1. Promotion system and human resource development in procurement departments

Komatsu employs a centralized procurement system where the Procurement Division deals with almost all the components and materials used in multiple plants in Japan. For overseas production, A- and B-category components as specified in the component categories described above are dealt with by the Procurement Division, and the C components are dealt with by the procurement departments of overseas subsidiaries. In addition, we have established an overseas procurement center within each site in the U.S., Europe, China, and Asia to ensure the penetration of the policies of the Procurement Division and ensure the consistency of the procurement activities of each overseas subsidiary. We are also using this system for global supply chain management and the promotion of CSR procurement. Furthermore, we hold meetings to exchange information with the procurement departments of production-related group companies on a regular basis to respond to common issues on a group-wide basis.

The development of the procurement staff who will be responsible for CSR procurement is also an important issue. We have compiled basic matters that purchasing departments must not forget in promoting global procurement - in particular, the basic philosophy and code of conduct that should be kept in mind when working with business partners -- in the KOMATSU Way (Procurement). In addition, we have been facing significant changes in laws and regulations of Japan and other countries on business transactions, employment and labor, environmental protection, export control and other matters. Responsible persons from the procurement department are required to understand these trends and reflect them appropriately in their daily procurement activities. In 2023, Komatsu conducted compliance refresher training and human rights education for a total of 538 managers and other employees in the procurement division. This training aimed to update their understanding of CSR procurement and share the importance of further raising awareness across the entire division. Going forward, Komatsu continues to ensure thorough understanding through group training and e-learning tailored to each job class, from new employees to managers.

2. Partnership declaration

The Partnership Declaration is our voluntary code of conduct and states that a large company, or parent enterprise, shall partner and cooperate with small and medium companies with the aim of facilitating their coexistence and coprosperity and shall, in fair dealing with the small and medium companies, enhance the added value of the supply chain overall.
Komatsu announced the declaration in August 2020, expressing its support for the activities implemented by the Cabinet Office, the Small and Medium Enterprise Agency and different economic organizations.
Komatsu complies with the rules and regulations stated in the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors and in the promotional standards of the Act on the Promotion of Subcontracting Small and Medium-sized Enterprises. Moreover, Komatsu will continue to help its business partners to become organizationally stronger by providing support for their efforts to enhance productivity and streamline work with the use of ICT and by providing training programs. 

In July 2022, the basic principles (Article 3) of the Act on the Promotion of Subcontracting Small and Medium-sized Enterprises were revised. In response, Komatsu issued a letter to all domestic Tier-1 suppliers, including sub-materials suppliers, encouraging them to reflect fluctuating raw material, energy, and labor costs in product prices. We are actively promoting the optimization of purchasing prices. In 2023, we held price negotiations with 1,246 companies and proactively implemented necessary price adjustments. We will continue to hold price negotiations with our suppliers at least once a year from 2024 onwards.

In January 2023, we launched the "Supplier Portal (KOMATSU Global portal)," a website for sharing information with our business partners. This site allows both our employees and business partners to share daily order and production data, and utilize tools that facilitate data processing and analysis. By using this portal, it is possible to detect fluctuations in production and orders, and anticipate the demand for intermittent production parts. Additionally, it enables the monitoring of management indicators such as delivery date achievement rates and defect rates. As of May 2024, approximately 1,100 companies are using the website. Moving forward, we will continue to enhance the portal's functionality and expand its content, striving to strengthen information sharing.

3． Komatsu's whistleblowing system for suppliers

At Komatsu, we launched a whistleblowing system for suppliers in March 2017 to accept whistleblowing reports from suppliers on acts in procurement activities of the Komatsu Group which are violating or alleged to be violating laws and regulations. Matters reported via dedicated contacts, which we set up inside and outside the company, are handled by a department in a neutral position. This department investigates and verifies facts to take corrective measures promptly. We have pledged to ensure that business partners who submit whistleblower reports do not receive disadvantageous treatment because the report has been made.

• Komatsu's whistleblowing system for suppliers(171KB)

Changes in reported cases

4. Risk Assessment in the supply chain

Procurement from business partners accounts for a substantial percentage of our production costs, reaching nearly 90% for medium-sized hydraulic shovels, a typical piece of construction machinery. Therefore, for the stable continuation of our business activities, it is essential to identify and respond to risks in our supply chain at an early stage. There are a wide range of risks in the supply chain, including the management of business partners, their SLQDC status, natural disasters, pandemics, international trade conflicts, and import/export regulations. Komatsu visualizes risks through regular risk assessments that we conduct, particularly for critical suppliers, and we are carrying out activities to mitigate those risks. In the construction machinery industry, the market has been in a downturn since the second half of 2023. Komatsu monitors the load status of Midori-kai companies in Japan on a monthly basis, closely observing the impact on each company's management and providing necessary support. Starting in 2024, the overtime work limit regulations will also apply to the transportation industry, raising concerns about a nationwide shortage of transportation capacity. In 2020, Komatsu announced its declaration of voluntary action to improve logistics based on mutual understanding and cooperation with suppliers and logistics companies, and joined the "White Logistics" promotion campaign by the Ministry of Land, Infrastructure, Transport and Tourism. We are continuously working towards sustainable logistics by reducing long-distance transportation through the use of modal shifts, optimizing loading and unloading area layouts to reduce driver working hours, and striving to set appropriate freight rates.

