Supply chain management commitment
- Establish a sustainable development as the goal of the supply chain.
- Enhance competitiveness through managing suppliers’ quality, cost, delivery, service and sustainability capabilities.
- Ensure sourcing and product are not contained with Conflict Minerals in our supply chain.
- Encourages the development of innovative business models that help reduce environmental impact.
- Co-operate with our suppliers to aware corporate social responsibility, protect the environment, and pay attention to human rights, health and safety.
Supply Chain Sustainability Management Objective
Supply chain management aspect:
Supplier Sustainability Guidelines
Supplier Executive Certificate of Compliance
LITE-ON has set up a adopted the Responsible Business Alliance(RBA) Code of Conduct and references international regulations including the Guiding Principles on Business and Human Rights, International Labor Organization's Declaration on Fundamental Principles and Rights at Work and the Universal Declaration of Human Rights etc., and requires its suppliers to comply with the rules herein regarding workers, health and safety, environmental concerns, business ethics, and management structures and comply with the laws and regulations in the countries/regions where they operate their businesses. Meanwhile, LITE-ON requires first tier suppliers implement the same guidelines as suppliers on the next tier.
Green Procurement and Supplier Selection
In order to build a Sustainable supply chain, LITE-ON has adopted the following principles to assess suppliers in addition to conventional criteria involving quality, cost, delivery time, service, and technological capability:
- Materials supplied to LLITE-ON must fully comply with the applicable regulations in the operational countries or regions, and risk control mechanisms must be defined.
- Suppliers of LITE-ON must establish relevant systems for the management of environmental protection, health and safety of employees, and the control of hazardous materials.
- Meet the LS-301 standards of LITE-ON on "Concentration limit of toxic chemical substances in prohibited materials".
- Provide suitable and updated declaration documents or evidence in line with the requirements of the hazardous substances free management plan of LITE-ON.
Restriction on the Use of Hazardous Substances
The detailed description can be linked to Restriction on the Use of Hazardous Substances
Sourcing Policy for Conflict Minerals (Metals)
LITE-ON supports the Responsible Business Alliance (RBA) and its Responsible Minerals Initiative (RMI), and requires suppliers buy conflict free materials. LITE-ON has imposed full restrictions against the use of minerals sourced from conflict mines in Africa since 2010, and adopted the tools suggested by RBA to manage its commitments. Meanwhile, LITE-ON has implemented a due diligence structure in compliance with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Conflict minerals management process:
Conflict minerals (metals): The minerals composed of columbite-tantalite, cassiterite, wolframite and gold from the fighting region of Democratic Republic of the Congo (DRC) or other Africa regions. These minerals are refined into tantalum (Ta), tin (Sn), tungsten (W) (referred as 3T), cobalt (Co) and gold (Au), respectively, and are widely used in electronic and other products.
Supply Chain Risk Management
LITE-ON considers supply chain risk management is one of a company's competitive advantages and expects suppliers to work together with the company to strength supply chain. Therefore, LITE-ON teams up with several Taiwanese ICT companies to form the “Corporate Green Competitiveness Alliance, CCGA”, which supports a mutually beneficial and sustainable environment to respond to green regulations around the world and follow green trends to create green value.
Supply Chain and Local Procurement
LITE-ON offers a diverse and flexible range of products and services; it uses suppliers from various sources that form an extensive supply chain to support LITE-ON's businesses. There are 1,792 certified first tier suppliers offering an extensive variety of goods. Suppliers are mainly categorized by their relevance to LITE-ON's products, and are distinguished between direct and indirect suppliers. Direct suppliers have accounted for the majority of direct purchases made in the past, totaling 89.65% in 2016.
In 2017, 65.14% of purchases made to direct suppliers involved parts and components supplied by manufacturers; these manufacturers represented the majority of LITE-ON's supplier list at 70.39%. Distributors of critical parts and components accounted for 25.62%, whereas suppliers of indirect materials and services (including transportation and professional services) accounted for 9.24%. See the figure below for a detailed analysis.
Regarding the percentage supplied by local procurement, LITE-ON's production sites are mainly located in China, Thailand and Taiwan. Regarding production facilities, local suppliers represented 66.9% of the supplier list in China in 2017; and local suppliers represented 10.5%, which was lower than 35.4% in 2016, of the supplier list in Thailand. A shift in the procurement policy also means that instead of buying from local distributors or wholesalers, the company buys directly from manufacturers in China or Taiwan. Local suppliers represented 100.0% of the supplier list in Taiwan.
