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STEWARDSHIP IN THE SUPPLY CHAIN 

Supplier Code of Ethics

Grainger works with thousands of suppliers to offer more than 1.7 million products used by customers to maintain, repair and operate their facilities. To help ensure the products we distribute are manufactured and delivered with high ethical standards, our Supplier Code of Ethics focuses on four main areas of ethical sourcing: human rights, labor, environment and anti-corruption. All Grainger suppliers and their sub-suppliers with dealings in the U.S., Canada and Mexico are expected to comply with the Supplier Code of Ethics. These suppliers must acknowledge our Code of Ethics and agree to the expectations within as a condition of doing business with Grainger. Prior to onboarding, a new supplier must agree to abide by the Supplier Handbook, which includes applicable Grainger policies, transportation requirements and the Supplier Code of Ethics. All suppliers must agree to abide by these rules and confirm this by signing a Supplier Agreement Letter.

Supplier Diversity

Grainger has more than 20 years of successful experience offering small and diverse companies opportunities through two core programs.

Small and Diverse Suppliers    Grainger started its Supplier Diversity Program in 1999 to assist in growing this sector of the economy while helping customers get their jobs done with quality products made by small, women, minority, disabled, veteran and LGBT-owned businesses. Grainger offers thousands of items from Certified Supplier Diversity businesses to more than a million of Grainger’s U.S. customers through its catalog and distribution channels.

Distributor Alliance Program    Since 2006, the Distributor Alliance (DA) Program has helped customers support Diverse Business Enterprises while consolidating maintenance, repair and operating purchases. More than 50 DA members resell the full 1.7 million products offered by Grainger and provide services to customers with mandated procurement goals to support small businesses and provide employment opportunities to women, minority and veteran-owned businesses. The DA member is one of the many points of contact for the customer, including regional business managers who mentor the diverse DA members and act as a liaison between Grainger, the end customer and the DA.

Improving Supplier Communications

In 2017, our supplier contracts team implemented a comprehensive indirect and direct source-to-paysolutions database, which will provide us enhanced technological and data capabilities for managing our supplier base. This database is a win-win: it provides our team members powerful capabilities around our supplier reporting process, providing the most updated information available and retrieving the small and diverse designation more easily. Also, it provides our small and diverse suppliers with compliance-based reminders, like when to update their small and diverse certifications.

 

Supplier Scorecard

Supplier Performance Management plays an integral role in Grainger’s strategic objectives by driving suppliers’ operational performance to deliver flawless orders to our customers. Each day, the team works with our supplier base of approximately 5,200 suppliers to improve operational performance, educate on Grainger’s shipping requirements, and drive compliance on replenishment purchase orders heading into our network and drop ship orders delivered directly to our customers.

We monitor each partner’s performance with a monthly balanced scorecard and provide feedback and offer assistance in performance areas where improvement is needed. We seek to provide meaningful focus in pragmatic areas where efficiency can be gained and effectiveness can be improved.

Partners in Performance    Partners In Performance is an annual Grainger event sponsored by our Vice President and President, Merchandising and Supplier Management, designed to recognize and celebrate top performing suppliers, as well as to educate and inform the supplier community about Grainger’s key initiatives and strategy. The 2017 event was a great success and built upon the foundation of value suppliers provide to Grainger and our customers.

Ethical Sourcing

Human Rights    At Grainger, the way we conduct business is as important as the products and services we provide. Grainger’s Human Rights Principles reflect our philosophy on how we will conduct business on a global basis, including the company’s commitment to providing a safe and fair workplace that upholds and respects international human rights standards. These principles are applicable to all Grainger team members, and are approved and monitored regularly by Grainger’s senior leadership.

Our Human Rights Principles create the foundation upon which we build a respectful, inclusive and ethically sound workplace. Harassment, exclusion, discrimination, child or forced labor, and violation of any applicable laws or regulations are explicitly prohibited and excluded from Grainger’s workforce as part of these principles.

Conflict Minerals    As a distributor of hundreds of thousands of branded and private label products manufactured by companies located around the world, we are invariably many levels removed from the beginning of our supply chain. Even so, Grainger is committed to acting in a socially and environmentally responsible manner and we take our responsibility within the supply chain seriously. Grainger supports the goal of the Dodd-Frank Act of preventing armed groups in the Democratic Republic of the Congo and adjoining countries from benefiting from the sourcing of certain minerals from that region.


Grainger’s Ethical Sourcing Platform

Maximizing Product Quality in our Private Label Brands

Our multinational sourcing business includes two global testing and engineering facilities. The teams in these facilities focus on maintaining the high quality of our private label brand products. Our Return Rate performance, over the past four years, reflects the effectiveness of the testing and engineering teams’ focus on driving improvements in Total Returns of private label brand products.

Return Rate Performance    We measure private label brand quality through the return rate of those products. Product return rate is calculated as a percent of total return dollars over cost of goods sold (COGS). In 2016, overall performance was 3.20 percent. Our 2017 performance, at 2.99 percent, was favorable by 21 basis points over 2016, with COGS remaining flat from 2016 to 2017.


Total Returns as a Percent of Private Label Cogs

Simple Return Improvements

Initiative    In August, we began communicating with a top five customer to better allocate and forecast orders as an effort to reduce their Traffic Safety Vest and I-Beam/Column Protector simple returns. At the time, 2017 YTD simple return dollars were up 80% compared to 2016.
Effect    Since this communication, the sales team has worked with this customer to create a listing of building types and a recommended Bill of Materials forecast to create a consistent, standard ordering schedule. This leads to less excess material being ordered, hence less returns requested and processed.


Quality Returns as a Percent of Private Label Cogs
Initiative    In the summer of 2017, our team identified an error in a customer’s Electronic Data Interchange (EDI). A discrepancy in the pack quantity of knit gloves ordered resulted in over orders, a spike in return dollars and overall waste in their supply chain. By working directly with their purchasing team, we identified the discrepancy, corrected their ordering system, and mitigated the downstream impact.
Effect    Since this correction, return dollars in this category are down 91%.