UPM annual report 2014

UPM Annual Report 2014

CONTENTS

STAKEHOLDERS 31–44

The sourcing of all necessary products and

services results in a significant cost element for

UPM business. Cost efficiency is the leading

principle in UPM sourcing, including price and

other cost elements.

Besides cost, UPM’s holistic sourcing

approach sets requirements for the reliability of

deliveries in the long term, the quality of the

products and services, the financial stability of

the supplier, the environmental management of

operations, social responsibility and occupa-

tional health and safety as well as product

safety.

Close co-operation with

a wide variety of suppliers

UPM aims to be a professional partner to its

suppliers and to develop supplier relationships

in a responsible manner that deliver long-term

benefits to both parties.

The company’s sourcing network consists

of suppliers ranging from private forest owners

and local companies to large international

corporations. Long-term co-operation plans

based on mutual commitment and openness

between companies are in place with key sup-

pliers. The aim of this co-operation is to work

together to optimise the entire value chain,

while sharing best practice in areas such as

supply chain, manufacturing and product

development.

Suppliers are an important stakeholder

group for UPM. UPM sourcing professionals,

with their full understanding of supply market

dynamics, are one of the key resources of

UPM.

Ensuring responsible sourcing is an integral

part of supplier performance management.

UPM works closely with suppliers to ensure

that all the company’s requirements are met

and to establish mutual understanding on the

issues of sustainability and social responsibility.

Systematic supplier

assessment and requirements

Transparent and systematic supplier require-

ments are the basis for the company’s supplier

selection process and supplier performance

evaluation. UPM’s risk assessment covers

environmental, social and economic risks and is

carried out at supplier level. Supplier audits are

initiated based on identified risks or gaps in

supplier performance.

UPM requires its suppliers to apply the

principles of the Code of Conduct and to fulfil

Tracing the origin of wood is

a prerequisite for UPM

UPM’s tracing systems and chain of custody

model cover the requirements for both PEFC

™

and FSC

forest certification schemes. UPM

considers forest certification to be an excellent

tool for promoting sustainable forestry.

With its chain of custody system, UPM

ensures full traceability of the origin of wood

worldwide. UPM has several decades of experi-

ence of wood supplier audits.

UPM verifies that the wood raw material

supplied to its mills is sustainably sourced,

legally logged and procured according to the

basic requirements of international forest certifi-

cation schemes and the EU Timber Regulation,

US Lacey act and other regional jurisdictions.

UPM therefore has control over the origin of its

own harvesting and ensures that other sources

are controlled through contractual terms of

agreement and supplier audits.

All of UPM’s wood supplies are covered by

third-party-verified chains of custody and 83%

(80%) of the wood used is certified.

Pulp and chemicals are

purchased worldwide

UPM buys approximately 1.8 million tonnes

of chemical pulp from external suppliers. Spe-

cific requirements are set for pulp suppliers with

regard to environmental performance, social

responsibility, forestry, wood sourcing and

performance reporting.

Environmental and social performance data

collection is an integral part of supplier risk and

performance management. The data is collected

regularly from UPM’s pulp and chemical suppli-

ers. The results of these surveys are discussed

with the suppliers, both on and off-site, resulting

in improvements, action plans and commitments

such as continuous improvement.

Since 2011, UPM Raflatac has annually

conducted the Responsibility Survey with the

most important paper, film and chemical suppli-

ers. In 2014 the survey was conducted with 70

suppliers. The completed surveys were scored

and ranked and the suppliers were given feed-

back based on their responses.

UPM is a significant user

and buyer of recovered paper

UPM is the world’s largest user of recovered

paper for the production of graphic papers. In

2014, the total consumption of recovered paper

was approximately 3.4 million tonnes.

Efficient paper recycling depends on the local

infrastructure for national collection schemes

and recovery systems. The recovered paper used

by UPM is purchased from Europe, where the

most significant suppliers are local authorities,

waste management companies and printing

houses. UPM aims to optimise the value chain of

recovered paper by focusing on local supply close

to the mills with minimal costs and environmen-

tal impact.

Energy from renewable sources

UPM is both a significant purchaser and pro-

ducer of energy. The majority of electrical and

thermal energy is used for the company’s pulp

and paper production. UPM favours a wide

range of low-emission energy sources and

focuses on energy efficiency and energy savings

in its businesses. In 2014, 67% (67%) of the

the criteria concerning social and environmen-

tal responsibility. These supplier requirements

are defined in the UPM Supplier Code.

In 2014, 67% (64%) of supplier spend was

qualified against the Supplier Code. Good

progress was achieved in sourcing of raw mate-

rials for paper and label, where the qualified

spend is over 80%. Additional specific require-

ments are in place for areas such as wood,

chemicals, safety, logistics, pulp and packaging.

