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Outline of procurement policy and supply chain

Outline of Procurement Policy and Supply Chain_Basic Policy for Procurement

Outline of procurement policy and supply chain

Our business partners are important members of our value chain, who supply the materials, parts and components necessary for the continued operation of our manufacturing enterprise. At Komatsu, we aim to build a Win-Win relationship with our business partners by making interactive efforts under a relationship of mutual trust. Along with the expansion of our global operation, our supply chain has also been expanding all over the world. Taking seriously the recent gain of momentum for the spread of CSR in the overall supply chain, we are working to realize CSR procurement globally by being proactive in providing intense support for the CSR initiatives of our business partners.

1. Basic policy for procurement

Komatsu's procurement policy is based on the philosophy of aiming to build a Win-Win relationship with our business partners, who are on an equal footing with us, and encouraging each other. The policy aims to evaluate and select suppliers in a fair and equitable manner from a SLQDC (Occupational health & Safety, Compliance with the Law, Quality, Production capacity & delivery and Cost competitiveness) and ESG perspective.

Komatsu has established CSR Procurement Guidelines and Green Procurement Guidelines to serve as evaluation criteria for selecting suppliers and evaluating ongoing transactions. These guidelines have been posted on our website. In addition to making these guidelines known to our suppliers, we provide the necessary support and guidance to ensure their business activities align with our requirements. Our support and guidance include the following examples:

  • Providing employee education curriculum and training on relevant laws and international rules.
  • Offering support to help suppliers build a promotion system (e.g., formulating operation rules), auditing and advising on the operation status.
  • Awarding prizes and rewards to business partners that have made significant progress in CSR activities.
komatsu csr, Procurement Division

CSR Procurement Guidelines

2. CSR procurement guidelines

To promote CSR activities in the supply chain, we established and released the CSR Procurement Guidelines in 2011. In accordance with international guidelines such as ISO 26000 and the 10 principles of the United Nations Global Compact, the guidelines specify the items we would like our business partners to address, while reflecting the concepts of Komatsu's Worldwide Code of Business Conduct and the Komatsu Way. 

The guidelines cover various ESG issues, including corporate governance, compliance, environmental protection, human rights and labor, corporate ethics and social contribution, and coexistence with local communities. Efforts to comply with these guidelines are incorporated into the business contracts we establish with our business partners. In the unlikely event a clear violation of these guidelines is discovered at a partner company, and appropriate corrective measures are not taken within a reasonable period of time, we may suspend or terminate our business with that company.

Request to business partners regarding the guidelines

In accordance with the Komatsu Code of Worldwide Business Conduct (established in 1988), all companies of the Komatsu Group have worked together in pursuit of thorough compliance. Moreover, Komatsu has focused on corporate social responsibility (CSR) in its business management with the aim of coexisting with society and achieving sustainable growth. As part of this effort, Komatsu has participated in the Global Compact, a voluntary principle of action in relation to “human rights, labor, environment and prevention of corruption” advocated by the United Nations, since November 2008 and has also expressed its position as a global enterprise on critical issues confronting international society faces.
Against this backdrop, ISO26000 was officially issued in November 2010 to provide international guidance on social responsibility. Komatsu sincerely reacts to the issues set forth in ISO26000 and will exercise leadership so that social responsibility will be borne throughout the entire value chain.
According to the Komatsu Code of Worldwide Business Conduct, we shall “seek to establish long-lasting stable relationships on the basis of mutual trust” by considering business partners to be important partners of the Komatsu Group. The revision in April 2011 added statements that we shall encourage business partners to follow the spirit of Komatsu Code of Worldwide Business Conduct and that the criteria for the selection of business partners shall include their compliance with rules of business society.
The CSR Procurement Guidelines contain a list of practices recommended for our business partners in line with the basic policy above, covering compliance and CSR. Since its establishment in 2011, we have revised it to address new issues that meet the social needs. Companies of the Komatsu Group are kindly requested to take note of and incorporate the guidelines into their management principles and unfailingly promote CSR. Moreover, we hope that these companies make similar requests to their suppliers.

April 1, 2021
Goro Senda, President of Komatsu Procurement Division

Komatsu group CSR procurement guidelines

(Established on August 30, 2011; Revised on April 1, 2019 and on April 1, 2021)

1. Operations for sound management

(1) Build a system or operational structure designed to meet various risks.

(2) Establish legal and transparent decision-making processes concerning management.

(3) Conduct appropriate accounting procedures, tax filing and settlement of accounts.

(4) Place importance on communication with stakeholders (customers, shareholders, business partners, employees, etc.).

