Sustainability Report 2014 Lek d.d.

Sustainability Report 2014 – Lek d.d. Suppliers 62 93 GRI G4-DMA, Indicators G4-HR5, G4-HR6 94 GRI G4-DMA, Indicator G4-EC9 The criteria for selecting suppliers are predetermined and equal for all. In this process, priority is given to suppliers offer- ing the best quality, price and service. In certain categories of items where the delivery date is a key competitive advantage, along with appropriate price and quality, we build close rela- tions and cooperate mainly with local suppliers. Among individual countries, Slovenia maintains the largest share in the direct purchasing structure. In 2014, the level of deliveries from the Slovenian market amounted to USD 47 million or 16% of total purchasing cost (2013: 18%). We mainly purchase packaging and raw materials from the Slovene chemical industry and merchandise from domestic distributors. Also in the indirect purchasing structure among individual countries, Slovenia maintains the largest share with 77% (USD 178 million). 6.2 Policy and practices for selecting local suppliers 94 6. Suppliers In mid-2014, a new service organization was established at Novartis – Novartis Business Services – a part of which is also Slovenia Purchasing (Direct and Indirect Purchasing). 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. 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 proces- ses. 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. In 2014, we recorded substantial growth in the value of direct purchases which is largely due to the increased business volume of all Lek’s sites. The internal system optimization resulted 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 con- ditions 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 direct purchasing markets were Slovenia, Ger- many, Switzerland, China, India, Austria and Italy. In the field of indirect purchasing, the largest markets were Slovenia, Germany, Italy, Great Britain and Switzerland. 6.1.2 Supplier audit procedures Supplier audits are performed in accordance with the San- doz and Novartis quality standards and guidelines. Uniform selection criteria include prices, quality, delivery deadlines, reliability, compliance with regulatory requirements and Sandoz' guidelines, as well as suppliers’ corporate responsi- bility policies. Selection criteria are documented. In selection processes, priority is given to third parties who share its societal and environmental values, and who un- dertake to implement the supply agreement in strict compli- ance 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 human 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 93