implicated in charges of corruption, extortion, the granting of undue advantage or the use of child labor in the execution of a contract for MTU, the collaboration agreement will be terminated without notice. If other principles of the Code are violated, the supplier must demonstrate that suitable corrective measures have been initiated and implemented and must guarantee this in writing. MTU reserves the right to carry out on-site audits to verify compliance with the Code of Conduct. No accusations of possible breaches of the Code of Conduct were reported or registered during the period under review. Nor were there any complaints about suppliers. Therefore in 2019, as in previous years, no supplier partnership was terminated because of sustainability deficiencies, confirmed cases of corruption or other complaints.
Risk management and assessment
We believe partnerships based on trust are key to sustainable supplier management. For this reason, we seek out long-term relationships with our suppliers. In the OEM business unit for aircraft engines, for example, a large proportion of the materials and services is based on contracts with a typical term of two or more years. Contractually agreed buffer inventories allow us to respond quickly to fluctuations in demand. In the reporting year, MTU worked with 1,407 new suppliers (2018: 1,019), or 22.5% of the total (2018: 14.6%). All suppliers are vetted before being accepted into MTU’s supply chain. This process includes a binding supplier disclosure and contractual undertaking to comply with the Code of Conduct. MTU’s engine leasing business, Amsterdam-based MLS, has its own separate but similar process. To cover environmental aspects, we request proof of certification to standards such as ISO 14001. Using periodic evaluations, we regularly review existing suppliers, including with respect to their ISO 14001 certification. Once approved, suppliers must regularly demonstrate their ISO 9001 compliance for quality management via re-certifications. We present our analysis of risks relating to human rights in the supply chain in this report under → Human rights. We plan to further develop this in the future.
Our plan is to integrate sustainability aspects into supplier audits for the OEM and MRO business.