Supply Chain Management

Sustainable Supply Chain Management Policy

The products and services provided by suppliers may cause direct and tangible impacts on LITEON's products, services, and business activities. Meanwhile, the CSR practice of a supplier may cause indirect effects on LITEON's intangible reputation or turn into potential risks. As an important member of the global electronics manufacturing industry, LITEON makes continuous improvements in Sustainable Supply Chain Management (SSCM) to maintain the competitive advantages of LITEON and its suppliers as a whole. Therefore, LITEON selects responsible manufacturing and green products as the theme for its supply chain management strategies and sets SDG 8 and SDG 12 as the long term goals.

The Supply Chain Management Sub-committee under the LITEON Corporate Sustainability Committee takes traditional supply chain management and adds domestic and international regulations and electronics industrial benchmark—Responsible Business Alliance (RBA) guidelines to build a strong and sustainable supply chain management framework. The framework provides the basis for LITEON's sustainable supply chain management policy. Furthermore, LITEON extends the scope of sustainable supply chain management to economics and governance, environmental protection, social inclusion and other ESG issues. Issues such as labor rights, environmental protection, health and safety, and ethics and management systems are made key components in supplier evaluation, selection and audit. This approach establishes risk controls and identifies high-risk suppliers. Improvement measures are based on evaluation results and designed to help suppliers make progress on an ongoing basis. We hope to improve the performance of sustainable management on the supply chain and reduce operational risks on said supply chain. We also hope to develop partnerships based on sustainable growth.

Vision

All members of the supply chain are LITEON's important partners on the path to sustainability. With equal emphasis on quality, cost, delivery, services, management, and innovation and technology (QCDS-MIT), LITEON looks forward to working with the supply chain in fulfilling corporate social responsibility in economics and governance, environmental protection, and social inclusion (ESGs) to increase sustainable competitiveness for a sustainable future.

Strategy and Policy

• Ensure effective identification and management of economic, environmental, and social risks to enhance sustainability of the supply chain

• Strengthen responsible mineral management to ensure minerals from unqualified smelters in conflict-affected areas are not used and to build up responsible procurement practices

• Enforcing responsible procurement practices to promote green supply chains and encourage suppliers to reduce environmental impacts in their business operations and products

Supply Chain and Localized Purchasing 

LITEON offers a diverse range of flexible products that are used widely in 5G, vehicles, power supply management, communication systems, IoT, personal and industrial computers and peripherals, consumer electronics, mobile and wearable devices, automotive electronics, LED lighting and advanced applications, cloud computing, and industrial automation. As a result, the supply chain model is a closely interconnected network of many different active entities.
Raw materials involved in the supply chain include IC, PCB, electronic components, cables, plastic parts, metal parts, packaging materials and so on. Statistics in 2023 show that LITEON cooperates with 3,378 raw material suppliers, with a total purchase amount of more than NT$95.7 billion. According to the procurement objects, it is mainly divided into direct material suppliers, indirect materials and service suppliers. In the past years, the procurement of direct materials has
accounted for the vast majority. The direct procurement amount in 2023 is approximately NT$91.4 billion, accounted for 95.52%. In addition, LITEON's production bases and supply chain manufacturers are mainly located in Taiwan, China and the Asia-Pacific region. In 2023, local purchases reached NT$80.9 billion, making up about 84.62%, a 7% decrease from the previous year, mainly due to global strategic adjustments. Future efforts will focus on enhancing local procurement to optimize benefits

Note:

• Direct purchase is defined as a purchase made directly from a manufacturer, dealer, or distributor.

• Local or decentralized purchasing is determined by whether LITEON (places an order and receives the shipment) and the supplier (receives the order and dispatchs the shipment) are in the same geographic region and by whether the process contributes to the local economy, creates jobs, or reduces the carbon footprint during distribution/shipping.

• A reorganization of the company's structure refers to the sale of the Image department

• The number of suppliers included in the statistics was adjusted to those that had transactions in the current year.

Sustainable Supply Chain Management Framework 

LITEON lists three areas of sustainable supply chain management: sustainability guidelines, risk identification, and management systems. LITEON starts by establishing basic sustainability guidelines and requiring supply chain members to comply with the guidelines, uses risk identification tools to find high-risk factors and supplier industries, and then deploys various management mechanisms to manage the entire supply chain.