(5) Ensure that top management will be notified promptly when any abnormal condition develops and that your company will be able to promptly and accurately respond to the situation(s).

(6) Fulfill accountability to society through active disclosure of corporate information.

(7) Properly handle the personal information of customers, business partners and employees. Take appropriate measures for information security to ensure that the confidential business information provided by Komatsu or by business partners will not be leaked, lost or destroyed.

(8) Create an effective BCP so that, even in the event of large-scale natural disaster, infectious disease pandemic or any other emergency, we can appropriately take initial measures to ensure the safety of employees, quickly restore business operations and fulfill our responsibility to supply customers with products.

2. Thorough enforcement of compliance

(1) Engage in business operations while complying with the laws and regulations, as well as the rules of the business community in the countries and regions where we conduct business operations. In addition, make efforts to respect internationally accepted standards.

(2) Define a code of conduct, comprising company rules, under the leadership of senior management, and develop a corporate climate that places top priority on compliance.

(3) Establish a compliance regime, in accordance with the scale and characteristics of the company, that prevents the company, executives, and employees from engaging in illegal conduct, and promptly addresses situations where issues have occurred (e.g. a whistle-blowing system).

3. Product safety, QCD and technology innovation

(1) Comply with the laws and regulations concerning product safety and deliver products and services which will offer safety and peace of mind to customers.

(2) In addition to maintaining the quality and cost competitiveness of products and services which your company delivers to customers, stand by the agreed upon date of delivery and supply your products in a stable manner.

(3) Establish a quality management system and make efforts to maintain and improve it.

(4) Constantly engage in technology development and provide innovative, safe and environmental-friendly products and services.

4. Considerations for the environment

(1) Continue efforts to reduce environmental impact resulting from business operations.

(2) Appropriately manage chemical substances contained in products.

(3) Build up environmental management systems such as the ISO14000 series and "Eco Stage."

5. Measures to respect human rights, appropriate labor conditions and occupational safety and health

(1) Respect human rights including the rights to freedom of association and collective bargaining.

(2) Never get involved, directly or indirectly, in any child or forced labor.

(3) Create a work environment where there is no discrimination or harassment in any aspect of employment.

(4) Respect the rights of workers, through payment of fair wages and proper working hours management.

(5) Establish a system for occupational labor health and safety, under the leadership of top management, and create a working environment where all employees can work safely and healthily.

(6) Establish fair and equitable human resource system, and pay attention to human resource development and employee education as well.

(7) Give consideration to improving communication between top management and employees.

6. Fair business practices

(1) Comply with all related laws and regulations and engage in free and fair competition and business transactions.

(2) Respect intellectual properties of other parties and work to prevent infringement thereof.

(3) Never accept inappropriate cash, gifts or other favors from any civil servant or stakeholder (customer or business partner) either domestically or internationally.<

(4) Carry out proper foreign trade transactions (goods and technologies) while complying with the related laws and regulations.

(5) Never have any relationship with antisocial forces or groups.

7. Social contributions and co-existence with the local community

(1) Engage in social contribution activities based on your company's management principle(s) and support employees' volunteer activities.

(2) Place importance on co-existence with local communities which is the foundation of your business, and proactively support the growth of local communities.

8. Spread of the guidelines throughout the entire supply chain

(1) Encourage business partners of the company to observe the items stipulated in the guidelines. Make efforts to encourage the spread of these guidelines into the entire supply chain.

  • These guidelines will be revised as needed.
komatsu csr, Procurement Division, 総務部

Support for Member Companies of the Komatsu Midori-kai(Environment)

3. Green procurement guidelines

The Green Procurement Guidelines are a compilation of content supplements to the environment-related issues included in the CSR Procurement Guidelines. Komatsu established the Komatsu Earth and Environment Policy in 1992 and declared that they would engage in environmentally conscious business activities to realize a sustainable society.

By using these guidelines, we preferentially promote environmentally-conscious procurement, of the raw materials and procured components/parts, which are important elements in our production. It also prompts business partners to engage in their own environmental management and environmental impact reduction activities.

In relation to these guidelines, we have also conducted the following surveys in our supply chain.