Critical Suppliers management
To ensure effective management of suppliers, stringent screening criteria are applied during the selection stage. Passing suppliers will be followed up with on-site inspections and review meetings to evaluate their performance. LITE-ON then focuses its management efforts on the key suppliers it identifies. In 2017, these key suppliers represented 31.81% of the suppliers, and accounted for 81.27% of LITE-ON's purchases. In particular, in 2017, the percentage of key suppliers who were also local suppliers was 60.88% in China; 3.13% in Thailand, which appeared to be on a downward trend since 2016 that was mainly attributed to the change in the number of local suppliers in Thailand in 2017; and 100% in Taiwan. Key suppliers are identified based on the following criteria:
- High proportions in LITE-ON's spending
- High technological and creative abilities
- Unique source
- High level of customization
- Labor intensive or high polluting process industry
- Ability to fulfill CSER
Identification of high risk suppliers
LITE-ON assess potential environmental or social risks faced by key suppliers based on the locations of their operations, production processes, the Global Water Tool released by the World Business Council for Sustainable Development (WBCSD), and results of its audits. The factors in the risk assessments include the following:
- Management of sustainability risks in tier 1 supplier:
In 2017, LITE-ON added 171 companies (excluding suppliers specified by clients) to its suppliers list; 100% of which passed LITE-ON's RBA audit and satisfied company standards regarding environmental protection, worker's welfare, human rights, and social impact. Meanwhile, 31 suppliers were removed from the list due to change of supplier name and lack of competitive costs.
- Non tier1 supplier management:
In addition to our requirements for tier1 suppliers, we also require that our suppliers manage their tier1 suppliers in order to create a more reliable supply chain.
The Control of Volatile Organic Compounds (VOCs) and Water-related Risk
VOCs are threats to the environment and the health of human beings. LITE-ON requires all suppliers involved to install treatment facilities for VOCs in compliance with the local laws. Furthermore, LITE-ON also encourages all suppliers to introduce relevant technologies voluntarily for the effective treatment of all volatile sources to reduce the release of VOCs.
Water conservation is a critical topic currently, and also in the future. Due to ongoing climate change, the water resources that we used to rely upon may someday disappear, posing a major concern for sustainability of our suppliers. LITE-ON has identified heavy water-consuming processes in supply chain, such as Plating, PWB (Printed Wiring Board), steel and LCM (Liquid Crystal Module), and we assessed suppliers' capabilities on water-saving and recycling. Meanwhile, LITE-ON employed the Global Water Tool, developed by WBCSD, to identify and prepare action plan for the potential water scarcity regions after 2015—Taiwan, North China, Bangkok in Thailand.
Supplier Management Mechanisms
CSER Training for Supply Chain
Seminars on "The Practice of Corporate Social Responsibility for Suppliers":
9 seminars and workshops on "Supplier Fulfillment of Corporate Social Responsibilities" were held in 2017 to explain the company's CSR commitments. Executive management of suppliers was requested to sign "Management Commitments" that bind them to comply with "RBA standards".
Capability Building for Suppliers
We assess and provide suppliers the following assistances for suppliers to enhance their capability in ESG performances and operation efficiency. It involved but not limited to
- Training courses on RBA management, GHG inventory, HSF (hazardous substances free) and green products, and energy saving technology.
- Optimization consultation of manufacturing system and process.
- Introduction of IT management tools.
- New technology development.
Audit and Guidance on Supplier CSR - Human Rights, Environment, Safety, Health, and Management Systems
LITE-ON has incorporated the RBA Code of Conduct into the supply chain. These rules help the company monitor suppliers on issues regarding management ethics, protection of workers' rights, and health and safety management practices. LITE-ON also encourages suppliers to develop materials and production processes that minimize environmental impacts. We utilize the RBA Audit Tools to review and evaluate supplier performance in fulfillment of their corporate social responsibility. In 2017, LITE-ON performed audits on 528 key suppliers identified as high priority, and none was listed as an unqualified supplier for being in violation of CSR regulations. The audit results over the years are shown in the chart below.
Corporate Governance ▸