Supply Chain Transparency & Performance
COVID-19 Rapid Response
In early 2020, COVID-related shutdowns began impacting our global suppliers. In response, we developed the Trane Technologies Critical Supplier Designation, which enabled suppliers to meet production needs. Trane Technology teams worked across multiple functions to substitute parts, expedite deliveries and customs clearances, adapting plant schedules to ensure critical deliveries were made. While there were impacts to plants, there were no shutdowns and we continued shipping products to customers, including those in critical frontline industries, such as health care.
Number of Trane Technologies suppliers across the globe
Combined annual spend for direct and indirect commodities
Direct material spend assessed on a quarterly basis for risk
We partner with and help our suppliers achieve shared sustainability goals for the benefit of our customers and the environment. As a global partner of sustainable climate control solutions, we have 15,467 suppliers across the globe. In 2020, our combined annual spend was $8.25 billion for direct and indirect commodities.
Managing with Clear Expectations
Our supply chain is guided by a set of standard business tools and strategies that define not only what we do but how we do it. First, we set expectations; then, we evaluate against those expectations.
We use our Business Partner Code of Conduct (BPCoC) to communicate our expectations that suppliers ethically operate at all times. Our BPCoC is written and approved by legal and procurement leadership and all our policies are approved by Global Procurement leadership. The BPCoC is part of our standard terms and conditions, and all new suppliers are required to agree to it as a part of our onboarding standard work.
Our BPCoC outlines expectations that our suppliers do not violate basic human rights of life, liberty and security. No form of harsh or inhumane treatment will be tolerated, including sexual harassment, sexual abuse, corporal punishment, mental or physical coercion or verbal abuse of workers. Suppliers must have an effective environmental policy and conduct their operations in a way that protects the environment. Suppliers must also obtain and keep current all required environmental permits and meet all applicable environmental rules, regulations and laws in the countries where they do business.
Through our standard work, all suppliers are required to accept and agree to our BPCoC whenever entering into a contract or accepting a purchase order. We not only expect they operate in full compliance but also that they hold their own suppliers to the same standards.
ESG Expectations: In combination with our BPCoC, we also communicate our Supplier Sustainability Expectations to all our suppliers, and require preferred suppliers to meet them, as a part of preferred supplier requirements. The expectations require suppliers to:
- Work to conserve consumption of energy, water, and other natural resources
- Manage operational hazardous and non-hazardous waste
- Abide by our Packaging Guidelines and participate in Packaging Improvement Plans
- Adopt or develop a Health and Safety management system
- Create an emissions inventory in order to measure Scope 1 and Scope 2 GHG emissions
- Apply life-cycle thinking in their own processes and products
- Implement their own supplier sustainability program to hold suppliers to the same standards
- Execute a system to identify, track and eliminate any regulated substances in their products
- Agree to use good faith efforts to support minority-owned businesses
A core tenet of our sustainability strategy is partnering with our suppliers to minimize our environmental impact. In early 2019, we implemented a supply chain sustainability reporting platform to report annual energy, waste, water and safety data. By the end of 2019, we had 90% of preferred supplier spend enrolled and by the end of 2020, we had over 70% of direct and indirect global spend enrolled. This 2020 percentage includes an expanded scope beyond preferred supplier spend to include direct and indirect global spend. By expanding the reporting platform, we expect to partner with more suppliers in ways to reduce their environmental impact. To strengthen our partnerships, we offer supplier sustainability development activities, including webinars on sustainability topics, toolkit sharing, desktop coaching sessions and supplier on-site meetings.
Evaluating ESG in Supply Chain
We evaluate suppliers’ ESG performance to ensure they meeting the expectations set forth in the BPCoC and our Supplier Sustainability Expectations. We evaluate them as part of how we select and develop our suppliers in our Preferred Supplier Program:
Supplier selection and development process:
- Supplier decision matrix allows for weighing ESG as part of the overall supplier evaluation. Weighing is determined by a cross-functional team based on the type of purchase and criticality of ESG to that component.
- Initial on-site assessments: prior to conducting business, suppliers must achieve an overall score of 80% — 20% of which is based on ESG.
- Preferred Supplier Program: includes a requirement for suppliers to align with our sustainability expectations and report on sustainability metrics.
Supplier Selection and Development Process
We use a strategic sourcing process with a Supplier Decision Matrix, which weights factors including sustainability. Additionally, sustainability and business continuity risks are evaluated through On-Site Assessment (OSA) audits. This process covers about 1,500 suppliers over a three-year period and, in 2020, about 69.3% of our direct material spend. Our goal is to have all new direct suppliers assessed by the OSA process; in 2021, 321 suppliers received an OSA.
OSAs include social and environmental criteria to evaluate all our direct material suppliers. For example, the assessment asks if suppliers have a program for tracking and managing energy usage and hazardous waste and if they are in high-risk water areas. The assessment screens for human rights and labor practices by asking, for example, if the supplier’s hiring and compensation practices meet or exceed local legal requirements and if the supplier refrains from the use of prison or forced labor.
The OSA process, which is led by a team of 40 engineers who report to the Vice President in Procurement, addresses several categories including: environmental protection, human rights and labor relations, product compliance, EHS compliance and sub-supplier management. We complete the process on a regular basis, including reviews of audit results and follow-up monitoring of findings.
Suppliers are required to achieve a minimum score of 80% to do business with us. We help them understand their score and develop action plans for improvement. In 2020, 321 suppliers were assessed for environmental impacts as part of our OSA process, and none were identified as having significant actual or potential negative impacts on the environment.
Preferred Supplier Program
Our Preferred Supplier Program is a key initiative that identifies and engages world-class suppliers. This program is reserved for our most important partners and provides them with growth opportunities while helping us build a supply base that aligns with our core values. We request that they report annually on sustainability metrics. At the end of 2020, 34.7% of direct spend was with preferred suppliers.
We use our product development process — the TTPDP — to utilize preferred suppliers and are on track to meet our goal of completing 80% of Early Sourcing Work Plan in phase 1 of the TTPDP. Additionally, taking an “in region, for region” philosophy allows us to deliver products to market quickly, implement local preferences, reduce freight costs, and improve our quality and reliability by being near our supplier partners.
Risk Assessment Process
In addition to our strategic sourcing process and OSAs, we assess our supply chain for risk in our Enterprise Risk Management process on an ongoing basis. Combined with our category risk assessment process, we use data from D&B, Amber Road (critical listing and sanctions) and assess for risks related to quality and supplier dependency. In 2020, we assessed 100% of our direct material spend for risk quarterly. We meet with our suppliers regularly as part of our Supplier Relationship Management process to review and consider them for our Preferred Supplier Program.
For more information about risk factors associated with our supply chain, see our Form 10-K.
Supply Chain Assessments
Direct material spend subject to on-site assessments
Direct material spend assessed on a quarterly basis for risk
*Due to COVID, we were unable to go on-site to conduct many of the planned OSAs.
Conflict Minerals Statement
We expect suppliers to source minerals responsibly through due diligence, compliance policies and reporting. Currently, we use the standard EICC/GeSI template to survey suppliers, and we encourage our suppliers to do the same. We seek to responsibly source materials from the covered countries and we avoid supporting armed groups that commit human rights violations.
We conducted a reasonable country of origin inquiry (RCOI) about the minerals specified by Rule 13p-1 of the Securities Exchange Act of 1934, as amended (the “conflict minerals”) that were necessary to the functionality or production of products manufactured by the company in 2020. Through due diligence, we identified the source and chain of custody of conflict minerals using the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (the “OECD Framework”). Read more about our approach to conflict minerals.