Suppliers

FAIRNESS AND EFFICIENCY
FY14 PERFORMANCE AGAINST COMMITMENTS

= Achieved , = Not achieved, , = Underway

COMMITMENT STATUS FY14 ACHIEVEMENTS
Conduct tenders in accordance with Dexus Business Procedures for Procurement and Code of Conduct Conducted all tenders in accordance with the Group's Procurement Procedures and Code of Conduct, resulting in operational efficiencies
Develop supplier partnerships in line with Dexus sustainability procurement guidelines and determine levels of enhanced value Established a preferred supplier panel through tendering of major services, structured to enhance value and ensure alignment with sustainable procurement guidelines. National tendering for fire, mechanical and lift services resulted in a consolidation of suppliers from 92 to 16 key partnerships
Increase the use of sustainability efficient materials and lighting for all office fit-outs Promoted, accurately measured and monitored the use of efficient, sustainable materials through the establishment of direct purchasing arrangements with key materials suppliers, e.g. replaced over 10,000 light fittings with high efficiency lighting

SUSTAINABLE PROCUREMENT FRAMEWORK

The Sustainable Procurement Framework takes an individual and long term view to managing and maintaining supplier relationships. This Framework comprises the Service Charter Sustainable Procurement Policy and the Supplier Code of Conduct which was developed in FY12 and embedded within service agreements. Dexus utilises this Framework to integrate innovative environmentally sustainable practices in new supplier engagements.

2014 sustainable procurement

PROCUREMENT

Dexus utilises a staged procurement and contract management process designed to identify and mitigate supply chain risks. The key aspects of this process include:

  • Due diligence on potential suppliers to identify those that can service an organisation the size of Dexus
  • Procuring services via formal tender process that involves financial analysis due diligence of supplier to satisfy Dexus that a company is viable and can perform the tasks required
  • Review of proposed services to confirm fair value upfront and avoid later uplift
  • Assess a company's capability to perform by review of its track record, and by seeking feedback from references
  • Confirm alignment with and commitment to Dexus's Sustainable Procurement Policy
  • Use of balanced scorecard to comprehensively rank each supplier
  • Contracting that includes embedded Key Performance Indicators tailored for the supplier and commodity

Dexus completed the rollout of this framework during FY14 and all tenders that occurred during FY14 were conducted in accordance with the Group's Procurement Procedures and Code of Conduct, resulting in operational efficiencies.

Dexus continued to form strategic alliances with leading suppliers to achieve economies of scale and enhanced value. Dexus established a preferred major supplier panel through tendering of major services, structured to enhance value and ensure alignment with sustainable procurement guidelines. National tendering for fire, mechanical and lift services resulted in a consolidation of suppliers from 92 to 16 key partnerships.

Dexus also reviewed service providers across hydraulic, electrical and repairs and maintenance services and established preferred minor supplier panels. This involved a review of existing arrangements and feedback from site teams regarding supplier performance. Highly valued suppliers were invited to apply, and following a final evaluation, successful applicants were appointed to the panels.

Supplier rationalisation involves identifying companies best able to meet Dexus's needs and optimising engagement across the portfolio. This leads to fewer suppliers in total that have a closer relationship with Dexus, a greater alignment of interest, and facilitates efforts to embed Dexus CR&S commitments with its suppliers.

INTEGRATION OF Dexus OFFICE PARTNERSHIP PROPERTY PORTFOLIO

During FY14 Dexus and its facility management partner, CBRE, successfully transitioned existing supplier agreements from properties within the Dexus Office Partnership into the Dexus Platform. A systematic approach was adopted involving extensive communication with suppliers in existing contracts, and a review process which identified and resolved material issues.

Throughout this process, Dexus established strong supplier relationships and maintained continuity of services, positioning the Group to effectively manage the new portfolio of office properties.

SUPPLIER RELATIONSHIPS AND PERFORMANCE MONITORING

Dexus optimises supplier performance through a structured relationship and performance management process to maximise supplier services levels, manage risk, maintain healthy supplier relationships and realise shared value.

