Supply Chain Management

Supply Chain management Policy and Targets

Purchasing decision is not only base on the production, service and operational concerns, but also need to be response with corporate social responsibility. Thus LITE-ON builds supply chain management on compliance with its regulatory obligations, and focuses on workers' rights, environmental conservation, and health and safety along the supply chain as key control points for identifying high risk suppliers. Assessment results are used to devise improvement plans to help suppliers enhance their management practices. The objective is to reduce business risks and costs for both LITE-ON and its suppliers and develop sustainable partnerships.

Vision

LITE-ON views the supply chain as an important partner on the path to sustainability. With equal emphasis on quality, costs, delivery, and service, LITE-ON works with the supply chain to fulfill corporate social responsibility and increase sustainable competitiveness for a sustainable future.

Strategy and policy
 ● Ensure effective identification and management of ESG risks to enhance sustainability of the supply chain
 ● Strengthen management of conflict minerals to ensure minerals from conflict-affected areas are not used and responsible procurement practices are in place
 ● Promote a green supply chain and encourage suppliers to develop business models with a lower environmental impact

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Supply Chain and Localized Purchasing

LITE-ON offers a diverse range of flexible products that are used widely in communications, computers, consumer electronics, automotive electronics, LED lighting, cloud computing, and industrial automation. As a result, the supply chain is large and extensive with many sources. LITE-ON works with more than 1,600 suppliers of raw materials worldwide. They are categorized into direct material suppliers and indirect material suppliers based on the counterparty in the transaction. Direct material purchases have been the bulk of all purchases most of the time over the years. Direct material purchase was 91.8% of total purchase in 2018. An analysis is shown in the figure below.

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Identification of key suppliers

To ensure effective management of suppliers, LITE-ON focuses its efforts on the key suppliers it identifies. In 2018, these key suppliers represented 27% of the suppliers, and accounted for 78.8% of LITE-ON's purchases. In particular, in 2018, the percentage of key suppliers who were also local suppliers was 58% in China, 20% in Thailand, and 88% in Taiwan. Key suppliers are identified based on the following criteria:
 ? High proportion to total revenue
 ? Key parts
 ? Exclusive or irreplaceable
 ? Highly polluting production processes

Localized purchasing
Most of LITE-ON's production sites are in Taiwan, China, and Thailand. The percentages of local purchases are shown in the figure below. In particular, the percentage of local purchase was 88% in Taiwan in 2018. The percentage was below the average over past years due to a change of shipping origin by the client's chosen supplier.


Supply Chain Sustainability Management

Sustainable Supply Chain Guidelines

LITE-ON has set up a Supplier Code of Conduct and references 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 declaration requires suppliers conduct all business activities in compliance with the rules therein regarding workers, health and safety, the environment, business ethics, and management structures. It also requires suppliers comply fully with the laws and regulations in the countries/regions where they operate their businesses. Meanwhile, LITE-ON requires first tier suppliers impose the same guidelines on suppliers on the next tier.

Identification of Supply Chain Risk

Risk assessment process

LITE-ON considers supply chain risk management one of a company's competitive advantages. The process begins with assessing the place of manufacture and nature of service to determine key supplier or otherwise. The preliminary supplier assessment assigns key control points to workers' rights, environmental conservation, and health and safety practices along the supply chain, and conducts a sustainability risk survey on key suppliers. At the end, high risk suppliers are identified when the survey is completed. Onsite audits will be performed first on high risk suppliers. Improvement measures are implemented and followed up to ensure errors are corrected adequately to reduce risks.

Aspects of risk assessment

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

Supplier Management Mechanisms

Supplier screening and green purchases

In order to build a green supply chain, LITE-ON has adopted the following principles to evaluate suppliers in addition to the criteria for quality, cost, timely delivery, service, and technological capability.
 ? LITE-ON's material suppliers must fully comply with local laws and regulations, and have risk control practices in place to ensure compliance.
 ? LITE-ON's suppliers must adopt management practices that ensure protection of the environment and health and safety of employees, and the absence of hazardous substances in the goods they supply.
 ? Meet LITE-ON's "Concentration Limits for Harmful Chemical Substances in Materials" (LS-301)
 ? Provide adequate and regularly updated declarations or proofs as required under LITE-ON's Restricted Substance Management Program.

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 2018, LITE-ON performed audits on 440 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.

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 ● Management of sustainability risks in first tier suppliers
In 2018, LITE-ON added 211 companies (excluding suppliers specified by clients) to its suppliers list. 100% of the new suppliers passed LITE-ON's RBA audit, and met the standards for human rights, environment, safety, health, and management systems. Meanwhile, 2 suppliers were removed from the list due to a change of supplier name.

 ● Non-first-tier supplier management
In addition to our requirements for first tier suppliers, we also require that our suppliers manage their first tier suppliers in business activities involving workers, health and safety, environmental concerns, business ethics, and management structures in order to create a more reliable supply chain.

Supplier seminars on "Supplier Fulfillment of CSR" in practice
4 seminars and workshops on "Supplier Fulfillment of Corporate Social Responsibilities" were held in 2018 to explain the company's CSR commitments. Executive management of suppliers were requested to sign "Management Commitments" that require them to comply with "RBA standards".


Conflict Minerals Management

Procurement policy regarding conflict minerals (metals)

As a responsible corporate citizen of the world, LITE-ON has declared and committed to refrain from the use of metals sourced from conflict mines. The company also requires that all its suppliers comply with LITE-ON's procurement policy regarding conflict minerals (metals):
 1. ensure the absence of "conflict minerals" from Congo and surrounding countries and regions in their products, and adhere to the applicable regional and international laws for the conflict mines.
 2. All suppliers are required to complete a questionnaire to trace sources of all gold (Au), tantalum (Ta), tin (Sn), and tungsten (W) in the products, and follow the OECD Guidance to complete a survey to avoid directly or indirectly financing armed groups in conflict-affected regions.
 3. The requirement should be conveyed to their upstream suppliers.
Note: Conflict minerals refer to minerals mined from conflict mines within the Democratic Republic of the Congo; these minerals include coltan, cassiterite, wolframite and gold. The ore is refined into tantalum (Ta), tin (Sn), tungsten (W), cobalt (Co) and gold (Au), which are used mainly in electronics products.

Conflict minerals management process
LITE-ON has imposed full restrictions against the use of minerals sourced from conflict mines in Africa since 2010, and adopted the tools recommended by the Responsible Minerals Initiative (RMI) 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.
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Restriction on the Use of Hazardous Substances

The detailed description can be linked to Hazardous Substances Free Management


Corporate Governance ?

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