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Qualification and selection of suppliers

Supplier qualification and assessment is handled a Group level and is based on verification of technical, economic, and organisational quality requirements, compliance with environmental and safety regulations, as well as acceptance of the rules set forth in the Group's Code of Ethics. The Supplier Qualification and Assessment Department of the Procurement and Tender Contract Management Department manages the supplier qualification and assessment process for the whole Group, manages the database of qualified suppliers and prepares reports for their assessment.

Supplier assessment and checking

With regard to supplier assessment, the monitoring model and the handling of the periodic assessment of the suppliers was improved in 2011 by means of the introduction of quarterly reporting which permits the company contact person to check the contractual performance of the suppliers in the three fundamental areas of quality, safety and the environment with the possibility of temporarily suspending the contractual relationship for 3 or 6 months in the event of serious or very serious non-compliance.
The checks carried out by the company contact personnel take place for the deliveries of goods on receipt, while in relation to the provision of services and work the check takes place quarterly during the execution of the services by means of compiling and updating specific assessment check lists which take into account the elements concerning any sub-suppliers as well. The number of checks on services and work is defined on the basis of the contractual amount, the term of the order and the contract, and the impact on quality, safety and the environment of the services monitored. During the last quarter of 2011, 4 check lists were up-dated regarding the emergency service, scheduled network maintenance, separate waste collection and the collection of outsized waste, introducing additional monitoring elements for sub-suppliers as well as checks on safety. In the event that goods or services delivered are found to be non-compliant, the company contact must record and manage the event to guarantee its traceability and its impact on the periodic supplier assessment.
In 2011, internal audits continued, to check the procedures adopted: the training plan for company contacts was developed on the elements noted during the encounters as well.
In 2011, inspections were also continued at the facilities of suppliers of strategic goods, in some cases noting partially non-compliant behaviours which were promptly highlighted and corrected in a short space of time, with subsequent verification of the effectiveness of corrective actions.
10 inspections were carried out, care of qualified suppliers so as to assess the compliance of the production processes in line with the ISO 9001, ISO 14001 and OHSAS 18001 standards.
With regard to Group suppliers, 838 cases of non-compliance were detected in 2011, of which 714 were closed by 31 December 2011.

The Vendor Management system

The Vendor management project was an important evolution for the Hera Group in the relationship with its suppliers, supplementing the e-procurement platform, introducing new instruments aimed at streamlining the operational relationship with the suppliers making the supplier qualification and assessment process more central within the Group's certified system.
Within the supplier qualification area, it will be possible to access the Hera Group's procurement product categories, making it possible to use the following services:

  • independently update the profiles of interest, putting oneself forward for any new commodity groups within the accredited suppliers system;
  • keep ones details up-to-date independently (in particular, contact person and e-mail address) as well as the schedule of the supplier qualification documents;
  • check one's qualification and assessment status;
  • gain the possibility of being called more frequently to present bids;
  • gain the possibility of receiving information relating to the awarding of a contract;
  • being updated on the Group's initiatives of economic interest;
  • access to the digital signature formalities (development envisaged in 2012).

As a consequence of the launch of the new Vendor management system during 2011, numerous training sessions were scheduled, divided up by subject area, preparatory for once gain running through the salient phases of the supplier monitoring and the related periodic assessment, with particular attention paid to aspects linked to safety and accident monitoring.
At the end of December, all the Environment and Network subject areas received the envisaged training (more than 400 contact persons and their assistants were called); courses were held in the first two months of 2012 for other structures (individuals trained amounted to around 700). Group subsidiaries were also involved in the training.
With regard to the suppliers who request that they be included in the Hera supplier qualification system managed using the e-procurement platform, an annual membership fee is envisaged in keeping with the number of commodity groups which the supplier shows interest in.

Qualified suppliers: breakdown by type of certification

In 2011, the Hera Group maintained and strengthened the percentage of suppliers holding certification, with a considerable increase in certification relating to OHSAS 18001 safety and SA 8000 work conditions, while the slight drop in ISO 9001 certificates was partly due to the rationalisation of suppliers already mentioned.