Sustainable Supply Chain Management Guidelines

Regarding sustainable supply chain management, LITEON has implemented the Supplier Code of Conduct and Supplier Executive Certification of Compliance by adopting the Responsible Business Alliance (RBA) Code of Conduct and considering international regulations including the United Nations Guiding Principles on Business and Human Rights, the International Labour Organization's Declaration on Fundamental Principles and Rights at Work, and the Universal Declaration of Human Rights. The Supplier Code of Conduct and Supplier Executive Certification of Compliance requires all suppliers to conduct all business activities in compliance with the rules therein regarding labor rights, health and safety, the environment, business ethics, and management systems. It also requires suppliers to comply fully with the laws and regulations in the countries/regions where they operate their businesses. Meanwhile, LITEON requires first-tier suppliers to impose the same guidelines on suppliers on the next tier.Furthermore, regarding ethical corporate management, LITEON started requiring that all suppliers sign the "Integrity Commitment" in 2021. The commitment letter stipulates that no bribe shall be paid or any other inappropriate gains shall be provided or given between any supplier and LITEON employee to close a deal or perform a contract, and a supplier shall not engage in any conduct that directly or indirectly benefits a LITEON employee or stakeholder. Regarding product production, LITEON has the LS301 standards in place for products, materials and other green products provided by suppliers. The standards provide the restricted substance guidelines for green products and the responsible mineral management policy. Please refer to the Hazardous Substances Free Management。

Sustainable Supply Chain Management Mechanisms 

Supplier Screening and Classification

LITEON divides suppliers into groups according to their attributes, and label them for sustainable management. LITEON suppliers can be divided generally into Tier 1 Suppliers and Non-Tier 1 Suppliers, Significant Suppliers (Significant Tier 1 Suppliers and Significant NonTier 1 Suppliers), and High Risk Suppliers as shown.

For effective supplier management, LITEON follows a set of screening criteria in the supplier selection process. In addition to the criteria for quality, cost, delivery, service, management, innovation, and technical capabilities (QCDS-MIT), LITEON implements green supply chain based procurement management system. If suppliers are unable to meet the minimum ESG requirements, they will be excluded from being contracted. The methodology for supplier screening:

• Country-specific risk: This includes regulatory trends, biodiversity, and physical environmental risks, which are determined by the country of operation.

• Sector-specific risk: The RBA framework (Responsible Business Alliance) is used to assess whether the supplier meets the standards.

• Commodity-specific risk: This mainly focuses on the risk assessment of the top three high-carbon emissions and conflict minerals.

The following principles are applied to evaluate all suppliers (and new suppliers)

• LITEON suppliers are required to sign Supplier Executive Certification of Compliance, and Integrity Commitment and promise compliance with LITEON Supplier Code of Conduct

• LITEON's material suppliers must fully comply with local laws and regulations, and have risk control practices in place to ensure compliance

• LITEON's suppliers should build up management systems for quality, environmental protection, health and safety, and for no use of hazardous substances

• LITEON's material suppliers must comply with LITEON Standard of Controlled Hazardous Substance (LS301)

• Suppliers should follow LITEON's Restricted Substance Management Plan and provide adequate and regularly updated declarations or proofs

• Comply with LITEON's responsible mineral management policy and cooperate with LITEON to complete due diligence report

Identification of significant suppliers

For more effective supplier management, LITEON has identified a list of critical suppliers on which to direct its management efforts. The following principles were applied to identify critical suppliers based on the products, production processes, and sales characteristics of individual business groups in 2023.

• Top 75% of direct materials by annual purchase

• Exclusive or irreplaceable

• Critical parts or components

• Highly polluting production processes

In 2023, LITEON followed the principles above and identified 376 key suppliers, 9 of which might have potentially adverse effects on the environment. Meanwhile, LITEON took an extra step and implemented the "Supplier Qualification Evaluation Procedure" to introduce elements of the LITEON Code of Conduct, the LITEON Supplier Code of Conduct, and the Supplier Executive Certification of Compliance into supplier qualification evaluation. Audit results were divided into three categories, and included in the sourcing decision-making process for the purpose of facilitating continuous improvement. LITEON also conducted review meetings to monitor suppliers' CSR performance in various areas.

