Sustainable Supply Chain Management

Overview of Supply Chain Partners

Kaori had a total of 824 supply chain partners in 2023 and made purchases amounting to NT$2.9 billion. Of the purchases made, 72% were for raw materials, followed by outsourced manufacturing. The percentage of localized purchases (from local suppliers in Taiwan) was reported at 36.2%. Suppliers can be classified into six main categories: sundry services, outsourced manufacturing, raw materials, consumables and spare parts, equipment, and components. The upstream consists of steel mills or customer-designated material suppliers, whereas the downstream consists of small, direct processing plants. 

Kaori's suppliers include steel mills and foreign providers of advanced technologies and products, all of which are capital-intensive businesses and have imposed high standards on environmental protection, green energy, and public interest. Kaori operates in the midstream of the industry and provides end customers with products that are processed and assembled from the above-mentioned materials.

Procurement policy

Select business partners primarily based on the quality, timeliness, and consistency of goods/services supplied and their willingness to commit to long-term relationships.

Supplier Selection System

Kaori conducts annual supply audits for effective management and maintenance of relationships with qualified suppliers. Suppliers are evaluated on product quality, delivery timing, service, technological background, and the quality management system. Furthermore, Kaori requires suppliers to present quality system certificates issued by independent third parties, and to complete questionnaires on the management of hazardous substances. All raw material suppliers are required to sign a commitment to ethical conduct and anti-bribery. Suppliers are evaluated not only for the prices they offer, but also for their overall contribution to Taiwan as well as their ability to complement the Company's role and position. With the introduction of the sustainable supply chain management system in 2022, Kaori will gradually replace suppliers that are found to be incompetent, thereby creating a more resilient and sustainable supply chain.

In 2023, the distribution of suppliers and procurement spending showed an increase in the purchase of U.S. goods compared to 2022, primarily due to expenditures on vacuum furnace equipment.

• In 2023, a total of 30 suppliers filled out the supplier sustainability evaluation form, and the return review rate was 100%. 
• Suppliers averaged a score of 44.7; a total of 7 suppliers (23%) scored above 60. More than doubled from 2022. With Kaori's promotion, more and more suppliers are willing to implement sustainability management. The proportion of suppliers in the lowest score range has decreased from 40% in 2022 to 27%, indicating that those who returned the evaluation forms are gradually becoming more familiar with these issues.
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•  Governance, social, and environmental issues: Suppliers scored highest in the governance aspect and lowest in the environmental aspect
• Score distribution by category: "Compliance," "Quality management." and "Supplier management" were the categories that suppliers scored the highest in, indicating that suppliers have undertaken robust management practices with regards to compliance, quality, and supplier management. "Greenhouse gas management." "Energy management," and "Environmental management system" were the categories that suppliers scored the lowest in. Many scores in the environmental aspect were lower than average, indicating room for improvement; occupational safety is an issue that all suppliers must pay attention to, and it will be at the top of Kaori's requirements.

Future Improvement Plans

• Low score group (40 and below)
  1. Kaori will help respondents understand the content of the questionnaire and guide them through the instructions while answering whatever queries they may have.
  2. Respondents will be given more time to reply, as well as reminders and assistance to prepare supporting information.
  3. Provide additional resources (e.g.: external courses and materials) will be provided to help suppliers develop relevant systems.
• Medium score group (40 and above)
  • Prioritize the quantity allocated to orders. 
  • Suppliers will be offered suggestions to devise development plans over several stages and to improve documentation or practices in areas of weakness identified through the scoring exercise.

The Company has established the Supplier CSR Code of Conduct in accordance with the Responsible Business Alliance (RBA) as the basic value for managing the supply chain. This Code covers labor, health and safety, environmental standards, business ethics, and management systems to ensure that suppliers work in a safe environment, employees are treated with respect and dignity, and business operations are environmentally friendly and ethical. The Company requires suppliers to avoid risks related to the environment, human rights/labor, corporate ethics, and labor standards, as well as prevent production stoppages caused by strikes in advance, and establish a relationship of co-existence and co-prosperity with suppliers.

Kaori requires new suppliers to follow the RBA Code of Conduct and sign the "Supplier Code of Conduct Declaration," pledging that all activities comply with relevant laws and ethical standards. We communicate Kaori's sustainability management policies to our suppliers and ensure they continuously meet our expectations through formal agreements. In 2023, a total of 142 suppliers signed the commitment letter.

Ensure the safety of the supply chain work environment, ensure that employees are respected, and implement business activities in compliance with environmental protection and ethical requirements, in terms of labor, health and safety, environment, business ethics, and management system. Ensure that all business activities comply with this Code, protect labor rights, and treat them with dignity and respect. Establish a healthy and safe work environment free of child labor (the minimum legal age for employment in the country/region).

Supplier Environmental and Social Responsibility Mechanism and Delivery Management

Suppliers who need to enter the Company's factories for construction and maintenance must comply with the relevant supplier specifications and requirements in the purchase contract and order. Environmental safety personnel manage the procurement operations according to the "Supplier Management Procedures" and "Contractor Environmental Protection and Safety and Health Management Guidance" and conduct environmental protection professional audits. New suppliers guarantee that the management of their production facilities, product manufacturing processes, and the products or services provided do not violate any relevant laws and regulations. In the procurement contract, they guarantee that all aspects of product production, manufacturing, labeling, packaging, storage, handling, transportation, import/export, delivery, installation, commissioning, or service provision are all in compliance with all applicable laws and regulations of the relevant applicable countries. During the social responsibility audit, new supplier employees are given reminders, guidance, and audits on working hours/safety/labor disputes.

Comply with Hazardous Substances Management Regulations

In order to maintain health and environmental safety, Kaori has adopted the ISO 9001 quality management system as the basis for managing the RoHS regulations and hazardous substances required by customers. At the same time, we are also committed to complying with the requirements of various countries and customers on chemical substances, and we also require suppliers to comply with regulations on restricted or prohibited hazardous chemical substances.

Responsible Mineral Procurement

Kaori complies with the Responsible Business Alliance (RBA) and is committed to not purchasing or using materials from conflict-affected and high-risk areas. The Company communicates its conflict minerals policy to suppliers, requiring their commitment and compliance. Suppliers are also required to trace the sources of tantalum, tungsten, tin, gold, and cobalt used in their products. At the same time, suppliers are required to communicate this policy to their upstream suppliers to fulfill corporate social responsibility. Kaori publicly discloses its conflict-free minerals policy on its website and integrates it into supplier management. Suppliers are required to sign a Non-use Conflict Minerals Guarantee, ensuring that all materials, products, or components delivered to Kaori do not directly or indirectly contain conflict metals.