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Theme 3 : Growing with Society

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 Way procurement
KOMATSU Way procurement

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. At Komatsu, we strive to inform all employees of the trends by providing group training and e-learning designed for each one of the job classes, from new employees to managers.

komatsu csr, Procurement Division, 総務部

2. Partnership Declaration

Logo of Partnership Declaration
Logo of 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.

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

3. 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, 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 FY2020, no serious violation of labor-related laws or of environment laws or regulations was reported by critical suppliers.

 ・List of risk assessments conducted regarding suppliers

Scope Methods of supply chain risk assessment (〇: Subject of the assessment)
General Management CSR BCP
Two-way Communication through Midori-kai activities Periodic monitoring on Management & Financial status (*1) Evaluation on SLQDC(*2) Performance & Capability Monitoring of level on Safety activities CSR SAQ survey Audit on Environmental Management(a), including acquisition of EMS certification(b) Compliance Risk (CR) Audit on important process(*3) Check the damage & ability of supply in case of occurrence of natural disasters Check risk of plant location against flood, heavy rain, etc
Frequency of check As needed Annually/ Quarterly/Monthly Annually Once every 6 months Annually Annually Once every 2 years As needed Once every 3 years
Method ・Lecture & Q&A
・Group activity
・Written survey ・Monthly & Annual performing data
・Management interview
・Written survey
・Manage-ment interview
・Site visit
・Written survey
・On-site audit
・Written survey
・On-site audit
・Written survey
・Site visit
・Check documented evidence
telephone/e-mail check through supply chain management system ・check with hazard map issued by MLIT
・confirm the status of BCP against risks
1 Total of Tier 1 suppliers - - - - - 〇(*5) 〇(*5)
2 Critical suppliers Level 3 - - 〇(a) - 〇(*5) 〇(*5)
3 Level 2 〇Quarterly 〇(*4) 〇(a,b) - 〇(*5) 〇(*5)
4 Level 1 〇Monthly 〇(a,b) 〇(*5) 〇(*5)

*1: In case of listed company on stock exchange, use published financial statement as a substitute.
*2: S(Safety), L(Compliance), Q(Quality), D(Delivery), C(Cost)
*3: Accounting, Human Resource Control, Purchasing, IT Security
*4: Sub-contracted suppliers only
*5: only companies locating in Japan

Epicenter of the Northern Osaka Earthquake in June 2018 and the Cooperative Company Distribution Map

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 the potential location-related risks faced by our business partners. We take measures for our business partners with location-related risks, for example, increasing our safety stock or securing alternative suppliers, in accordance with how they handle their business continuity planning. In 2020, the COVID-19 pandemic, container shortages and other problems disrupted international logistics and significantly impacted our exporting and importing. We are also taking actions to address these emerging risks.

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

River flooding caused by Typhoon No. 19
River flooding caused by Typhoon Hagibis No. 19
Hazard map and disaster-stricken business partner (in the Chikuma-gawa river basin)
Hazard map and disaster-stricken business partner (in the Chikuma River basin)

komatsu csr, Procurement Division, 総務部

4. 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, the 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.
Starting from FY2020, to ensure the further penetration of CSR into the supply chain, we began an SAQ survey about CSR activities for our primary suppliers in Japan and other countries. Based on the standard survey tool released by the Global Compact Network Japan (GCNJ), in which Komatsu also participates, the survey involves the use of a form complementing the items Komatsu considers to be important. Business partners use the form to as a self-check of the degree to which they recognize CSR issues and the status of their actions. In FY2020, the survey was designed to gather responses from 156 Midori-kai member companies and 77 have submitted their responses to date. To increase survey participation, we will continue to explain the goals of the survey to the companies and provide follow-up support to our business partners who we wish would increase their awareness of CSR issues.

In line with our corporate social responsibilities, Komatsu does not condone the use of conflict materials produced by the Democratic Republic of Congo (DRC), or its neighbors (Angola, Republic of Burundi, Central African Republic, Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia). We have informed our business partners of this policy through the Komatsu Green Procurement Guidelines. Working hand-in-hand with suppliers, we conducted a country-of-origin survey to determine the location of origin of our materials and to ensure that none of them are sourced from areas of conflict. Moving forward, we will continue to take steps to enforce strict adherence to this policy, which will serve to restrict funding for military groups situated in such areas. Any conflict materials discovered to be within our supply chain will be immediately discontinued from use.

komatsu csr, Procurement Division

Komatsu's Whistleblowing System for Suppliers

5. 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 vowed to ensure that business partners who have reported will not receive any disadvantageous treatment.

Changes in reported cases

komatsu csr, Procurement Division