Suppliers are encouraged to apply manage-

ment systems based on internationally recog-

nised standards and up-to-date techniques and

practices.

Wood is the primary raw

material for UPM’s businesses

UPM is both a major forest owner and a pur-

chaser of wood. UPM’s wood sourcing opera-

tions are closely integrated with the UPM

businesses that use wood as a basic raw mate-

rial. UPM sources all wood assortments to

ensure optimal utilisation of this valuable raw

material.

In 2014, UPM sourced 26.3 (28.0) million

cubic metres of wood from around the world.

The majority of wood is purchased from private

forest owners who numbered nearly 24,000 in

2014.

A network of local entrepreneurs takes care

of harvesting, logistics and forestry work opera-

tions. There were nearly 3,000 harvester drivers

and more than 3,000 truck drivers working for

the entrepreneurs in 2014. UPM wood sourcing

creates employment opportunities for thou-

sands of people living in rural areas within the

UPM wood sourcing spheres.

Sourcing operations play a significant role in ensuring the efficiency and

profitability of UPM. The objective of UPM’s sourcing operations is to maintain

a supplier base that is capable of delivering material and service solutions

that are both cost competitive and innovative to UPM businesses globally.

This calls for close co-operation between UPM sourcing professionals and

UPM businesses.

WOOD DELIVERIES TO UPM MILLS

1,000 m

2014

2013

Finland

17,910 17,907

Germany

1,336 1,691

Austria

962 1,098

Russia

328

352

United Kingdom

289

297

Estonia

135

123

United States

940

881

Uruguay

4,366 4,519

Total

26,266 26,868

fuels used by UPM were from renewable sources.

In addition to the company’s own electricity

generation, electricity is also purchased from the

Nordic and Central European energy markets.

In Germany, the company has bilateral agree-

ments in place with electricity suppliers. In 2014,

4.9 TWh (5.1 TWh) of electricity was purchased.

Logistics form the foundation

of on-time deliveries

UPM delivers approximately 1.3 million truck-

loads (c. 25 tonne each) of products and raw

materials around the world every year; that is one

load every 25 seconds. Of all UPM deliveries, 68%

are transported by rail and road and 32% by sea.

The majority of UPM’s haulage is handled by

contract partners. UPM aims to create strategic

long-term alliances to create benefits for the

company and its customers.

UPM has focused on optimising transporta-

tion. At the same time, emissions caused by

transportation are reduced to the lowest possible

volume.

Wood sourcing, transportation and logistics

have a significant socio-economic impact on rural

areas around the UPM mill sites. In Finland

alone, the total external workforce includes 1,000

harvester drivers, 1,400 truck drivers, 550 railroad

workers, 360 dock workers and 650 sailors. The

number of entrepreneurs and companies involved

is 230. Looking at UPM global scale this, together

with purchases from the forest owners, results in

significant support for local livelihoods in rural

Europe, USA and Uruguay.

Suppliers

are an integral part of UPM value creation

FOCUS ON SOCIAL RESPONSIBILITY

In 2014, UPM focused more intensively on social responsibility issues in its supply chain. Based on

a human rights related assessment conducted in 2013, UPM evaluated its present sourcing processes

and took the necessary steps in order to highlight human rights related issues in its sourcing activities.

The risk assessment related to the supplier base was enhanced. Consequently, the number of risk

assessment-based supplier audits was doubled in 2014 with a much wider geographical coverage

than earlier. Some of the audits covered the entire up-stream supply chain.

UPM also combined forces with the Fair Working Conditions (FWC) organisation on audits in China

in order to benchmark the employment practices of UPM’s suppliers, based on the recommendations

of the International Labour Organisation (ILO), for example.

In addition, UPM arranged training on responsible sourcing to nearly 200 employees and improved

the awareness of the sourcing personnel.

The development of responsible sourcing practices will continue in 2015.

Read more:

www.upm.com/suppliers

www.upm.com/responsibility

and

www.fairworkingconditions.ie

UPM experts auditing

a pulp supplier in Brazil.

UPM's external purchasing spend

Fibre 30%

Logistics 17%

Indirect

materials and

services 15%

Raw

materials

27%

Energy 11%

Sources of wood to UPM mills 2014

Company

forests 17%

Import 12%

Private

forest 35%

Delivered

sale/ incl.

sawmills 32%

State

forests 4%

Read more on UPM’s sustainable forestry (p.53).

14 13 12 11 10 09 08 07 06 05

UPM group’s electricity supply

TWh

■

CHP production

■

Hydro

■

Nuclear

■

Condensing

■

Purchase

Electricity consumption