(1) Conflict minerals (U.S. Dodd-Frank Act)

In line with our corporate social responsibilities, Komatsu does not condone the use of conflict materials, such as tin, tantalum, tungsten, and gold (3TG), produced by the Democratic Republic of Congo or its neighbors. We have informed our business partners of this policy within the Komatsu Green Procurement Guidelines. Working hand-in-hand with suppliers, we conducted a survey on the content rate of conflict minerals and country of origin (refiner) for each part using the template (JAPIA sheet) of the Japan Auto Parts Industries Association (JAPIA) from 2011 to 2014. We found that some electronic parts and lamp electrodes contained tantalum and tungsten, and solder materials for radiators contained tin. However, the weight of the subject minerals in the relevant parts was very low, and it was determined that no conflict minerals were used. Since this survey, we have continued to refine our CSR SAQ and human rights due diligence surveys to include questions to investigate essential 3TG and similar items in some of our products and confirm no conflict minerals have been used. These inquiries are based on the Responsible Mineral Assurance Process (RMAP). We will continue to investigate these important CSR matters in accordance with the RMAP. In the unlikely event the use of conflict minerals is discovered at our company or any of our business partners, we will work to promptly switch to products procured from smelters certified by RMI.

(2) REACH regulation

The REACH regulation governs the registration, evaluation, authorization and restriction of chemical substances in the EU. Companies that manufacture target chemical substances in the EU or export finished products containing target chemical substances to the EU must comply with this regulation and apply for registration and authorization when the annual use of target chemical substances exceeds certain standards. Substances subject to the regulation, especially those of Very High Concern (SVHC), are additionally designated annually. As with conflict minerals, Komatsu surveys the content of the regulated substances in each component using JAPIA sheets for its business partners and reports the results to the EU authorities. Furthermore, Komatsu is working with its business partners to reduce the use of SVHCs and switch to alternative substances that have been verified as safe.

komatsu csr, env, Procurement Division

Component Category and Procurement Policy

4. Component category and procurement policy

Komatsu's general production policy is to manufacture products directly within the area of demand. We have 48 of our 60 plants related to construction or mining equipment overseas.
Concerning components, parts, materials and other items, we are promoting local procurement proactively based on production and procurement policies that we set in accordance with the characteristics of each. Above all, for Components B and C listed below, we are expanding cross sourcing between regions to respond flexibly to changes in the international trade environment such as exchange rate fluctuations, FTA and EPA, and import/export regulations aiming for globally optimal procurement.

Policy on Production and Procurement of Components and Parts for Construction and Mining Machinery

The breakdown of procurement in monetary terms in the construction and mining equipment business of the Komatsu Group in FY2022 is shown below.

Components Types by Percentage of Procurement in Monetary Terms

Components Types by Percentage of Procurement in Monetary Terms

Origin of components by Percentage of Procurement in Monetary Terms

Origin of components by Percentage of Procurement in Monetary Terms
komatsu csr, Procurement Division, 総務部

5. The Komatsu Midori-kai & supply chain

In the construction and mining equipment business, Komatsu has agreements with approx. 2,700 business partners (primary suppliers) all over the world. From amongst them, we have established the Komatsu Midori-kai which consists of particular business partners who are deemed especially important or critical for the Komatsu Group. The members are selected through evaluation from the viewpoint of management culture including the management philosophy of top management, SLQDC* performance including development and proposal capabilities in business transactions with Komatsu, the level of importance of the supplied items in light of our procurement strategies and technologies, the track record and the size of business transactions with Komatsu, and other elements. At present, the Komatsu Midori-kai operates in five regions -- Japan, China, Thailand, North America and Europe. Procurement from members of the Komatsu Midori-kai account for approx. 73% of total procurement in monetary terms. The Komatsu Midori-kai in each region collaborates with Komatsu's manufacturing plants in promoting activities that take advantage of characteristics of the region. It also holds regular meetings to promote understanding of Komatsu's businesses and activate communication between Komatsu's executives and top management of member companies. Many overseas member companies, as well as those in Japan, participate in the general meeting, which is held in November every year. At this meeting, executives of Komatsu give business briefings, and explain our global procurement policy and priority activities. In Japan and China, as a measure to support the improvement of member companies' competitiveness, the Komatsu Midori-kai divides its members into some groups (subcommittees) based on the items they supply, and promotes improvement activities in cooperation with Komatsu by selecting common themes such as safety, the environment and cutting-edge production technology. Information about actual improvements that have been made is shared by companies in the same group to promote the horizontal spread of information.

  • SLQDC: abbreviation for Safety, compliance with the Law, Quality, Delivery and Cost
General meeting of Midori-kai (Japan)
General meeting of Midori-kai (Japan)
タイみどり会発足式典
Inaugural ceremony of Midori-kai in Thailand

Detail of critical suppliers 

  1. Business partners who manufacture goods based on drawings and/or specifications from Komatsu (mostly medium and small enterprises)
  2. Business partners who manufacture goods based on their own drawings and/or specifications (mostly major companies)
komatsu csr, Procurement Division