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2011 Corporate Social Responsibility Report

LEXMARK SUPPLIERS

SUPPLIER DIVERSITY

At Lexmark, we strive to encourage and afford opportunities to minority suppliers. Lexmark’s supplier diversity program is founded on the Company’s values of mutual respect, corporate citizenship and integrity. Diverse businesses comprise a vital segment of the economy, and healthy diverse businesses are therefore advantageous to our financial performance and our community. Lexmark sets goals annually to increase contracting opportunities for eligible minority suppliers. These goals are reviewed to determine if they are attainable and represent a meaningful contribution to Lexmark’s supplier diversity program. All Lexmark employees are encouraged to take an active role in the support of the supplier diversity program by ensuring that all vendors are encouraged and given an opportunity to do business with Lexmark.

SUPPLIER RESPONSIBILITY

Our membership and participation in the Electronic Industry Citizenship Coalition® (EICC) has further strengthened our organizational efforts in support of human rights, labor standards and other CSR values. The Electronic Industry Citizenship Coalition® Code of Conduct is a code of best practices adopted and implemented by some of the world’s major electronics brands and their suppliers to improve conditions in the electronics supply chain. The code sets forth performance, compliance, auditing and reporting guidelines across five areas of social responsibility including labor, health and safety, environment, management systems and ethics policies. In accordance with EICC guidelines, beginning in 2008 Lexmark requested third-party audits for a number of its Tier 1 suppliers to monitor compliance in these areas.

Lexmark works with a multitude of direct and indirect suppliers. Approximately 100 of these account for the majority of Lexmark's direct spend. All Lexmark suppliers are required to comply with the Electronics Industry Code of Conduct which addresses human rights. In addition, we have increased the scrutiny of the human rights records of Lexmark suppliers.

ANALYZING AND MANAGING SUPPLY CHAIN RESPONSIBILITY

To better understand corporate social responsibility risks in the supply chain, Lexmark undertakes a spend analysis of that chain, analyzing for basic information (total number of suppliers, geographic spread, etc.), as well as social and environmental aspects such as supplier diversity and environmental factors. These spend analyses are conducted using specially developed data-collection tools and are conducted in collaboration with consultants specializing in supply chain analyses.

Over the last three years, 100 percent of Lexmark’s procurement spend was subject to our spend analysis process. Through this process we have identified critical suppliers–our high-volume/high-spend suppliers, suppliers of critical components and non-substitutable suppliers. Lexmark has nearly 13,000 suppliers, 2.7 percent of which have been identified as critical1. We have also noted that the percentage of our critical Tier 1 suppliers for which Lexmark procurement represents more than 30 percent of the supplier’s total revenues is less than one percent.

Less than one percent of our suppliers were determined to be of high risk, with the depth of that analysis varying based on the criticality of the risk. Based on the results of the spend analysis, Lexmark has chosen to conduct a deeper analysis of economic (cash management), environmental (weather-related) and social (war and political instability) risk factors.

EICC logoThese risks are managed in part through the Electronic Industry Citizenship Coalition® (EICC®). This code prescribes best practices related to environmental performance in operations, human rights (forced or child labor, freedom of association, ILO conventions), working conditions (working hours, layoff practices, remuneration), occupational health and safety and business ethics (corruption, anti-competitive practices).

Self audits and site audits against this code are conducted through the EICC. To date, approximately 200 Lexmark suppliers–including global key and strategic suppliers, those with which 2009 spend was over $1 million and those that are Lexmark critical-part suppliers–were asked to complete the EICC Self-Assessment Questionnaire (SAQ) and enter performance data into a Web-based data collection and analysis tool that helps companies collect, manage and analyze social and environmental responsibility data from suppliers.

These suppliers account for a significant percentage of Lexmark's total procurement spend. Based on 2011 spend, 236 suppliers make up about 80 percent of our spend and our top 100 suppliers comprise about 65 percent of our spend. In 2012, additional key and strategic suppliers are being asked to provide this data. We expect that by 2014, 100 percent of the top 80 percent of our suppliers (by spend) will have completed the SAQ.

SUPPLY CHAIN RESPONSIBILITY PROGRAM AT LEXMARK

Lexmark’s Global Vice President of Supply Base Management is the senior person responsible for delivering on the environmental, social and governance (ESG) objectives we’ve identified above. At the operational level, the Global Manager of Corporate Supply Base Management has responsibility for driving the ESG-objectives implementation. A direct reporting line exists between these two individuals.

All of Lexmark's prime contact procurement staff have received training in environmental, social and governance issues related to our procurement processes. Procurement personnel also have access to a database of supplier information that includes the suppliers' environmental, social and governance commitments as well as their performance metrics. All Lexmark staff that engage with suppliers are expected to consider the environmental, social and governance impacts of engaging with a supplier prior to entering into a relationship with the supplier. Procurement staff are incentivized to integrate ESG factors into supply chain-related decisions because performance impacts team and individual appraisals.

Sustainability is integrated into Lexmark’s supplier selection and retention processes. Rather than assign a weight to specific ESG factors in the analysis process , Lexmark has set EICC compliance as the minimum threshold for existing suppliers to meet for retention and for new suppliers for selection. Lexmark offers long-term contracts, agrees to fill production volume at suppliers’ facilities, buffers stock, consolidates suppliers and offers collaborative development and engineering to incentivize suppliers to adhere to EICC guidelines.

  1. Critical suppliers are those with an annual spend over $1 million USD.