7.1 Our purchasing model and our suppliers
Madrileña Red de Gas’ business activity consists of the expansion of infrastructures, extension of distribution networks and assets, as well as the operation and maintenance of the Distribution Systems and ensuring gas supply to the users of the various municipalities of the Community of Madrid in which it operates.
The contracting of our suppliers is an essential element in these processes, with a total turnover during 2022 of 38 million euros.
During 2022 we have worked with a total of 161 suppliers, both of products and services, 16 of which are considered critical.
In addition, 81% of purchases have been made with 15 suppliers (13 service and 2 product), 12 of which are considered to be critical suppliers.
Madrileña Red de Gas has a well-established system for the evaluation, approval and monitoring of service providers considered to be relevant in order to guarantee that they comply with the required specifications, with the aim of ensuring the quality of the goods and services purchased.
In this regard, a relevant service is considered to be one which is sensitive from a quality perspective as compliance with specific technical/legal conditions is required to carry out the work, for which the contractor and/or subcontractor must be approved, and must be able to prove compliance with the technical/legal requirements defined for this activity, the vast majority of which are based on current legislation.
Madrileña Red de Gas also considers suppliers that meet one of the following conditions to be critical:
- They are involved in the following activities: network construction and maintenance, periodic inspection, domestic operations, readings, emergencies, commissioning of receiving facilities, manufacturer of polyethylene (PE) pipes, manufacturer of polyethylene (PE) accessories.
- Their contracts exceed a value of 400,000€.
These providers, except manufacturers, must meet the standards established in the Company’s internal regulations for relevant services.
Relevant service providers who are also critical providers, and who intend to carry out any activity for Madrileña Red de Gas, must pass two stages:
- Initial Evaluation Process, either as a contractor or subcontractor, in which compliance with the supplier’s basic requirements is determined and verified through the external supplier prequalification system.
Once the provider has passed this evaluation, if the service for which it wants to be approved is not considered relevant, the approval process is considered to be finished. - Approval Process, in which compliance with the established requirements corresponding to the service for which they want to be approved is verified.
For relevant non-critical service providers, the approval process starts directly at this stage 2.
In addition, Madrileña Red de Gas requires its suppliers to ensure that their employees be adequately trained and qualified. This training is determined according to the requirements established in current legislation and sectoral regulations, as well as in the company’s specifications and procedures.
To monitor service performance and to review and validate the approvals of the relevant service providers, the following information is used:
- Maintenance of the conditions of the initial evaluation.
- Compliance and maintenance of contractual documentary requirements.
- General performance monitoring: dialogue with the different Units at the Company to gather the necessary information regarding the service provided, results of audits, for example, of suppliers carried out using the external supplier prequalification system, reports of operational control results, quality control reports or non-conformities and incidents.
As regards the methodology established for purchasing, Madrileña Red de Gas has a common process for the entire organization, in which two parts are distinguished: purchase planning and purchase management.
No new outsourcing process has been carried out in 2022 and there have not been any major changes to our supply chain.
7.2 Ethics,confidence and transparency with our supply chain
Madrileña Red de Gas is committed to trusting, stable, solid and mutually beneficial relationships with our stakeholders, including suppliers.
As set out in our Human Rights Policy, with the aim of extending the principles of corporate responsibility throughout the supply chain, this commitment is extended to suppliers through our Sustainable Purchasing Policy and the Suppliers’ Code of conduct, as well as in the contractual specifications regarding working conditions and human rights.
In addition, we extend to our suppliers and collaborators the principles and working practices applicable to our own employees, and express our rejection of any form of forced or compulsory labour, freedom of association, and child labour.
All suppliers, and their employees, have the possibility and the duty to contact MRG confidentially, and without fear of leaks or reprisals, to notify any breach of the policies, legal requirements and this code of conduct that they detect while carrying out their activities. All communications will be treated in a strictly confidential manner and in accordance with the requirements established in the applicable legal regulations in each case.
In addition to the above, and as it is essential to ensure the security of the process in all our commercial relationships, as mentioned above, we have developed a Supplier Management Security Policy, which sets out the principles and requirements applicable to our suppliers, in addition to the controls and good practices identified in the study carried out in relation to Information Security during the Purchasing process.
Moreover, as members of the Spanish Association of Purchasing, Contracting and Procurement Professionals (AERCE), we have attended the latest congress held on October 26th at the Círculo de Bellas Artes in Madrid, with the motto “Purchasing, we are a reference”. In addition to addressing the risks derived from the current geopolitical situation or the essential need for ESG policies within organizations, the panel of experts focused on talent management in Purchasing and the three parallel sessions dedicated to Purchasing’s contribution to sales, margin and shareholder satisfaction, digitalisation in Purchasing or collaborative management with suppliers, were also very well received by the attendees.
