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Komatsu group's supply chain management and promotion of CSR procurement

Komatsu Group's Supply Chain Management and Promotion of CSR Procurement

Komatsu group's supply chain management and promotion of CSR procurement

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.

Categories for the division of roles for procurement departments
Categories for the division of roles for procurement departments
Meetings for the exchange of information with group companies
Meetings for the exchange of information with group companies
komatsu csr, Procurement Division, 総務部

2. Partnership declaration

Please access the following website to read the Partnership Declaration.

env, corporate communication, 情報戦略本部, DFF Inc., production division, Procurement Division, 総務部

Komatsu's Whistleblowing System for Suppliers

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 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.

Changes in reported cases

Changes in reported cases
komatsu csr, Procurement Division

4. Risk Assessment in the supply chain

Procurement from business partners accounts for a substantial percentage of our production costs. It reaches nearly 90% in middle-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, pandemic, 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 reduce those risks. In the construction machinery industry, the recovery in demand in the aftermath of the COVID-19 pandemic has been evident in Japan and abroad since the third quarter of 2020, and the production sector continues to operate at high levels. Meanwhile, from April 2020, the overtime work limit regulations have been applied to small and medium-sized enterprises as part of the Work Style Reform in Japan. Komatsu monitors the load status of applicable Midori-kai companies in Japan on a monthly basis. Companies at risk of falling foul of the regulation are identified, and appropriate measures are implemented; for example, leveling production by reviewing production plans and supporting production at other companies. From 2024 onwards, the overtime work limit regulations will apply to the transportation industry as well. It is anticipated these regulations will lead to a nationwide shortage of drivers. In 2020, Komatsu announced its declaration of voluntary action to improve logistics based on mutual understanding and cooperation with suppliers and logistics companies. It also joined the "White Logistics" promotion campaign promoted by the Ministry of Land, Infrastructure, Transport and Tourism. We are working to achieve sustainable logistics by utilizing modal shifts to reduce long-distance transportation, optimizing the layout of loading and unloading areas to reduce driver work hours, and setting appropriate freight rates.

Examples of hearing survey of business partners' overtime status

To respond to natural disasters which recently have occurred frequently and become diversified, we have begun to operate a supply chain management system in Japan linked to disaster information from the Japan Meteorological Agency. This is aimed at quickly inspecting damage to our business partners and assessing the impact on our supply chain after a natural disaster, such as an earthquake, tsunami, or typhoon. We have built a database of locations and production items with over 20,000 sites managed by 7,662 business partners, including secondary and subsequent suppliers, thereby visualizing the risks of interruption in product supply that can be expected to be caused by a disaster. This enables us to take focused countermeasures promptly. In the event of a disaster, we first check the damage to our suppliers at high risk which have been assessed through the system. Where necessary, we dispatch security maintenance personnel to the companies to support their activities for the prompt recovery of production.
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.

Disaster recovery support (lending electric generators)
Disaster recovery support (lending electric generators)
Disaster recovery support(assisting the centering of working machines)
Disaster recovery support(assisting the centering of working machines)

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.

Implementation status of information security self-check

FY2021 FY2022
Number of companies implementing self-check sheets 156 156
Number of people engaging in e-learning 120 117
Number of companies subject to individual follow-up 12 14
komatsu csr, Procurement Division, 総務部

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.

Japan Midori-kai CSR SAQ self-evaluation results

Japan Midori-kai CSR SAQ Self-evaluation Results

Implementation status of human rights due diligence

Category Number of companies surveyed Responses received
Supplier Midori-kai
*excluding Europe
Japan 156 143 91.70%
Overseas Thailand 29 18 62.10%
North America 44 21 47.70%
China 63 31 49.20%
136 70 51.50%
292 213 72.90%

Question content

Survey items Number of questions
1 Human rights management Policy, monitoring, and communication 11
2 Grievance resolution Reporting and consultation system 4
3 Discrimination and inhumane treatment Inhumane treatment and discrimination 8
4 Child labor Child labor, young workers, and student workers 7
5 Forced labor Forced labor (e.g., retaining workers’ passports) 5
6 Employment and employment relationships Employment regulations, employment contracts, and personal data protection 7
7 Working conditions and social security Working hours, leave, breaks, maternity and childcare protections, benefits, wages, and retirement restrictions 21
8 Social dialogue Labor unions, collective bargaining, collective agreements, and labor disputes 10
9 Occupational health and safety Policies (guidelines, rules and regulations, and management procedures), risk assessments and responses, monitoring, communication, occupational accidents, etc. 29
10 Human resource development and training Education and training 2
11 Community impact Local communities and conflict minerals 2
komatsu csr, Procurement Division