For the production and distribution of products, we buy inputs, services, and indirect materials from a varied range of suppliers in different regions of Brazil and abroad. In 2008, we engaged with 4,257 suppliers, 5.5% of which provide production inputs, which are ingredients from nature, raw materials, packaging materials, and finished products, and 94.5% of which provide services or indirect ingredients or materials (such as office supplies or cleaning products and parts for maintaining equipment).

Our supplier strategy is in line with our improvements in efficiency, quality, and relationships, which permeate the whole company. We want to establish an increasing number of long-term partnerships, since our suppliers are basic links in our value chain.

We try to diagnose our suppliers’ needs of by means of the satisfaction survey. The survey, reformulated in 2008, sought to identify opportunities for improvement and allowed us to determine corrective actions. The reformulation involved more objective questions; results tied to principles, processes, and areas, which makes the diagnosis easier and allows us to better plan actions; result per supplying company (and no longer by respondent); and increase of the sample, from 152 (in 2007) to 487 (in 2008), particularly in the Services, Ingredients and Indirect Materials segment (78% of the sample). Despite the changes in the survey methodology, the results presented in 2008 are comparable with those from previous years.

The favorable response rate was 74% in 2008, which represents a drop of 10 percentage points from 2007. To the survey results, we added the qualitative perceptions of our suppliers obtained in the wikishop, a group dynamics carried out with representatives of these stakeholders. The result revealed room for improvement in the quality of the relationships and the need to take effective action, to make mutual trust and value generation more dynamic, and to improve the performance of the supply chain. Therefore, next year, we will invest in initiatives that will generate:

1. increased dialogue;
2. more sharing of information;
3. more appropriate return to the process of selection of suppliers;
4. better planning, organization, and compliance with what was agreed in the management of innovation projects for suppliers of production inputs;
5. better payment process, particularly to suppliers of services, ingredients, and indirect materials;
6. and better production input planning and control process.

We are convinced that we need a long-term relationship with our suppliers, and this requires us to face dilemmas and challenges together. In 2008, in view of the need to develop a market strategy to adjust the prices of products for everyday use (soap, shampoo and spray deodorant) we enlisted the essential support of the suppliers of inputs for these products in order to reduce the total costs of the supply chain.

Mercury Project

In response to a request from suppliers, at the beginning of 2008, we implemented the Mercury Project: a management tool that improved the flow of the purchase process and reduced the time necessary preparing contracts, ensuring further agility and punctuality. The main benefits to our suppliers were the reduction in the time needed to prepare contracts from 37 days (average time recorded in 2006) to around seven working days. With respect to the commitment to eliminate failures in transactions, which were reported in the 2007 Annual Report, the Mercury Project also improved the quality of the contracting processes, since they are conducted in accordance with the requirements established in the Information System.

Development, Evaluation and Certification

The Qlicar (acronym for Quality, Logistics, Innovation, Competitiveness, Service, and Relationship in Portuguese) program, created in 2004, aims to ensure the development and high performance of our network of suppliers. Today, it includes 68 suppliers, who were selected over the years based on their history and business volume with Natura.

In 2008, the program evolved in three aspects: definition of new governance, review of objectives and indicators tied to each category, and equalization of the weights of each category in the total score. We conducted two workshops to train suppliers about new aspects of the program.

In the “Q” (Quality) category, we highlight the adoption of the new indicator related to the Assured Quality program. We started to receive the products of suppliers with excellence in the Quality Rate as Assured Quality, eliminating the need for Natura’s internal controls.

The “Delivery Window” was the main evolution in the “L” (Logistics) category. Suppliers are given periods in which to make their deliveries rather than specific times. The benefits included a reduction in peak times for the receipt of products by Natura and a reduction in waiting and unloading times
for suppliers.

The main evolution with respect to the categories of Qlicar was in the “C” category, which now means Competitiveness instead of Cost and Contractual Conditions. The new meaning intends to emphasize the need to constantly improve the competitiveness of the supply chains of Natura’s suppliers.

Another relevant aspect regards self-evaluation and audits of suppliers, which cover quality, environment, and social responsibility requirements, including aspects related to human rights. All the suppliers that are in Qlicar were audited in accordance with these parameters in 2008. And all contracts require the non-use of child, forced, or the equivalent of compulsory labor. Currently, we do not perform activities in indigenous communities and this is why we did not record any case of violation of their rights.

Supplier communities

The sustainable use of inputs from the Brazilian natural environment is the main technological platform of Natura. The development of the supplier communities is essential for the preservation of the environmental heritage. To establish and maintain this network of relationships and insert it in the business model is a challenge that Natura assumed a few years ago to encourage environmental preservation and the appreciation of traditional knowledge. The complexity of the supply logistics (which involves costs, quality, and traceability of inputs); the regulatory framework that is still under construction that governs the many aspects of this relationship; and the cultural and social diversity of the communities involved make up a system that requires continuous effort.

Currently, we have 23 communities partnering with Natura, located in the North, Northeast, Southeast, and South regions of Brazil, and in Ecuador. In total, there are 1,895 families. This group of communities is characterized by great diversity, both cultural and socioeconomic. Additionally, they are located in different ecosystems and have different forms of social and institutional organization. These stakeholders range from small groups of family farms in the South region of Brazil to traditional extractivist communities with a large number of families in the North region.