During 2022 we also participated in the Repro-Achilles Committee where, among others, issues such as the environmental crisis, the problems caused by excess production and the consequences of climate change were discussed. These points are of special interest in the context of both citizen responsibility and their application to the private sector, and in how to transform ecological awareness into Internal Sustainable Development Goals. The participants of the Round Table Discussion delved into these concepts.
7.3 Sustainablepurchasing: shared goals and commitments
Madrileña Red de Gas considers it essential to share both its sustainability objectives and its commitments with all its suppliers, thus making it necessary to extend sustainability requirements and best practices at all levels.
As mentioned previously, this commitment is manifested in our Suppliers’ Code of Conduct, which sets out our Sustainable Purchasing Policy and establishes our Responsible Business Principles, based on the deployment of basic values: Integrity, Commitment, Transparency and compliance with Human Rights, and grouped according to the following criteria.
In addition, new contractual clauses, which will be applicable to all new commercial relationships established in the future, have been drawn up. These clauses already include ESG (Environmental, Social and Good Governance) criteria, such as:
- Documentation related to their significant direct, indirect and potential environmental aspects; especially with regard to documentation related to waste management and carbon footprint emissions.
- Circular economy-related actions.
- Promotion of sustainability policies.
- Actual contributions to the sustainable development goals of the UN Agenda 2030.
In addition, a list of good sustainability practices, which can be evaluated, is established.
In addition, and for the first time, in 2022 11 of our critical suppliers have been assessed in terms of sustainability via the external supplier prequalification portal, quantifying and establishing their relative position, in terms of sustainability, in the three ESG areas (Environmental, Social and Good Governance). The other five critical suppliers have not yet been added to that portal.
The external supplier prequalification portal is a community in which all partners benefit from its database of suppliers, which are registered at the request of the partners, and others on the supplier’s own initiative, in order to have visibility and comply with the requirements established in future tenders.
This sustainability assessment is the sum total of all the positive responses to the questions in a questionnaire for each of the blocks, with the contribution of the corresponding documentary evidence, and with a different weighting for each block.
Madrileña Red de Gas intends for these levels of sustainability scores to be considered as an additional decision element, both within the supplier approval scheme and in product and service contracting rounds.
None of the critical suppliers evaluated has a low sustainability performance, and no suppliers with negative environmental and social impacts on our supply chain have been identified.
The score assigned to each of our critical suppliers, as a result of their Sustainability performance, can be consulted in the module enabled for users in the external supplier prequalification system, together with more analysis and comparison tools.
Finally, it should be noted that, in order to continue to make the purchasing process more sustainable, we have made several improvements to our Purchasing Portal, as set out in the Digitalisation section of this report.
7.4 Promotion of local purchasing
Madrileña Red de Gas is committed to a more sustainable management of our commercial relations, seeking efficiency, the reduction of emissions, ease of communication and the economic development of the region in which we carry out all our operations, promoting local supply via suppliers located within the Autonomous Community of Madrid.
Moreover, taking into account that Madrileña Red de Gas considers operations that exceed 20,000 euros per year to be significant, in 2022 87% of these purchases were made from suppliers in the Autonomous Community of Madrid, thus promoting and strengthening local activity.
7.5 Adaptation to changes in our value chain
In 2015, Madrileña Red de Gas acquired a large number of LPG supply points, initiating the ambitious process of conversion to natural gas over the next few years.
From the beginning of this process, all our suppliers were informed of this strategy and were made aware of the importance of our commitment to them to support and work together, favouring the transformative process and encouraging them, on our part, to train for the new services.
Although the suppliers linked to the maintenance service of these LPG plants have been the most affected, this has not had a negative impact, since many of them have been recycled, acquiring new skills and knowledge, participating in transformation contests , although no longer as maintenance providers and, in some cases, being awarded the contract due to their extensive knowledge of the plants.
In addition to this challenge, in the future the change will be much greater with the transformation of networks for the use of renewable fuels, such as green hydrogen. The fact that the sector is trained in line with these changes is a vital issue for the economic sustainability of suppliers and to ensure that companies like MRG can continue to use their services.
This does not have a significant impact on our suppliers, since there is no exclusivity with us and they already have diversification strategies for moving into new renewable energies and adapting to changes.
The energy transition and the substantial growth in renewable energy facilities may also mean greater demand and alternatives for our suppliers and, consequently, could have a negative impact for MRG in a market with high demand. Madrileña Red de Gas is fully aware of the importance of caring for our suppliers, attending to their needs and creating long-term ties, thereby ensuring their loyalty.