Status of Significant Tier 1 Suppliers and Critical Non-Tier 1 Suppliers

There are about 446 significant tier 1 suppliers in 2023, accounting for 11% of 3,378 total suppliers, and its purchase amount accounting for about 75%. In addition, about 112 significant non-tier 1 suppliers has been listed. The supplier types and procurement ratios are as follows,

Audit and Assistance on Supplier ESG Aspects 

LITEON Supply Chain ESG Sustainability Risk Audit--Supplier "Labor, Health and Safety, Environment, Business Ethics and Management System" audit advanced planning: LITEON introduces the RBA (Responsible Business Alliance) Code of Conduct into the supply chain to monitor the extent to which suppliers are implementing labor rights, health and safety, environment, business ethics and management systems, and encourage suppliers to develop materials and processes that reduce environmental impact, or energy conservation and carbon reduction from process utilities, then increased attention and management of environmental issues including climate change and biodiversity. Therefore, over the years, based on the RBA requirements, we have reconciled LITEON's supplier audit form, with further review and evaluated suppliers in terms of corporate social responsibility for suppliers’ ESG sustainability.

Supplier Engagement Activities 

Supplier Meetings and Annual Projects are All Supervised by the Sustainable Supply Chain Sub-Committee.

LITEON organizes numerous supplier engagement events to communicate its supply chain management strategies and goals and commend excellent suppliers. International sustainability trends and regulations, including RBA, tariffs, and CDP questionnaires, are shared during the events, allowing our suppliers to be aware and learn from peer benchmark cases.The scope of supplier education and training or project cooperation covers climate change, energy conservation and carbon reduction, international carbon management, product green design/product carbon footprint, banned and restricted substance specifications, biodiversity protection, circular economy/waste resource recycling, responsible minerals, etc., are all issues of concern to LITEON. In order to invite more supplier partners to participate, we try our best to arrange physical and online supplier conferences, annual project descriptions, and education and training, providing a more convenient two-way communication channel, and also reducing transportation time and transportation carbon emissions. Looking back on 2023, LITEON supply chain negotiation activities were held a total of 29 times, including 1 physical supplier conference, 24 educational trainings and 3 project explanation meetings.

From 2022 to 2023, 116 suppliers participated in the "LITEON Supply Chain Green Transformation Project," and were consulted based on the characteristics of industries and products. This initiative has strengthened our key suppliers' GHG inventory and product carbon footprint capabilities, boosting low-carbon competitiveness collaboratively.

LITEON works with its suppliers to build low-carbon competitiveness, and launched the two-year project to reduce carbon emissions by 10,000 tons by 2025 as the starting point for developing a low-carbon supply chain. The cumulative carbon reduction reached 3,000 tons by the end of 2023.

• Seminars on corporate social responsibility of suppliers

Supplier engagement activities: education and training related to sustainable supply chain management, project meetings and supplier workshops--LITEON has held a number of supplier workshops, briefing sessions or training courses and project meetings every year. In addition to introducing the latest LITEON supply chain status and commending excellent suppliers, it also has explained the practices related to the practice of corporate social responsibility, including the updated content of RBA, the Supplier Code of Conduct, and the Supplier Executive Certification of Compliance. LITEON requires that suppliers' management teams or top managers sign the “Supplier Executive Certification of Compliance” and "Integrity Commitment", confirming that the company operates in compliance with the RBA Code of Conduct. In addition, the scope of supplier-related education and training and project meetings is very wide, including climate change/energy saving and carbon reduction/international carbon management, product green design/product carbon footprint, international environmental regulations on prohibited and restricted substances, biodiversity protection, circular economy/ recycling of waste resources, responsible minerals, etc. All the topics are highly relevant to LITEON and suppliers. However, due to the COVID-19 pandemic in 2021, many activities have been held online to communicate and collaborate with suppliers. In the future, physical or online supplier meetings and related discussions will continue to be held. In 2022, LITEON has held a total of 27 supply chain workshops/meetings, including 13 supplier workshops and education trainings, and 14 special topic meetings.

From 2022 to 2023, LITEON's business units recruited and focused on key suppliers that have a material impact. 107 suppliers are members of the task force jointly established to promote the "LITEON Supply Chain Energy Conservation Assistance Project".

• Supplier incentives for outstanding performance

The business groups implement suitable supplier incentives according to the nature of their sourcing activities and the characteristics of their suppliers. For PMS/CIPS, suppliers with ① an outstanding QCDST (quality, cost, delivery, service, and technology) rating, ② a total transaction amount ranked in the top 30, or ③ other outstanding performance that meets the criteria will be selected as outstanding suppliers, will be presented awards at the supplier conference.

