Supply Chain CSR

Supply Chain Initiatives

Supply Chain Overview

Epson considers suppliers to be important partners in its business activities. As such, our procurement activities are designed to develop mutually beneficial trusting relationships with our business partners based on fairness, transparency, and respect.

Epson procures goods and services from all over the world. Domestic Japanese procurement accounts for about 42% of our total procurement spend. Asia accounts for the large majority of the remaining 58%.

Our procurement spend for direct materials (production materials and outsourced manufacturing) accounts for about 66% and indirect materials (including factory consumables, machinery, public relations, logistics, and staffing) for about 34%. Epson has business with 1,700 direct material suppliers mainly in Asia where our main manufacturing sites are located, and about half of our indirect materials spend is in Japan.

Procurement Over View

Supplier Evaluation Program

Epson evaluates all suppliers, both direct materials suppliers and indirect materials suppliers. Suppliers are evaluated from multiple angles on the basis of a supplier evaluation program. The program consists primarily of an indirect evaluation and a direct evaluation (periodic evaluation). The indirect evaluation is based on information from a credit investigation service. The direct evaluation is a self-check that suppliers do to evaluate their own QCD and other performance metrics.

See here for more information about Green Purchasing.

Socially Responsible Procurement Program

Direct Evaluation (Annual Evaluation)

Direct Evaluation Results

Detailed CSR Evaluation (SAQ)

Epson evaluates supplier compliance with the Epson Supplier Code of Conduct (RBA Code of Conduct) based on a detailed self-assessment questionnaire (SAQ). We work with suppliers to make improvements as appropriate depending on their score and the gravity of noncompliance incidents.

Each supplier chooses and answers an SAQ from either RBA online or an SAQ prepared by Epson that is based on the site audit standards of the Responsible Business Alliance (RBA). The Epson SAQ is designed to thoroughly check labor conditions (respect for human rights) and has many questions in the labor section.

As a regular member of the RBA, Epson asks major suppliers (direct material suppliers, on-site service vendors, and HR agents) to complete an SAQ every year.
High-risk direct material suppliers are audited in accordance with RBA standards and asked to take corrective action as needed.

Risk Rank by SAQ

In FY2020, we conducted a detailed CSR evaluation of major direct materials suppliers, on-site service vendors and HR agents at major manufacturing sites.

Scope of SAQ (2020-2021)
1) Major direct suppliers
-80% of the Group-wide spend
-Selected by a business unit, including single source suppliers
2) On-site service vendors
-Vendors on Seiko Epson and production sites. Regardless of the value of transactions and number of workers.
3) HR agencies
- Recruitment agency and HR contractor used by Seiko Epson and production sites. Regardless of the value of transactions and number of workers.

Results of Detailed CSR Evaluation

SAQ Evaluation Results (Direct material suppliers)

In 2020, we asked 297 critical Tier 1 direct material suppliers to complete the SAQ. We received completed questionnaires from 293 of them (497 facilities). We also asked Tier 2 suppliers to complete the SAQ when the Tier 1 supplier was a trading company.

Epson provides suppliers and vendors with their SAQ score as well as with feedback, including advice on corrective actions. We monitor the progress of critical corrective action items.

Example of SAQ answer (FY2020)

• Priority: Using child labor (0%, 0 site)
• Priority: Using slavery labor or forced labor (0%, 0 site)
• Worked for 7 consecutive days or more (9%, 40 sites)
• Working hours exceed 60 hours a week (21%, 91 sites)
• Delayed payment of wages (0%, 0 site)
• Evacuation drills were not conducted once a year (1%, 3 sites)
• Suitable PPE was not provided free of charge (0%, 1 site)
• Safety measures for pregnant and nursing mothers were insufficient (10%, 44 sites)
• Clean accommodation for nursing mothers was not provided (14%, 61 sites)

*We ask suppliers who have problems and/or issues to take corrective actions.

SAQ Evaluation Result of HR Agency and On-site Service Vendor

We asked on-site service vendors and HR agencies at Seiko Epson facilities and key production sites to complete an SAQ. We received completed SAQs from 235 of them (100%) in FY2020. Service vendors are essential business partners for running our production operations, so Epson requires them to understand and follow the RBA code requirements.

Audit and corrective action support

Epson supports the corrective action efforts of high-risk and medium-risk suppliers.