Performance monitoring for major contracts includes:

  • Monthly performance review meetings with site teams where performance against KPIs is assessed
  • High level performance reviews that occur at least every six months incorporating formal feedback from internal stakeholders
  • Feedback from site and corporate teams with results discussed with suppliers in order to directly manage exceptions against performance expectations

Ongoing data collection and analysis provides a benchmark in relation to supplier services are perceived by site teams, and provides valuable data on how performance trends vary over time and across sites. This data is used as input into initial reviews of supplier contracts (e.g. renewals and terms) and periodic reviews of Dexus's panel of preferred suppliers.

In June 2014 Dexus formally collected statistics from a sample of 12 key suppliers relating to the length of its supplier relationship, its criticality and level of satisfaction.

2014 supplier relationship

From the responses, 64% of suppliers indicated a relationship with Dexus of five years or more with a further 27% maintaining a relationship of between one and five years. All suppliers were at least 'satisfied' with their relationship with Dexus with 64% indicating that they were 'very satisfied'.

Suppliers also indicated the financial criticality of their relationship with Dexus, with 58% stating that their services to Dexus contributed less than 5% of total revenue. In all cases, suppliers relied on Dexus for less than 30% of their revenue.

2014 financial critical

SUPPLY CHAIN RISK ASSESSMENT

Dexus interacts with a large number of suppliers across its operations and these suppliers play a key role in contributing to Dexus's successful delivery of services to its tenants. Dexus sets its CR&S expectations during the tendering and contracting process in line with its Sustainable Procurement Policy and Supplier Code of Conduct.

As a signatory to the United Nations Principles of Responsible Investment, Dexus is committed to managing its supply chain in a responsible way which takes into consideration human rights, as well as environmental, social and economic factors in its purchasing decisions.

A key step in this process involves engaging with suppliers to understand their approaches to the issues in order to evaluate the effectiveness of our sustainable procurement policies and supplier relationship management practices.

In FY14, Dexus conducted a review of material issues and identified supply chain risk management as an emerging issue for Dexus and its stakeholders with increasing external emphasis on sustainable supply chains.

In June 2014 Dexus, via an independent third party, conducted a Supply Chain Risk Profiling Survey involving 12 key suppliers across its preferred supplier panel to gain further insight into their day-to-day CR&S systems and practices in order to:

  • Continue ongoing dialogue regarding corporate responsibility and sustainability (CR&S)
  • Gain a better understanding of day-to-day CR&S systems, practices and issues
  • Evaluate alignment between Dexus and its suppliers regarding CR&S ambitions
  • Identify areas for improvement and risk management

The survey focused primarily on social and governance aspects of CR&S and was targeted at commodities and services that Dexus had previously identified as being inherently high risk, mechanical and lift maintenance, security, cleaning, fire services, waste management and builders.

SUPPLIER RISK PROFILING SURVEY RESULTS

2014 supplier risk

Definitions

  • Systems - refers to the Suppliers management system documentation and procedures in place such as policies and standards. These reflect the formal commitments made by suppliers on the CR&S focus areas
  • Practice - refers to the extent to which a supplier's commitments to CR&S are embedded in practice across the organisation to enable it to manage associated risks

Assessment Scoring

During the assessment, scores between 1 and 5 were awarded for each question based on subjective analysis of responses made by suppliers, based on the following scoring criteria:

2014 risk assessment

Overall assessment outcome

The overall results of 4.0 out of 5 for both systems and practices confirms Dexus's expectation of low risk and reinforces the robustness of its procurement process through which Dexus engages like-minded suppliers with sound CR&S and labour practices.

Most respondents were well aware of corporate governance, environmental and health and safety risks and related requirements and expectations in these areas. In general, suppliers reported robust management systems (including policies, standards and work procedures) as well as satisfactory internal practices (for communications, training, monitoring and review). Many suppliers were accredited to external standards such as ISO 14001, OHSAS 18001 or AS/NZS 4801.

The assessment identified that further work is required in order for Dexus to fully evidence the existence of supplier systems in detail, and this impacted suppliers' scores.

In addition, systems and practices to manage specific aspects of labour practices and human rights (e.g. grievance mechanisms) as well as supply chain management were less mature, with most suppliers adopting a compliance-based approach to managing these areas. These two areas scored the lowest of all aspects. The results also highlight Builders and Mechanical contractors as being less mature in their CR&S practices.

Read more on the Group's Supplier charter and its Corporate Responsibility and Sustainability approach. More information on the Group's work with Suppliers in FY14 is availabled in the 2014 Annual Review.