Risk Management

As it increasingly conducts itself as an international business, LITE-ON starts facing the impact and growing challenges of a fast changing global economy. Therefore, LITE-ON identifies potential risks that may have an effect on sustainability, and formulates management strategies and response measures in order to reduce the potential risk of business interruption. The company has devoted itself to ensuring the financial, environmental and social sustainability of stakeholders including its customers, shareholders, and employees and the community. While taking steps to realize this goal, LITE-ON adopts a robust risk management framework, and performs risk assessments with respect to strategy, finance, operations, and hazards in order to determine top three high risks. The company also identifies and controls the various risks of concern, so that said risk can then be transferred, mitigated, minimized or even eliminated entirely and turned into business opportunities.

Risk Management Organizational Framework

LITE-ON's risk management framework and internal control system allow it to take the initiative and respond to the risks associated with its operations in the most cost-effective manner. The Group CEO serves as the highest ranking officer in the company's risk management framework .

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Risk Management Cycle

LITE-ON has been able to develop a comprehensive risk management framework with job functions and areas of responsibility clearly segregated for risk identification purposes. Risks identified within the organization are classified into "External Risks," "Operational Risks," and "Information Disclosure Risks." Each risk is further assessed and assigned a severity level of high, medium, or low, and mapped onto a risk map for ease of identification. This enables the organization to take further steps to transfer, accept, mitigate, and avoid the identified risks. By executing the PDCA cycle (plan, do, check, and act) the company is able to improve its control over various risk factors and reduce the chances of risks occurring and the impact they might have.
"External Risks" refer to external factors; "Operational Risks" refer to problems that are associated with the company itself; "Information Disclosure Risks" refer to risks associated with the disclosure of public information as part of the company's operations. By setting key performance indicators (KPI) within the organization, LITE-ON is able to assess whether key risks have emerged, and take necessary actions to transfer, accept, mitigate or avoid such risks. In order to minimize the possibility and degree of loss, the company adopts a risk management system that is even more proactive than insurance. Meanwhile, LITE-ON is progressively implementing an "AAA Product Liability Control Project" as enhanced management over manufacturing and sales risk. Furthermore, we has included identification and management of long term emerging risks in the corporate risk management plan.

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Risk Management Projects

In order to address external and operational risks of higher occurrence or impact, LITE-ON has implemented a risk management plan throughout all plant sites that focuses on "Raising Safety Awareness," "Protecting Critical Assets," and "Establishing Safety Systems and Rules." Apart from raising risk awareness within LITE-ON, the company has also executed a number of risk management projects that not only help identify dangers within various production centers, but also provides suggestions for future improvements. Through one project at a time, LITE-ON is able to accomplish the overall goal of its risk management, and build a foundation for sustainable operations.

Raising Safety Awareness

The Risk Management Department arranges regular training and seminars featuring the use of case studies to help employees learn from past mistakes, and hence raise their awareness towards safety and risk management.

Protecting Critical Assets

Each year, the company conducts infrared tests on electrical appliances used in plant sites, and performs random checks on their risk management practices to identify areas of weakness and ways of minimizing foreseeable risks. Meanwhile, logistics operations are also inspected regularly to reduce logistics risks. All products that LITE-ON offers to its customers undergo stringent internal quality control and are certified by third-parties who scrutinize everything the company does from product design, manufacturing to after-sale liabilities.

Establishing Safety Systems and Rules

The risk rating and audit system also helps reflect the risk status of various production sites. It reminds workers of the potential dangers present in the workplace, and allows quantifiable targets to be set and improved upon. In the short term, the system helps eliminate risks as soon as they are discovered; in the long run, it enables management to better plan its risk controls and implementation.

LITE-ON will be introducing new business continuity management to make sure that the company can resume operations rapidly and remain competitive when facing any disaster. At the current stage, the company is focused on developing a Business Continuity Plan (BCP) that achieves the following benefits:

  • Ensure business recoverability and sustainability; reduce overall operational risks and maintain competitiveness.
  • Provide assurances to customers and secure or even expand market share.
  • Protect the company's reputation and shareholders' interests.
  • Reduce costs of supply chain management and create industry service value.