Third-party audits

Second party audits, on-site verification, and support for corrective action

For suppliers that are not asked to undergo a third-party audit, Epson manufacturing company staff members visit their sites to verify conditions on-site and help them improve. Through these activities, we not only help them address CSR issues but also support them when they struggle in other areas, such as in introducing fire prevention measures or establishing business continuity plans.
For on-site service vendors, Epson employees conducted a second-party audit to improve the working conditions by, for example, reducing working hours, granting time off, paying appropriate overtime, and ensuring that workers are not made to pay hiring fees.

Evaluation of Emergency Response Capabilities

Epson is working to improve its ability to effectively respond to threats and to ensure business continuity. When a natural disaster or other unforeseen event strikes an Epson production site, the first thing we do after securing the safety of personnel is to act to restore the supply of products to our customers. It is essential for the entire supply chain to be able to effectively respond to emergencies so that we can fulfill our responsibility to customers by restoring the supply of goods within the target period if the supply should be interrupted by a disaster, accident, or epidemic. Epson therefore evaluates the emergency response capabilities of suppliers every year and helps them remedy issues as needed.

See here for more information about Epson's business continuity management.

Supply Chain Business Continuity Management

To help manage business continuity and improve resilience throughout the supply chain, Epson operates in line with supply chain BCM guidelines. These guidelines consist of five functions: supplier, production, sales, logistics, and procurement.

Epson is working with suppliers to ensure that they establish their own BCM systems so that the supply of parts to Epson is not disrupted. We ask Tier 1 suppliers to evaluate their own BCM capabilities every year, provide feedback, and help them resolve issues as needed.

^*1 In FY2019, self- assessment was conducted by direct material suppliers, but, some of them have not answered due to the novel coronavirus pandemic.

Safety Management Evaluation

Epson also conducts an annual safety management evaluation to evaluate the ability of suppliers to respond in the event of a fire or other emergency. After suppliers conduct a self-assessment covering things such as electrical hazards, hazardous materials, and fire prevention, members of Epson's safety management staff verify their answers on-site and discuss corrective actions.

^*2 In FY2019, self- assessment was conducted by direct material suppliers, but, some of them have not answered due to the novel coronavirus pandemic.

Supply Chain Environmental Initiatives

GHG Emissions Targets

Epson has set greenhouse gas (GHG) emissions targets in line with an approach championed by the Science Based Targets initiative (SBTi). The SBTi has validated Epson's 2025 targets for scopes 1, 2, and 3 GHG emissions measured in accordance with the GHG Protocol. Epson's validated target for scope 3 emissions, which are emissions from an organization's value chain, is to reduce GHG emissions as a percentage of business profit out to 2025.

Response to Climate Risk

There is a shared global awareness that climate change poses serious and urgent business risks that must be addressed. Epson has suppliers across Asia, including in Thailand, where severe floods are a regular occurrence, and in China, where there is high potential water risk. Epson recognizes that interrupted or delayed deliveries from suppliers due to floods and droughts, two typical climate risks, could seriously impact the manufacture and sale of Epson products and need to be addressed to avoid inconveniencing customers.

Supplier Support Initiative

Under its supplier engagement program, Epson asks suppliers to complete a self-assessment questionnaire (SAQ). Suppliers are sorted by risk level based on their SAQ score and given feedback on the results. Epson helps high-risk suppliers improve through on-site verification and audits. Moreover, to encourage the pursuit of environmental sustainability, Epson selects the suppliers who account for 80% of the value of Epson's procurement spending and, in conjunction with a detailed CSR evaluation, asks them to report the amount of water and the amount of electricity, gas, and other sources of CO2 emissions actually consumed for parts they sell to Epson. Epson shares this data with its suppliers and engages them to help drive production line improvements that reduce the amount of electricity and water used and improvements that will reduce the environmental impact of transport.

See here for more information about Epson's environment initiatives.

Partnerships with External Organizations

In addition to our own initiatives, Epson supports and actively participates in alliance activities in order to resolve CSR issues, including human rights issues in the supply chain. We have joined the RBA and JEITA to work on solving social issues around the world and improving supply chain CSR through industry collaboration.

【Domestic Japanese industry initiative】

The Japan Electronics and Information Technology Industries Association (JEITA), CSR Committee

Example activities:
Issuing and promoting the Responsible Business Conduct Guideline
Study of human rights due diligence and grievance mechanisms
Study of the global regulatory situation