We work with fuel and nonfuel suppliers to drive continuous improvement and efficiencies within the supply chain while improving environmental and safety performance. We ask suppliers about their sustainability strategy and activities through our procurement process, and we advise them of opportunities to help them reduce or mitigate their impacts on natural resources.
AEP’s Supply Chain, Procurement, and Fleet Operations is deeply integrated into every aspect of our business operations. In 2013, the Procurement organization underwent a significant transformation in an effort to reduce costs by streamlining purchasing practices and improving efficiency across AEP. By working with our business partners, the team is charged with identifying significant annual cost savings opportunities through strategic and sustainable procurement practices by 2016. Through continuous improvement initiatives, the group has streamlined sourcing practices and established a Center of Excellence to provide benchmarks and analytics, establish best practices, and measure our progress in achieving cost and efficiency improvements.
One example of improving efficiency is through strategic sourcing, a method to optimize what we buy and how we buy it. Our procurement team is getting involved earlier in the purchasing process and standardizing the process corporate-wide by educating our employees on best procurement practices. We are looking at the total cost as well as impacts in terms of end-of-life value both financially and environmentally.
Cybersecurity poses an increasing risk within our supply chain. As data breaches increase, so does the concern for how to protect our systems, to which many of our suppliers have access. In Supply Chain Management’s “2014 Chief Supply Chain Officer Report,” approximately 1,024 supply chain professionals were asked about their level of concern across an assortment of different supply chain risks. Data security or cybercrime was ranked sixth out of 15. AEP’s Procurement team is working very closely with our cybersecurity team to address these concerns within our supply chain.
AEP works directly with its fuel suppliers and surveys its coal suppliers on their environmental, safety and health performance. We have conducted five surveys of our coal suppliers, a commitment we made to stakeholders to better understand the lifecycle of coal, its impacts on the environment and how our suppliers are addressing those impacts, and to share leading practices.
The AEP Sustainability Survey of Coal Suppliers is the only known survey of the coal industry. It reflects an assessment of approximately 40 percent of the coal mined in the United States and nearly every coal basin in the country. The 2014 report, released in March 2015, is based on 2013 data.
We have now collected six years of data showing a consistently high level of safety, health and environmental performance. The survey showed our suppliers performing better than the national average in safety and health performance and an improved environmental performance over the years, including a moderate increase in the percentage of mines embracing various environmental programs - growing to 100 percent in 2013. We also have seen an increased commitment to sustainability reporting, with almost 50 percent of respondents now publishing social responsibility reports, compared with 14 percent in 2009.
This survey gives us important insights into the environmental, safety and health performance of the coal industry – validating that we share common values and strive for excellence in managing our impacts to the environment and keeping employees safe. We have learned much about our suppliers, and they have learned about their own industry through this process. For example, a majority of respondents have programs that include training, job safety analysis programs, risk assessments and wellness programs.
We plan to continue this effort because our suppliers have indicated that it provides great value, especially regarding environmental performance, and because it’s the only such benchmark of the industry. Some suppliers also said they use the data in their own sustainability reports and to help drive continuous improvement within their companies. As we diversify our resource mix, we will consider how to engage with other suppliers.
We responded to Carbon Disclosure Project’s (CDP) 2015 Supply Chain Survey and have done so for the past five years. This survey aims to drive action on climate change among both purchasing companies and their suppliers. The survey provides us with a different platform to be transparent about our sustainable supply chain efforts and collects business-related climate change information from our suppliers.