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Theme 3 : Growing with Society

Outline of Procurement Policy and Supply Chain

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 (Safety, compliance with the Law, Quality, Delivery and Cost) perspective.
In addition, 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 our code of conduct and the KOMATSU Way. We have released the guidelines on our website so that they are known and we also work to ensure the guidelines penetrate into our daily procurement operations.
In order to decide whether or not to begin transactions with a new business partner, we use a check sheet to evaluate the company not only in terms of basic SLQDC items but also from the viewpoints of environmental protection, employee training and others. In the basic transaction agreement that we conclude before beginning transactions, we include articles on compliance, environmental protection activities, elimination of anti-social forces and other elements, thereby encouraging the business partner to promote CSR activities. In addition, in the annual evaluation of Midori-kai member companies to be described later, we evaluate them in terms of the business attitudes of their top management and their systems for promoting activities in areas such as safety and health, environmental protection and human resource development, in addition to their full-year QDC performance. We provide feedback on the results of the evaluation to business partners to help them make improvements.

komatsu csr, Procurement Division

Component Category and Procurement Policy

2. Component Category and Procurement Policy

Komatsu's general production policy is to manufacture products directly within the area of demand. We have 71 of our 85 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, aiming for globally optimal procurement.

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

Category Definition Production and procurement policy Examples of parts
Components A Key components for differentiation that determine product quality and functions Permanent development and production in Japan (supply from Japan to the world) Engines, transmissions, axles, hydraulic equipment, and electronic equipment
Components B Components that we need to purchase intensively from certified suppliers from the viewpoints of functions, quality, and investment Optimal procurement from 2 or 3 regions in the world Floor parts of cabin, cooling parts, undercarriage parts, cylinders, high-pressure hoses, tires, rims, and operator's seats
Components C Parts with relatively low levels of technological difficulty, which should desirably be produced or procured close to the assembly plant Local procurement Thick/ thin sheet-metal parts, machined parts, and cast and wrought products as materials

The breakdown of procurement in monetary terms in the construction and mining equipment business of the Komatsu Group in FY2019 is shown below.

Components Types by Percentage of Procurement in Monetary Terms

Origin of components by Percentage of Procurement in Monetary Terms

komatsu csr, Procurement Division

3. The Komatsu Midori-kai Supply Chain

General meeting of Midori-kai (Japan)
General meeting of Midori-kai (Japan)

In the construction and mining equipment business, Komatsu has agreements with approx. 2,700 business partners (primary suppliers) all over the world. From amongest 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 four regions -- Japan, China, North America and Europe (there are also plans to establish it in Thailand in FY2020). Procurement from members of the Komatsu Midori-kai account for approx. 76% 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 assembly of Midori-kai in North America
General assembly of Midori-kai in North America
Lecture by President of Procurement Division of Midori-kai in North America
Lecture by President of Procurement Division of Midori-kai in North America

 

Detail of Critical Suppliers

Region Number of companies
Total Sub-contracted*1 Proprietary parts*2
Invested by Komatsu Highly depend on business w/t Komatsu Invested by Komatsu Highly depend on business w/t Komatsu Big enterprise Trading firm, Material
Midori-kai member companies Japan 156 7 86 2 7 43 11
China 59 2 33 1 4 14 5
USA 44 1 15   1 19 8
EU 39   6     30 3
Non-members of Midori-kai Japan 1 1          
USA 2           2
Thailand 31   18 1   10 2
Indonesia 4 1 1       2
India 12   11       1
Vietnam 3   2   1    
Philippines 1         1  
Total 352 12 172 4 13 117 33

*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)

Classification of Critical Suppliers

Categories Number and Percentage of Total (The numbers of higher-level companies are included in those of lower-level ones.) Percentage of procurement in monetary terms
1 All Tier 1 suppliers 2,666 100% 100%
2 Critical
suppliers
Level 3 318 13% 77%
3 Level 2 201 8% 67%
4 Level 1 16 1% 8%

The level of critical suppliers is determined by the degree of Komatsu's involvement in each.
Level 1: Companies in which Komatsu or the Komatsu Group companies have invested
Level 2: Companies in which Komatsu or the Komatsu Group companies have not invested but which are highly dependent on business transactions with Komatsu
Level 3: All critical suppliers

komatsu csr, Procurement Division