The EDP Group procurement activity decisively contributes to ensure the recognition of EDP as a leader in sustainability, through the high ethical standards and environmental, social and economic responsibility of its practices, with the ongoing objective to increase productivity and develop competitive advantages.
The procurement activity promotes a low-risk and maximum efficiency business profile from a long-term perspective, and it is one of the pillars of the EDP's Strategic Update 2021-2025. Risk Management also complies with the Corporate Policy of Business Risk Management.
Approach to Risk Management
The goal of risk mitigation and maximum efficiency determines that the organizational model of the GPU is operated according to procurement categories and the decision making process obeys a strict procedural protocol. The risk mitigation goals can be viewed in the following diagram:
Contract Risk
The risk analysis begins by identifying the specific risks of the type of good or activity intended to be sourced. These risks may be technical, economic, reputational, environmental and social in nature and will define the requirements to be included in the specifications.
The EDP Group uses two main instruments to map the specific sustainability risks of each type of good or activity:
Economic Activity Risk – European Bank for Reconstruction and Development - list of environmental and social risks associated with each economic activity organized according to the European Union’s activity classification system NACE 2.0, revision 2014.
Impact Matrix – Matrix of risks that identifies potential negative impacts on EDP that should be mitigated by the specifications.
Supplier Risk
Companies invited to submit supply bids are selected according to the level of requirement of the specifications. The companies must be registered with EDP and, depending on the nature of the contract, may need to be qualified.
Greater value is placed on the following aspects, among others:
- Risk analysis of the suppliers to be consulted;
- Supplier assessment;
- Results of audits conducted;
- Information on Corporate Social Responsibility;
- Experience / results of similar contracts with other entities;
- Absence of litigation and / or debts to the EDP Group.
The EDP Group uses two main instruments to ensure the mitigation of risks in the selection of suppliers:
Supplier Assessment – based on the Supplier Registration System that includes a self-statement system of each company, the results of external assessments and assessments carried out by EDP. This system generates a risk and sustainability rating for each company. The following sources of external information, among others, are used: Dun & Bradstreet, RepRisk.
Supplier qualification and the good or service to be supplied – supplier qualification is the process of approval of suppliers with the skills for the supply of a particular category of goods or services in a context of greater technical, environmental, social and economic-financial requirements. Risk mitigation is pre-guaranteed in this way.
Country Risk
The country risk influences the risk assessment of the contracts and suppliers and has an impact on the procurement decision process. GPU uses Business Intelligence methods to access several credible external sources to develop an ongoing and sustained process of risk analysis. EDP favors the atypical crossing of risk information that complements conventional rankings. Two external sources for risk analysis are:
- RobecoSam – this entity develops the Country Sustainability Ranking for the purpose of providing a new level of information to support investors' decisions in sovereign bonds. EDP uses this source to generate an inverse map of country risk and identify analysis subtopics.
- RepRisk – this entity continuously monitors news for any negative economic, social and environmental impact and allows a country risk vision to be obtained related to business activities, covering the Global Compact topics. EDP uses RepRisk for both the risk assessment of companies and to assess country risk. RepRisk establishes a contrasting, up-to-date and very detailed view compared with the conventional rankings.
Risk Management Measures
The information obtained from the risk analysis, when appropriately handled, serves as support for the negotiation processes managed by the GPU and is shared through the procurement management systems and other complementary means with the business units and LPT in different markets, to measure the risk and sustainability of each selection process and to establish the risk management measures for contracting suppliers.
– Suppliers that are evaluated as critical at EDP through a critical awareness score that accounts multiple criteria: annual value spend; supply frequency; access to EDP’s customers; access to EDP’s technical equipment; access to EDP’s sensitive data; supplier substitutability; component substitutability; supply failure consequence; strategic relevance of the supplier
The technical and sustainability evaluation of suppliers' bids is performed without knowledge of the price bid. Only bids complying with the rules set out in the specifications advance to the negotiation stage.
Set of rules governing conflicts of interest and transactions with related parties.
EDP has an internal Audit Department that fosters compliance with legislation, with internal rules and external commitments freely undertaken.
Ethical rules applicable to all employees having a relationship with suppliers.
EDP has a Customer Ombudsman. The system favors the monitoring of potential impacts on customers by suppliers acting on behalf of EDP.
Besides the Supplier Code of Conduct, the contracts establish particular conditions that impose obligations concerning information sharing and the specific performance of sustainability rules.
EDP has an Ethics Ombudsman. The system favors the monitoring of the impacts generated by the activities of suppliers acting on behalf of EDP.
– Audits are conducted according to the specifications, either for the purpose of Qualification or for checking the information collected.
A company that develops an assessment system and audits suppliers which integrate the EDP supplier registration system.
For all supplies that pose risks, certification requirements according to ISO 9001 - Quality, ISO 14001 - Environment and OHSAS 18001 are established.
Association of companies of the energy sector, in which EDP participates, which audits coal mines.
http://bettercoal.org/
All employees of suppliers acting on behalf of EDP and/or on its premises must have adequate training to perform their roles. Supplier Assessment System (SAF) is a system that establishes the assessment criteria and rules and registers the performance of suppliers. This system aims to:
- Reduce risk in supplier selection;
- Increase the performance of EDP Group suppliers, from a continuous improvement perspective;
- Meet the requirements of quality and environmental standards;
- Feed the Supplier Registration System.
The specifications require the prior qualification of the Supplier for certain types of supply. Qualification is a key measure for mitigating risk.
Corrective plans and, where necessary, improvement plans are established depending on the results of audits and inspections.
According to the risk rating of each contract, a plan for monitoring supplier performance is defined. Typically, in addition to technical monitoring, there are audits and inspections conducted of environmental, safety and legal compliance. The results of this monitoring are used to update the Supplier Registration data, influencing their assessments.
The contract award criteria and respective weightings are set prior to publication of the market consultation. The price factor has a minimum weight of 50%.
Negotiation only occurs with the suppliers whose bid has been analyzed and approved to be in compliance with the specifications. The negotiator values, among the many aspects:
- The characteristics of the good or service to be acquired;
- Market situation, suppliers, price dynamics and overall costs (TCO);
- EDP Group savings goals;
- Expectations of the Business Unit and its budget;
- Mitigation of risk and sustainability of the suppliers;
- Volume of previous acquisitions and processes involving the same competitors.
The negotiator is supported by a protocol and decision making rules that protect him/her from any negotiation anomalies.
The specifications establish the minimum requirements for legal, technical, economic, social and environmental compliance that the supplier must meet.
– The risk analysis generates a risk rating for each supplier in terms of each contract. The risk of the Supplier varies depending on the country in which it is operating and the requirements of the specifications. The specifications require the prior qualification of the Supplier for certain types of supply.