Qualified suppliers (breakdown by type of certification)
No.200920102011
Quality certification (ISO 9001)2,0352,1762,125
Certification of qualification for the execution of public works (SOA)567586586
Environmental certification (ISO 14001-EMAS)363427459
Occupational safety (OHSAS 18001)72101136
Lab analysis quality certification (SINAL)414245
Measurement instrument calibration quality certification (SIT)323230
Social certification (SA 8000)212531

In 2011 there was a further significant increase in the value of supplies ordered from certified suppliers. This was the result of direct action taken by the company via systematic inclusion of quality certification as an obligatory requirement in the public invitations for tenders or the supplier approval stage. The increase was also the result of a greater awareness in the business system that qualitative growth, on the whole, is a component of competitiveness. Of note is the 29% increase in purchases from suppliers holding the OHSAS 14001 certification and 38% increase in those holding OHSAS 18001 certification. Purchases from suppliers with SA 8000 certification doubled during 2011.

 
Procurement from qualified suppliers (value breakdown by type of certification) - % of total supplies)
%200920102011
Quality certification (ISO 9001)76.9%78.3%78.7%
Certification of qualification for execution of public works (SOA)41.3%38.5%37.3%
Environmental certification (ISO 14001-EMAS)33.5%35.2%44.4%
Occupational safety (OHSAS 18001)5.8%11.3%15.3%
Lab analysis quality certification (SINAL)2.8%2.5%3.1%
Social certification (SA 8000)2.6%2.5%5.1%
Measurement instrument calibration quality certification (SIT)0.1%0.2%0.2%
Total supplies (in millions of €)601.6577.6589.2

Tenders for contracts awarded on the basis of the most economically advantageous bid approach
In line with the Code of Ethics and the objective of further extending application of the criteria for the awarding of tenders on the basis of the most economically advantageous offer, in 2011 the Hera Group awarded 53% of purchases according to said method in place of the highest discount method (44.6% in 2010).
The operating instruction approved in 2009 and whose purpose is to identify sustainability criteria for the various commodity categories for purchasing goods, services and work, continues to be the benchmark for the identification of the elements for assessing social and environmental aspects, to be added to the economic aspects involved in choosing a supplier, where tender procedures allow for use of the method of the most economically advantageous bid.
In the specific areas identified in the Hera Group's Procurement guidelines - "social commitment", "quality of services" and "economic value" - sustainability criteria have been identified which are the fruit of the experience acquired in managing calls for tenders according to the method of the most economically advantageous bid, based on doctrine and also on regulations on the matter, in line with Hera Group objectives.
In the operating instruction "Identifying Sustainability Criteria by Goods/Services Purchasing Sub-Category" a minimum number of sustainability criteria for choosing suppliers were established, based on the amount and importance of the tender (if it is a tender with a significant impact on the environment, occupational safety, the quality of services provided to customers, the term or amount of the contract). The other criteria include: management of atmospheric emissions and sound, prevention, reuse and recyclability of waste, energy efficiency, reduction of the dangerousness of substances used, reduction of water consumption (for the environmental protection criterion), supplier's adoption of their own Code of Ethics, hiring of persons with disabilities and persons facing hardship, accident prevention (for the social commitment criterion), quality of materials, equipment and instruments, professional qualifications and skills, technical services and performance (for the service quality criterion).
The Procurement and Tender Management Departments are responsible for selecting the sustainability criteria. They chose the criteria to be used based on the type of tender, the importance of the sustainability criterion in relation to said tender, and assessments of previous tenders assigned and their results. For assistance in selecting the criteria and assessing bids in the tender phase, the Purchasing and Tender Management Departments can use the technical support of the Corporate Social Responsibility Department and the Quality, Safety and Environment Central Department.

The method of awarding involving the most economically advantageous bid is applicable to the entire purchasing cycle, with a clear predominance for purchases of services and work, given the already high standardisation of the technical specifications with regard to the sphere of materials supplies. We would like to point out that 63% of contracts managed by the Procurement and Tender Contracts Management Department (by public tender, as a result of qualification system or by negotiated procedure without public tender) to which the most economically advantageous bid criterion is applicable took place according to this method, in place of the largest discount (it was 55% in 2010). Also considering the purchases carried out by the Procurement and Tender Contracts departments of the TOS, this value is 53% (it was 45% in 2010).

Excluding the tenders developed on behalf of third party financial institutions, possibly restricted to the largest discount awarding method, in 2011, a total of 12 public invitations for tenders were announced, for a total starting price of over Euro 180 million, all to be awarded based on the criteria of the most economically advantageous bid.