The supply chain includes manufacturers, who transform the inputs originated in the communities into raw materials for our products. In the case of Natura’s industrial unit of oils and soap mass in Benevides (Pará), this relationship already includes four supplier communities, and will be established with other surrounding communities in 2009.

Our relationship with these groups over the past few years has been directly and indirectly guided by the many forms of local value creation. In addition to the purchase of inputs, we have established contracts for sharing benefits, and in some cases we financially support the development of these suppliers and their production chains.

The increase in the supply value in 2008 is related to the increase in the number of communities, particularly those related to the Industrial Unit of Benevides and the consequent increase in purchases. The decrease in the amounts intended for training studies and assistance reflects the reduction in 2008 in our activities aimed at new benefit sharing processes.

While we are recognized for the progress we have made, we still have a long way to go to establish quality relationships with these communities. We need, for example, to improve the instruments for measuring the social, environmental, and economic impacts of our relationship.

In 2008, we conducted an extensive survey and analysis of historical data of Natura’s relationship with the many supplier communities, which generated an internal evaluation of the quality of the relationship. We concluded that, despite our progress in transparency and dialogue in the processes of sharing benefits, joint establishment of the fair price of the inputs purchased, and in the strengthening of our relationship and communication with the communities, we need to improve many aspects, including the planning of demands, support for the administrative education of the groups, and the negotiation process of our supply contracts. The lessons were used as bases for preparing the Relationship Principles with
supplier communities.

Before starting a relationship with a community, we first evaluate the local context in order to establish a relationship that maximizes the benefits and minimizes the risks for both parties. Depending on the characteristics of each group, we establish different strategies and relationship practices. To continue evaluating these impacts we keep on monitoring the whole Natura supply chain of inputs from biodiversity after the supply relationship has been established.

Through this, we intend to turn the commercial relationship with suppliers into partnerships for sustainable corporate practices.

For the extractivist communities or groups of family farmers to become Natura suppliers, they must be committed to a sustainable production model and the strengthening of the group itself, be legally organized as a cooperative or association and show management and administrative capabilities.

We try to avoid the possibility of any undesirable practices and, accordingly we have included in our supply contracts a clause to avoid the risk of child, forced, or compulsory labor in the commercial relationship with Natura. Although we have not achieved the target set for 2008, when we agreed to prepare a study and implement actions in this field, we have maintained our intention to prepare, now in 2009, parameters to evaluate the cases in which the labor organization is culturally dependent on the family structure.

Training and Events

In 2008, we continued to structure the methodology and indicators of the BioQlicar Program so as to improve the commercial relationships with rural suppliers and influence the adoption of sustainable corporate practices, in accordance with the abilities of each community. Our strategy, as from 2009, will be to strengthen the relationships with communities, guided by the Relationship Principles, by the implementation of the BioQlicar program, and by a broader evaluation of the quality of the relationship. The opening of new communities is not expected in the short term, as we believe that our focus now is to evolve with the current ones.

Among the actions that are part of the BioQlicar, we have training models offered by Natura to the communities that are considered strategic. They cover topics such as quality, good processing practices, management, administrative knowledge and production and selling costs. In 2008, two communities located in the states of Rondônia and Paraná received this training. In 2009, another 17 communities will go through the same process.

In some communities where we identified problems, such as tax debts and inefficient management of resources by the cooperatives and associations, we also made available training courses on administrative management and institutional organization. The many initiatives and studies that follow the consolidation of the supply relationship generate multiplying effects on the business and social organization of the
groups involved.

Our relationship with these groups over the past few years has been directly and indirectly guided by the many forms of local value creation. In addition to the purchase of inputs, we have established contracts for the sharing of benefits, and in some cases we financially support the development of these suppliers and their production chains. To learn more about these indirect economic impacts, please refer to the chapter Creation of Social Value.

In order to strengthen our partnerships with rural suppliers, we organized some events aimed at these stakeholders in 2008. The Annual Meeting with Rural Producers and Suppliers in Nazaré Paulista in the interior of the state of São Paulo was attended bywas attended by 25 representatives of 13 suppliers. This served to reinforce integration and convey information and knowledge on the production of forest seedlings from the nursery stage to their planting in the field. We also sent informative material on plant production, continuing with the Sowing Ideas Project launched in 2007, and the objective of which is the education and recycling of rural suppliers with handbooks and manuals.

Relationship history

In 2008, the system of data information, statistics and internal processes related to the rural and extractivist communities that work with Natura was implemented. This system is organized in electronic control panels, a tool that allows for the registration of a wide variety of information, from basic data on each community to all types of inputs that have already been bought and their producers, thus putting together the history of the relationship. Another benefit of the system is that it monitors the development of communities by means of indicators, sets targets and conducts planning. There is still a summarized table of BioQlicar, a relationship quality evaluation and the actions planned for the following 12 months. Every four months, the updated information on the communities is presented to Natura’s Sustainability Committee.