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. 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.
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.
・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, including monitoring of organization for compliance | Audit on Environmental Management, including acquisition and renewal of EMS certification | Compliance Risk (CR) Audit(*3) | Assessing how much damage is caused by a disaster, etc. and whether supply can be continued | |||
| Frequency | As needed | Annually/ Quarterly/Monthly | Annually | Once every six months | Annually | Annually | 2-year cycle | As needed | ||
| Method | ・Lecture & Q&A ・Discussion ・Group activity |
・Written survey | ・Monthly & Annual performing data ・Management interview |
・Written survey ・Management interview ・On-site audit |
・Written survey ・On-site audit |
・Written survey ・On-site audit |
・Written survey ・On-site audit ・Check documented evidence |
telephone/e-mail check through supply chain management system | ||
| 1 | Total Tier 1 suppliers | - | 〇 | - | - | 〇 | - | - | 〇(*5) | |
| 2 | Critical suppliers | Level 3 | 〇 | 〇 | - | - | 〇 | 〇(a) | - | 〇(*5) |
| 3 | Level 2 | 〇 | 〇Quarterly | 〇(*4) | 〇 | 〇 | 〇(a,b) | - | 〇(*5) | |
| 4 | Level 1 | 〇 | 〇Monthly | 〇 | 〇 | 〇 | 〇(a,b) | 〇 | 〇(*5) | |
*1: In the case of a listed company, financial reports are reviewed alternatively.
*2: Safety, compliance with the Law, Quality, Delivery and Cost
*3: Finance and accounting, labor management, procurement (the Subcontract Act) and information security
*4: Custom goods suppliers only
*5: Plants located in Japan only
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 will link the Komatsu supply chain management system with the hazard maps released by the Ministry of Land, Infrastructure, Transport and Tourism to understand potential risks in advance.
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 Komatsu employees, 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, this survey complements the items Komatsu considers to be important. Initially, the survey will target 156 Midori-kai member companies and then its scope will expand in sequence while following up with our business partners who we wish would raise 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.
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