To respond to the increasingly frequent and diverse natural disasters in recent years, we have been operating a supply chain management system in Japan linked to disaster information from the Japan Meteorological Agency since 2012. This system aims to quickly assess the impact of natural disasters, such as earthquakes, tsunamis, and typhoons, on our business partners and our supply chain. We have built a database of locations and production details for over 20,000 sites managed by 7,662 business partners, including secondary and subsequent suppliers, thereby visualizing the risks of supply disruptions caused by disasters and enabling us to take prompt and targeted actions. During the Noto Peninsula earthquake on January 1, 2024, this system allowed us to quickly check the status of affected business partners and, where support was requested, dispatch building and equipment maintenance personnel from Komatsu to assist in rapid disaster recovery.
In 2019, our supply chain was greatly impacted by the flooding of rivers caused by Typhoon Hagibis (No. 19), which damaged multiple business partners. In light of this, we linked the Komatsu supply chain management system to the hazard maps released by the Ministry of Land, Infrastructure, Transport and Tourism to understand in advance the potential location-related risks faced by our business partners. We have taken measures for our business partners with location-related risks; for example, backing up to store welding and processing programs and important production data (BOM, tooling lists, production drawings, jig and tool drawings, etc.), and building up safety stock and securing alternative suppliers in response to the BCP status of each company. In addition, since 2020, the global supply chain has been severely disrupted due to the shortage of semiconductors in a wide range of industries, COVID-19 lockdown, US-China decoupling and disruptions in international logistics. Moreover, the reduction in model changeover periods in automobiles and home appliances has increased the risk of sudden production discontinuation of construction machinery parts, especially electrical and electronic parts. We have addressed these emerging risks by strengthening inventory management including at the distribution stage, promoting replacement with stably available general-purpose semiconductors and parts, expanding the scope of pre-orders and forecasts for critical parts, and accumulating inventory. We are expanding our Asian Procurement Center to further increase local procurement in ASEAN member countries and South Asia in Spring 2023. We are also promoting multi-sourcing policy, even in cross-sourcing activity (placing concurrent orders with suppliers in multiple regions), to reduce the risk of over-reliance on procurement from a specific region.

Information security measures in the supply chain are also an urgent issue. In 2021, Komatsu established information security guidelines for business partners to clarify the standards we require of our suppliers. We also provided e-learning education to 156 Midori-kai companies in Japan. We are strengthening security measures throughout the supply chain by asking suppliers to conduct security surveys using self-check sheets and following up on any supplier issues that are identified during this exercise.

5. Awareness building activities to ensure the penetration of CSR into the supply chain

To raise our business partners' awareness of Komatsu's CSR procurement guidelines, we are carrying out awareness building activities around Compliance and BCP at the Komatsu Midori-kai meetings and monthly business meeting held in each office. In addition, "CSR Report" issued for Midori-kai member companies shares CSR-related "Everybody's Compliance" articles which are published for the employees of the Komatsu Group, and information regarding the revision of related laws and regulations in Japan and other countries.
To ensure the further penetration of CSR in the supply chain, in FY2021, we conducted an SAQ survey on CSR activities using the standard survey tool released by the Global Compact Network Japan (GCNJ), of which Komatsu is a participant. The survey was designed to gather data from 156 Midori-kai companies. To date, 153 companies have submitted their responses. From this data, we can confirm that 95% of the respondent companies are aware of our CSR procurement guidelines.
Moreover, in FY2022, as part of our human rights due diligence, we conducted a human rights risk survey across a total of 292 Midori-kai companies in Japan and overseas. Based on the UN Guiding Principles on Business and Human Rights and other international norms, we collected responses on a dedicated website regarding the status of human rights initiatives in 11 categories, including human rights management, occupational safety and health, and working conditions. To ensure objectivity, the entire survey process from question formulation to results analysis was conducted and overseen by outside experts. We then translated the survey results into various languages and issued a report to each company to provide them with personalized feedback on issues and responses. Based on the results of this survey, we will provide individual follow-up support to business partners that need to increase their awareness of CSR and human rights issues.
In FY 2023, we visited five companies in the domestic Midori-kai and conducted interviews and discussions with external experts to develop human rights guidelines for our business partners. Based on the feedback from each company, we will incorporate their opinions into the guidelines.