Supply chain management

Although rapid growth in our digital sales is being reflected in the mix of what we purchase, paper and print remain the most significant categories of direct spend for us.

Our sourcing strategies include leveraging volume and developing strong relationships with preferred suppliers. As such, we continually seek to enhance the social responsibility aspects of supplier contracts and performance, as well as generate economic and service benefits from robust relationships with fewer suppliers.

Our guiding principles

Pearson was a founder signatory to the UN Global Compact in 2000. We were clear from the outset that we would use our influence with our suppliers to improve standards for their employees and the communities in which they operate. So, in 2001, we made a series of commitments that covered labour standards and human rights as well as environmental responsibility, and extended these to cover our supply chain.

These commitments, together with the Pearson Code of conduct, remain the guiding principles against which we judge our actions and performance today. This year, we reviewed and revised our policy with regard to anti-bribery and anti-corruption (ABC). Pearson is committed to conducting its business ethically in every country where we do business, as well as complying with all applicable laws. We prepared a document providing guidance to third parties who work with Pearson concerning compliance with ABC. This guidance relates to specific acts of bribery and corruption and Pearson's selection and management of agents and other company intermediaries. Pearson has created a designated manager role in each country or region to monitor compliance with policy. This reinforces our zero tolerance policy towards bribery and corruption. Pearson employees and others working on its behalf may not offer, promise or give a bribe to anyone, and may not request, agree to accept, or take a bribe from anyone.

Labour standards and human rights

We have set out the commitments that we expect from all our suppliers. Specific clauses relating to these standards are an integral part of our contracts for key suppliers. These standards include the rejection of forced and compulsory labour, a respect for diversity, a minimum age to work on Pearson projects and compliance with environmental and other regulations.

This year, we have reviewed our process for managing compliance with our standards. Building on best practice across the group, we have adopted a single global policy and approach. This sets out our own standards as well as how we approach risk assessment, supplier visits, third party audits and management of non-compliance.

Our production departments this year continued our programme of visiting suppliers all across the world. These visits are an opportunity to reinforce our commitment to the abolition of child labour and all forms of forced and compulsory labour, as well as environmental responsibility.

We also work with industry partners on these issues. Our policy requires that suppliers based in high risk countries will undertake an independent third-party audit before they are approved as a supplier and to agree to regular review audits as an existing supplier. Our aim is that these audits help improve business practice.

In previous years, we have written to key suppliers about our commitment to the Global Compact and about our principles. This year, we are introducing a new Vendor Relationship Management (VRM) online system to manage many aspects of our vendor relationships, including proof of certifications and accreditations for existing suppliers and as a condition of business for potential suppliers. Labour standards and environmental responsibility are fully integrated into that system. This is a global system and will, in time, allow an easy insight into opportunities for improvement as well as areas of risk.

Environment - Paper

Our books, newspapers and magazines all use paper. We lead the way in investing in new technology to provide opportunities for our customers and readers to access our content digitally. Nevertheless, we expect that our use of paper will continue to be an important means for delivering our products.

We source paper primarily from North America andScandinavia. Paper is a priority environmental issue for us. We: 

• First adopted and publicly disclosed our environmental policy with regard to paper sourcing in 2003.
• Collect and map data on the forest of origin, certification systems applicable and recycled content for the papers we purchase;
• Talk about our guidelines with our key paper suppliers when we meet and as part of our contract discussions;
• Discuss our approach to paper purchasing with customers, environmental groups, investor analysts and other interested parties;
• Retain Forest Stewardship Council (FSC) chain of custody certification allowing books to carry the FSC label for Dorling Kindersley and Penguin in the UK;
• Attained FSC chain of custody accreditation for our businesses in North America;
• Hold regular training sessions for our production teams around the world on both labour standards and environmental responsibility issues. We ran a session in 2011 with Penguin in the UK and Pearson North America reviewed its procedures as part of attaining FSC certification.

In addition to the standards we set ourselves through our paper purchasing guidelines, we also have a responsibility to use fewer resources where we can. This delivers both environmental benefits as well as cost savings.

Environment - Print

Less than 0.5% of Pearson products are printed by our own operations. We have two small digital print operations in the US. These operations provide short-run and print-on-demand products, typically custom client applications and in support of our testing business.

In addition to our general approach to supplier responsibility, we ask our printers for additional reporting in key areas. We have for a number of years maintained a printer register of environmental performance. Last year, we set a target to completely review our approach with Pearson International piloting a new process. This was extended to Penguin in the UK and adopting this globally is being incorporated in the roll out of the new Vendor Relationship Management (VRM) system across Pearson.

Environment - Distribution and shipping

Our books are produced around the world, requiring shipment from the printers to our distribution centres. We outsource road distribution and shipment of our products to third party carriers. We have worked with suppliers on consolidating shipments to maximise container loads and monitor environmental performance as part of the contractual arrangements.

During 2010, we developed inventory management performance metrics covering all book businesses worldwide. For 2011, we introduced an internal reporting process by facility and introduced a new metric around book-gifting.

Working with industry partners

We believe that working with industry partners in setting social and environmental standards is a responsible approach to improving global practice. This approach has many benefits including:

• Reducing the burden on the supplier - they only complete one audit instead of several, different processes. This is particularly important for smaller suppliers;
• In many of the markets where we operate, Pearson alone has insufficient influence with suppliers to enforce a set of standards;
• The sector working together helps set terms of trade and reinforce the importance of non‑financial measures of performance.

Some of the most important industry initiatives:

• We were a founder member of the group of publishing companies in the UK that established PreLIMS - a common social accountability standard.  We also recognise the ICTI Care Process;
• We are a member of the World Wildlife Fund (WWF) Forest & Trade Network and through this group, work with WWF and other company members to improve environmental standards of paper purchase;
• Helped found Publishers database for Responsible Environmental Paper Sourcing (PREPS), an industry collaboration to map the environmental characteristics of paper.
• Worked to set up Publishing Industry Product Safety (PIPS), an industry partnership to map the safety of components in our products.

PREPS, PIPS and PreLIMS were initially UK initiatives; however, Pearson businesses were the first to adopt these globally.

Plans

	2011 Plans			2012 Plans
Paper	Complete the process of securing Forest Stewardship Council (FSC) accreditation across our businesses in North America		Achieved	Develop a global strategy to maximise and grow our commitment to Forest Stewardship Council (FSC) Using 2008 as the baseline year, to reduce the metric tonnes of paper required to generate £1m of non-digital revenue by 25% by the end of 2012
Vendor relationship management	As part of a project to build a comprehensive global vendor relationship management system comprising a web-based portal, formal registration process, and suite of data-marts. We will incorporate corporate responsibility metrics and supplier certifications where appropriate.		Achieved. Corporate responsibility metrics and supplier certifications incorporated	Roll out vendor relationship management system to existing and new suppliers and report on take-up
Printer	Extend the printer survey piloted by Pearson International to printers serving Pearson North America, the FT and Penguin during 2011. Pearson International will use its survey printer findings to inform its priorities for seeking improvements		Partly achieved. The printer survey has been extended to Penguin in the UK. Full implementation to be part of VRM	Integrate environmental metrics into key data marts within the vendor relationship management system starting with paper and print
Inventory management	Review current internal performance metrics and our approach to external reporting in this area		Completed	Metrics in place and reporting systems by distribution centre established. Metric on book-gifting reported externally.

  Target achieved
  Target ongoing