To manage risk in our supply chain, we have established standards that include:

• Contingency plans. We understand that the supply chain plays a key role in minimizing the downtime associated with asset failure since unexpected high impact events may have a substantial negative impact on the business. We have adopted guidelines to create contingency plans and/or procedures to identify and respond to incidents and emergency situations and maintain continuous operation of critical assets. Proper mapping of critical suppliers is included as part of the spend analysis activities, and we also identify alternative sources.
• Inventory & criticality relation. We include criticality assessment for the different assets and parts within inventory as well as proper planning tools to ensure availability and replenishment according to lead times.
• Asset management. Assessment of supplier performance enables the identification of issues to be addressed via corrective action plans as well as best practices that should be recognized and duplicated.

To improve performance, we set annual objectives aligned with the overall business strategy. Some of the supply chain activities key performance indicators (KPIs) include:

• Inventory optimization – ensures the availability of the goods that are needed and reduces the risk of stock outs by focusing on demand planning activities. In previous years, we have exceeded our inventory reduction targets.
• Spend management – Our goal is to have at least 25% of our spending with suppliers managed under contracts in our centralized database, rather than as stand-alone purchases. Since 2015, our percentage of spend under contract has achieved this target.
• Savings – Savings expectations are set on a long-term basis with an official target set annually during the budget review process. In previous years, AES has exceeded its saving targets

Using the following principles, our supply chain professionals drive sustainability and social responsibility excellence across our businesses:

• Diversity and inclusiveness: We engage with a diverse set of suppliers across many categories to meet our business needs.
• Environment: Supply chain management actions and decisions must promote health, protection, preservation, and vitality of the environment in which the organization operates, including water, land natural resources, flora, fauna, and the people who are directly or indirectly related to our operations.
• Ethics and business values: The standards of our Supply Chain Management group are founded on our ethics and compliance policies and procedures, as well as our Code of Conduct.
• Health and Safety: Suppliers must act to protect and reduce the occurrence or risk of injury, danger, failure, error, accident, harm, or loss and comply with our health and safety programs.
• Human Rights: All supply chain procedures and actions must facilitate our businesses’ compliance with local labor laws and create the mechanisms that will encourage the observance of human rights and other regulations.