Sustainability Report 2013 Lek d.d.

Supplier selection is based on predetermined selection crite- ria. In this process, priority is given to suppliers having the best quality - price - service triangle. In certain categories of items where the delivery date is one of the key elements, we strive to obtain local suppliers. Among individual countries, Slovenia maintains the lar- gest share in the purchasing structure. In 2013, the level of deliveries from the Slovenian market amounted to USD 211 million or 41% of total purchasing cost (16% in 2012). On the domestic market, we mainly purchase merchandise of domestic production. We mainly purchase packaging and raw materials from the Slovene chemical industry and merchandise from domestic distributors. 59 Suppliers 6. Suppliers 94 94 Disclosure G4-12 95 GRI G4-DMA, Indicators G4-HR5, G4-HR6 96 GRI G4-DMA, Indicator G4-EC9 We perform systematic control over the purchasing process for goods and services in every aspect that has the potential to affect the company's ethical and business interests and fi- nancial outcomes. At all levels, employees of the purchasing department are committed to following the purchasing pro- cedures laid down by the Sandoz guidelines, international agreements and local regulations. Sandoz Group associates are not allowed to use the business relations between the Group and its suppliers for private purposes. In the period 2010 – 2013, the purchasing processes under- went no modifications. 6.1.1 Purchasing system The Purchasing Head is the person fully responsible for the implementation of and adherence to the guidelines, laws and internal procedures determining the purchasing processes. Purchasing managers have to familiarize employees with the guidelines and their obligations and responsibilities, and monitor compliance. Roles and responsibilities within purchasing activities (customer need identification, supplier selection, conclusion of agreements, and purchase orders) are clearly defined. The strategic purchasing function is a separate organizational unit specializing in direct and indi- rect purchasing. Continued recession in the EU and restrained global eco- nomic growth has strongly affected the purchasing result in 2013 also. The internal system optimization also had a significant resulting in a lower total value of purchases. The volatility of commodity markets and the raising of industry standards again tightened the pharmaceutical company’s supply conditions thus additionally narrowing the range of suppliers. In order to achieve more competitive prices and a more reliable supply chain we further increased the scope of active risk management and partnership with the Sandoz and Novartis global supply function. Our leading purchasing markets were: Slovenia, Germany, Switzerland, Italy, China, India and Austria. 6.1.2 Supplier audit procedures 95 Supplier audits are performed in accordance with the Sandoz and Novartis quality standards and guidelines. Selection criteria are documented. Uniform selection criteria include prices, quality, delivery deadlines, reliability, compli- ance with regulatory requirements and Sandoz' guidelines, as well as suppliers’ corporate responsibility policies. In selection processes, priority is given to third parties who share its societal and environmental values, and who undertake to implement the supply agreement in strict compliance with all applicable HSE laws and regulations as well as the Fair Labour Practice and unlawful discrimination policy. Priority is also given to contractors who respect hu- man rights including freedom of association and collective rights, rejection of forced and child labour. Before the actual purchasing takes place, written compa- rable offers must be obtained from various suppliers. This applies to both new purchasing projects and to regular purchases with fixed annual purchasing quantities. 6.1 Purchasing policy 6.2 Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation 96