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 39% of our total procurement spend. Asia accounts for the large majority of the remaining 61%.

Our procurement spend for direct materials (production materials and outsourced manufacturing) for about 63% and indirect materials (including factory consumables, machinery, public relations expenses, logistics expenses, and staffing) for 37%. Epson has business with1700 direct material suppliers and mainly in Asia where our main manufacturing site located, and about an half of indirect materials spend 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.

The SAQ is based on site audit standards of the Responsible Business Alliance (RBA). Major direct material suppliers (those representing 80% of the Group-wide spend and selected by a business unit), on-site service vendors, and HR agencies are required to complete an SAQ as Epson critical suppliers. Suppliers deemed high risk based on their SAQ scores are asked to undergo an RBA VAP audit under the RBA’s Validated Audit Program to foster improvement. Epson evaluates supply chain CSR annually.

Risk Rank by SAQ

Results of Detailed CSR Evaluation

In 2019, we evaluated direct material suppliers as well as on-site service vendors and HR agencies at major production sites. We asked 233 critical Tier 1 direct material suppliers to complete the SAQ. We received completed questionnaires from 222 of them (391 facilities). We also asked Tier 2 suppliers to complete the SAQ when the Tier 1 supplier was a trading company.

For critical Tier 1 direct material suppliers that were deemed to be high risk, we verified the facts on-site (including third party CSR audit) and supported corrective actions to help them improve to medium risk or better. As a result of these actions, the average score of suppliers who fell into the high-risk rank on the 2018 SAQ improved by 24 points on the 2019 SAQ to attain middle risk or better.

We asked on-site service vendors and HR agencies at 10 key production sites to complete an SAQ and received completed SAQs from 124 of them. Service vendors are essential business partners for running our production operations, so Epson requires them to understand and follow the RBA code requirements.

Epson provides suppliers and vendors with their SAQ score and with feedback, including advice for corrective actions.

SAQ Evaluation Results (Direct material suppliers)

^*1 2018 SAQ includes 29 of HR agents and on-site service providers.

Audit and Corrective Action

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

Audit

On-site Verification and Support for Corrective Action

For suppliers that are not asked to receive 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. In 2019, we conducted two third party audit including one follow up audit to verify supplier condition which were received third party audit in 2017, and 323 on site verification.

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 are consisted of the five function, which are 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 remedy issues as needed.

^*2 In FY2017, as a special action, self-assessment was conducted by Tier 1 and critical Tier 2 suppliers.
^*3 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.

^*4 In FY2017, as a special action, self-assessment was conducted by Tier 1 and critical Tier 2 suppliers.
^*5 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

Epson is a member of the following organizations that promote sustainable procurement through industry cooperation:

• Responsible Business Alliance (RBA)

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