Furthermore, MES presents special awards to suppliers that comply with the EU's RoHS Directive and have ① a complete IECQ QC080000 management system, ② an annual RSC audit score of more than 90, ③ no missing data in the GMS system, ④ no RoHS data exceeding the limits and ⑤ with internal testing facilities and random risk assessment mechanisms, will be presented awards at the supplier conference. AEA grants one-year audit exemption to outstanding suppliers that have passed supplier audits for three years in a row. Other business groups organize similar supplier conferences and outstanding supplier award ceremonies.

• The LITEON Supply Chain Energy Conservation Assistance Project

In 2022, LITEON invited eleven suppliers to jointly participate in the "LITEON Supply Chain Energy Conservation Assistance Project" of the Industrial Development Bureau of the Ministry of Economic Affairs, and set the goal of freeing up 2.5% of the energy-conserving space. During the project period, the seed personnel of the supplier Energy Conservation Alliance will conduct online courses through the "Ewant Open Education Platform" to improve the basic knowledge and skills in energy conservation and carbon reduction; and professional consultants and factories cooperate with suppliers to measure their air compressor, air conditioning, lighting, pumps, and other public systems to find potential for carbon reduction. The members of LITEON's supply chain energy conservation alliance are mainly large energy users, are required to save 1% of electricity each year, energy conservation improvement has been continued. As the public systems of the electronics industry are mainly composed of electricity consuming devices such as air compressors and ice water machines and pumps. Therefore, this project helps by giving priority to in-depth reviews of air-conditioning system efficiency, pump efficiency, and fan efficiency. After the one-year project period, LITEON's supply chain Alliance submitted a total of 77 specific suggestions for improvement, which have a power saving potential of 5.67 million kWh and an average energy conservation potential of 4.23% for each plant. It is estimated that carbon reduction reached 2,887 tons of CO2e.

Identification of Supply Chain Risk 

Supply chain management mechanisms

As part of the commitment to responsible production and the development of suitable members for a sustainable supply chain, LITEON employs 4 tools, assessment, assistance, communication, and collaboration, and the corresponding elements in the sustainable supply chain management framework to ensure all important issues in the framework are monitored by feasible procedures.

Risk assessment process

LITEON treats supply chain risk management as one of the company's competitive advantages. In terms of the industrial sector, common economic, environmental, and social risks can generally be categorized roughly based on industry characteristics.

Aspects of risk assessment

LITEON assesses risks in three aspects: the economy, the environment, and society. The factors in the risk assessments include the following.

High sustainability risk factors and high sustainability risk supplier categories in LITEON's supply chain in 2023 were then identified by considering the factors above in terms of the market conditions in 2023 and the supplier categories of counterparties. The results are shown in the table below.

LITEON Supplier ESG Sustainability Risk Audit Status

In 2023, LITEON conducted a supply chain ESG sustainability risk survey. The statistical results revealed that ESG-audited suppliers made up 6.31% of the total suppliers, with key suppliers representing 56.65% of that figure. The audit comprehensively evaluated five aspects. Among key suppliers, 9.84% scored below 65, and there were nine ultra-high-risk suppliers with scores below 60, comprising 2.39% of the key suppliers.

The audit findings from the 213 key suppliers assessed during the 2023 sustainability risk identification indicated no significant violations. Moving forward, we will maintain focus on high-risk suppliers and prioritize on-site audits. Additionally, we will implement risk control measures through management improvements and ongoing monitoring to ensure progress. This year, no suppliers were categorized as unqualified for major violations of social and environmental responsibility standards during ESG sustainability audits or other supplier assessments.

Sustainable Supply Chain Transparency Management Project

Period: 2023-2024

Goals:

• 1. Enhance the sustainable supply chain assessment by aligning with ISO 20400 guidelines.
• 2. Implement a digital sustainability platform to ensure transparency and accuracy in supply chain ESG information and improve management.
• 3. Enhance internal and third-party audits to enhance inventory data quality.

Strategy:

• 1. Conduct supplier on-site assessments carried out by an independent accredited auditing body to enhance our risk assessment quality and reliability.

