Suppliers play a significant role in our delivery process. We aim to have close and excellent relationships with our key suppliers in order to ensure that both parties understand and comply with our strict process and product requirements. Apart from financial benefits, close relationships stimulate knowledge sharing, create an environment of innovation, and integrate more strongly strategic suppliers into Wärtsilä's value chain. Wärtsilä has an extensive supply base with more than 25,000 active suppliers, most of whom are located in Europe, where we have our main production units. We are also continuously investing in developing a strong supply chain network in Asia.
Wärtsilä has defined processes for selecting suppliers, determining their requirements, and developing the supply relationship. We offer our suppliers a partnership that strengthens the competitiveness of both parties. A precondition of this partnership is an open and continuous dialogue. The partnership approach is also applied in Wärtsilä's research and development activities, in which we often collaborate with universities, research institutes, and key suppliers.
Wärtsilä's supplier requirements address both general features and issues relating to quality, product-specific requirements, environmental management, occupational health and safety, social responsibility, and legal compliance. These requirements are included in standard supply contracts. Suppliers are also responsible for complying with relevant laws and regulations. Wärtsilä monitors that key suppliers comply with these requirements by using performance indicators and conducting various types of audits. Suppliers must demonstrate their compliance with these requirements in order to receive approved supplier status.
Wärtsilä assesses and manages its key suppliers through its Supplier Management System. Wärtsilä regularly conducts supplier evaluations, which are divided into three categories: pre-assessment, auditing, and performance review. In the pre-assessment phase, Wärtsilä assesses potential new suppliers before the supplier relationship begins. Audits are conducted for new suppliers of critical components and for suppliers whose performance does not meet Wärtsilä's requirements. Performance reviews are carried out to identify and solve deviations from the requirements.
As part of the supplier evaluation, Wärtsilä conducts a rating based upon Wärtsilä's supplier requirements. This rating is a result of an assessment of various information sources, such as pre-qualification questionnaires, dialogue with suppliers, and/or conducted audits. Based on this rating, the suppliers can be approved, approved with limitations or remarks, or banned. During 2016, 132 suppliers with no valid assessment were rated, and 85 suppliers received a renewal of their rating (valid for 3 years). By the end of 2016, we rated 658 out of our 1,060 key suppliers, which covers 96% of key supplier spend, and 2,225 suppliers in total with a spend coverage of 66.7%.
This rating is part of the quarterly supplier reviews conducted by Wärtsilä Supply Management. The rating is reviewed regularly, as are the results of conducted audits.
In 2016, 28 suppliers were banned because of non-compliance with Wärtsilä’s requirements, including 19 for sustainability reasons.
Wärtsilä has clear expectations towards its suppliers in terms of compliance with relevant legislation, environmental, quality, and occupational health and safety management, and social performance, and strives to ensure that these expectations are met. Wärtsilä develops its supply management system on a regular basis.
In 2017, Wärtsilä will be launching a risk-based supplier assessment and management system for new suppliers, which will be applied by 2018 also to existing suppliers.