 
Public tenders for contracts adopting the economically most advantageous bid method
 200920102011
Value of the public invitations for tenders published (in millions of €)47.443.5182.6
% of total value of public invitations for tenders published100%100%100%
No. of public invitations for tenders published101112

Additionally, 16 public tenders for qualification systems were held, which were not included in the total as the regulations require that the tender amount and the award method be defined as and when in the subsequent negotiation procedures.
With respect to calls for public tenders indicated in the table, the average score assigned to the technical component was 38 points out of 100, of which 28 relating to environmental or social sustainability criteria.

 
Public tenders for contracts adopting the economically most advantageous bid method: scores assigned to the various components (weighted average on the basis of the call amount)

Among the tenders awarded in 2011, the public ones described below are particularly significant for the importance of the tenders and the significance assigned to sustainability criteria when assessing the bids:

  • In the tender for the execution of the services for emergency support activities, the maintenance of networks and the accomplishment of connections in the gas, water and sewage sectors in the area of Bologna, Forlė-Cesena, Ravenna, Imola-Faenza and Rimini, with a bid starting price of Euro 44.6 million, of the 40 points reserved for the technical component 31 were reserved for environmental and social sustainability components (training on safety at work, monitoring of the accident frequency and severity indexes, "green" quality of vehicles used, age of the equipment and use of procedures aimed at containing environmental impacts).
  • In the tender for the awarding of scheduled maintenance, network extension, connection and accessory work to be carried out in the areas of Imola-Faenza and Modena, with a bid starting price of Euro 4.8 million, of the 25 points reserved for the technical assessment 16 have been reserved for environmental and social sustainability components (safety training, containment of the accident frequency and severity indexes, containment of the environmental impacts, minor environmental impacts of the vehicles used).
  • In the tender for the awarding of the water, gas, district heating and electricity meter reading service, with a bid starting price of Euro 10.1 million, of the 30 points reserved for the technical component 12 have been reserved for the stability and experience of the dedicated staff (number of meter readers under permanent contracts and experience in reading meters of at least 2 years), 8 for the operating methods for increasing the number of positive readings (e.g. anticipation of the changeover with bulletins, reading by appointment), 7 for the certification of the reading figure with particular reference to the internal control operating methods, 3 for the ease in identifying the personnel and mediums on a consistent basis with the Hera Group image.
  • In the tender for the construction of new headquarters for the waste management services in Cesena, for a bid start price of around Euro 4 million, of the 30 points intended for technical assessment, 10 points have been reserved for environmental sustainability (use of photovoltaic panels, floor heating panels, air conditioning units with a better energy efficiency class, high efficiency heater recoverers).
  • In the tender for the awarding of the activities associated with the solid municipal and similar waste collection and transportation, separate waste collection, skip cleaning service, that for the running of the collection centres in the area of the provinces of Forlė-Cesena, Ravenna and Rimini for an amount of around Euro 61 million, of the 40 points reserved for the technical component 20 points have been reserved for social sustainability (development of the projects for the work induction of individuals facing social hardship) and 12 for environmental sustainability (age and impact of vehicles used).
  • In the tender for the awarding of the activities associated with the manual and mechanical sweeping service in the area of the provinces of Forlė-Cesena, Ravenna and Rimini for a bid start price of Euro 29 million, of the 40 points reserved for the technical component 25 points have been reserved for social sustainability (development of the projects for the work induction of individuals facing social hardship) and 7 for environmental sustainability (age and impact of vehicles used).
  • In the tender for the awarding of the activities associated with the solid municipal and similar waste collection and transportation, separate waste collection, skip cleaning service, that for the running of the collection centres and manual sweeping activities in the area managed by the Imola-Faenza Territorial Operating Structure for a bid starting price of around Euro 12.5 million, of the 40 points reserved for the technical component 20 points have been reserved for social sustainability (development of the projects for the work induction of individuals facing social hardship) and 12 for environmental sustainability (age and impact of vehicles used).
  • In the tender for the awarding of the activities associated with the solid municipal waste (various types) collection service and the related transportation to the recovery and disposal plants in the area managed by the Bologna Territorial Operating Structure for a bid starting price of Euro 1.4 million, of the 35 points reserved for the technical part 18 have been reserved for the sustainability aspects (age and impact of the vehicles used, age of the skips, preventive maintenance schedule for guaranteeing the maximisation of availability of the levels of safety and efficiency of the vehicles and equipment, adoption of the internal Code of Ethics and SA 8000 certification of the suppliers).