• 2. Third-party auditors to assess the current state of sustainable supply chain management

• 3. Enhance supplier ESG audit and risk assessment processes

• 4. Improve supply chain ESG data quality to support KPI/KPR development, ensuring effective decision-making, accurate disclosure, and compliance

Outcome:

• 1. Upgrade sustainable procurement document inventory, supplier grading, and Inventory of sustainable procurement documents and supplier standards

• 2. Two workshops on assessing stakeholder interests, life cycle issues, ESG risks, sustainable strategies, and KRI/KPI development with internal buyers and stakeholder

• 3. Supplier ESG Self-Assessment Questionnaire and guide

• 4. Report on supplier ESG review findings

• 5. Summary of supply chain risk assessment results

• 6. Strategies for improvement recommendations

Sustainable Supply Chain Management Targets 

LITEON is dedicated to building a supply chain centered on sustainable development. To uphold workplace safety throughout the supply chain, we have established supplier management guidelines and regulations that respect employee dignity, promote environmental protection, and ensure adherence to ethical standards. LITEON collaborates with suppliers to fulfill corporate social responsibility and create a sustainable supply chain.

To drive sustainability among our suppliers and uphold the commitment to responsible manufacturing for our customers, LITEON has implemented the Supplier Code of Conduct and the Responsible Mineral Sourcing Policy. Additionally, we require suppliers to sign management commitment statements (Supplier Executive Certification of Compliance) to verify their capability to meet LITEON's supply chain management (SCM) requirements.

In line with the above sustainable supply chain management policy, LITEON has developed a strategy and set targets to enhance supply chain management continually. The Supply Chain Management Subcommittee focuses on advancing three key supply chain management initiatives aligned with LITEON’s “Sustainability Strategy and Blueprint.” We are committed to promoting ongoing implementation and continuous improvements in accordance with the United Nations Sustainable Development Goals (SDGs).

LITEON’s low-carbon supply chain milestone

Responsible Raw Materials Management
Responsible Sourcing Policy

Environmental aspect: LITEON Natural Capital Policy

• Committed to minimizing the negative impact of raw materials on the ecological environment, including reducing the mining of virgin materials and recycling materials to reduce waste generation

• Increasing the use of recycled raw materials year by year and increasing the use of third-party verified raw materials

• Avoid the use of raw materials from sites of global or national importance for biodiversity, avoid habitat destruction, reduce pollution, and avoid over-exploitation of natural resources 

• Ensure that the raw materials used comply with international environmental protection and responsible minerals regulations 

• Strengthen cooperation with external stakeholders, including working with academia and research institutes to develop sustainable raw materials

Social aspect: Conflict Minerals

As a responsible corporate citizen of the world, LITEON has declared and committed to refraining from the use of metals sourced from unqualified smelters in conflict mines. The company also requires that all its suppliers comply with LITEON's responsible mineral/metal sourcing policy:

• Ensure the absence of "responsible minerals from unqualified smelters" in Congo and surrounding countries and regions in their products, and adhere to the applicable regional and international laws for responsible minerals.

• Trace sources of all Gold (Au), Tantalum (Ta), Tin (Sn), Tungsten (W), Cobalt (Co), and Mica and other sources of responsible minerals published in the Responsible Minerals Initiative (RMI) in all products; while all suppliers should complete a connection report to confirm sources of related minerals and should use a list of RMI compliant smelters/refiners to avoid mines directly or indirectly financing armed groups in conflict-affected regions.

• Convey these requirements to their upstream suppliers.

Responsible Mineral Management Process

LITEON is committed to not using metal minerals from conflict areas and has joined the Responsible Minerals Initiative (RMI) as a
member, requiring suppliers to comply with LITEON’s responsible mineral (metal) procurement policy.

• 1. In order to ensure the source of the minerals used, promote mineral due diligence and comply with “Due Diligence Guidelines for Responsible Mineral Supply Chains in Conflict-Affected and High-Risk Areas” issued by the Organization for Economic Co- operation and Development (OECD) Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

• 2. In accordance with the specifications of the Responsible Minerals Initiative (RMI) and using its Conflict Minerals Reporting Template (Note), the scope of the investigation includes Conflict-Affected and High-Risk Areas (CAHRAs), CAHRAs to trace the origin of minerals such as Gold (Au), Tantalum (Ta), Tin (Sn), Tungsten (W), Cobalt (Co), and Mica.

• 3. Communicate this requirement to its upstream suppliers to comply with customer requirements.
  
  Note: The conflict minerals template refers to the conflict minerals investigation template recently announced by RMI official website, including the Conflict Minerals Reporting Template (CMRT), the Extended Minerals Reporting Template(EMRT) and The Pilot Reporting Template(PRT).

▶ For the comprehensive disclosure of our responsible mineral management, please refer to LITEON RESPONSIBLE MINERALS REPORT.