2017 Risk Identification and Control Measures

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Long term emerging risks management

Environmental risks management

LITE-ON identifies potential short-, medium-, and long-term effects of climate change based on results of internal and external investigations and its own decisions and judgments after studying international research, industry trends, and 2℃ scenario analysis and uncertainties and taking into account climate change related international agreements and environmental laws. It also measures the probability of incurring such risks and the degree of impact on the company. The primary climate change risks established in 2017 were (1) risk of market condition changes and technological evolution, (2) regulatory and compliance risk, (3) reputation risk, and (4) risk of physical disasters.

Regulatory and compliance risk

Issues such as climate change induced trends, carbon emission reduction, total emission control, and carbon emissions trading may lead to new regulations and amendments of existing ones to strengthen regulatory control of environmental information disclosure and to impose more rigorous control on greenhouse gas emission. Such regulations would spur businesses to take a more active approach to carbon emission reduction, which may also lead to higher operating expenses. They may also lead to changes in LITE-ON's products, production processes, and business models.

Risk of market condition changes and technological evolution

The effects of climate change on businesses are not limited to tighter control on greenhouse gas emission. Development of low carbon technology and a greater variety of services may influence consumer preferences for products, and cause changes in consumer behaviors. LITE-ON will be observing constantly climate change induced changes in market conditions, and invest in research and development of green technologies to enable timely responses to shifts in consumer preferences for green products.

Reputation risk

LITE-ON's performance on environmental issues is under constant scrutiny from stakeholders. Public opinion may have an impact on brand value and cause changes in consumer behavior. In particular, negative exposure in an environmentally conscious market may alter consumer buying behavior. LITE-ON will continue to advocate corporate social responsibility, fulfill its environmental promises, improve its environmental information disclosure, and achieve sustainability to develop a positive image.

Risk of physical disasters

Effects of climate change may include rising temperatures around the world, changes in rainfall patterns, and extreme weather conditions (in terms of both frequency and severity). These effects may lead to flood, slopeland disaster, or drought, and cause damage to critical infrastructures, water resources, land use, coastlines, biodiversity, and health, all of which in turn have an impact on business management, employees, and supply chains.
In terms of control measures, LITE-ON deploys a risk management cycle and uses it to track and improve risk factors in order to reduce the probability and severity of risk induced losses. LITE-ON also seek opportunities in climate change risks at the same time. In response to identified key risks, LITE-ON has implemented measures to mitigate the business impact of climate change. Risks are monitored regularly and managed to produce a summary of risk management measures, including (1) research and innovation in green technology to develop low carbon, high performance green products, (2) development of automated energy saving techniques and innovative clean energy, and (3) introduction of green power plans to improve energy efficiency management. Please see Climate Change and Global Warming for more details.

Supply chain risk management

As part of its effort to build a sustainable supply chain, LITE-ON performs supplier sustainability risk assessments every year. LITE-ON screens supplier risks on a preliminary basis by analyzing potential risks in terms of location of a supplier, amount of procurement, and production process of a supplier. Furthermore, to better understand a supplier's risks, we survey sustainability risks in all key suppliers and first tier suppliers, and require key suppliers complete and return sustainability risk questionnaires. When the questionnaires are completed, we will perform a more detailed risk assessment on high risk suppliers identified in the process. High risk key suppliers will be subject to onsite audits or be required to complete the RBA Validated Audit Process (VAP). High risk first tier suppliers will be required to complete and return the RBA Self-Assessment Questionnaire in order to verify and keep reducing their risks. The risk assessments above are performed to identify potential economic, environmental, and social risks in the supply chain as well as suppliers with potentially higher risks. We target suppliers with potentially higher risks and perform audits and provide assistance to ensure their risks are effectively kept under control and minimized. Please see Supply Chain Management for more details on strategies and response measures.

Changes in labor laws around the world

Changes in labor laws and regulations may lead to increased costs, which can affect business performance. For example, the requirement of one fixed day off and one flexible day off each week under the Labor Standards Act in Taiwan stipulates that workers are given one fixed day off that they have to take and one flexible day off that they may or may not be able to take. The cost of labor rose after the rule came into effect, leading to a negative impact on profitability and gross profit. In addition, shift scheduling became harder for manufacturers. There are sometimes difficulties in meeting requested delivery dates. Our way of resolving the situation is sending representatives to explain changes in the labor laws, developing scheduling software, providing training for employees to acquire different skills, and replacing manual labor with automated systems.

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